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What “Brexit” means for employers and employees

“Brexit” is coming: In the referendum on 23 June 2016, 51.9 percent of Britons spoke out in favor of the withdrawal of the United Kingdom from the European Union (EU). Admittedly, the result of the referendum does not yet constitute a formal step towards withdrawal and there is speculation about whether the withdrawal proceedings pursuant to Article 50 of the Treaty on European Union (TEU) are going to be initiated in the short term or not. Regardless of that, a lot of companies would like to know what is in store for them. In the approx. 2,500 branches of German companies in Great Britain and in the approx. 3,000 British branches in the Federal Republic of Germany, for thousands of employees employment and immigration law regulations would change considerably. Will there additionally be a change in British labor law and the possibility to exchange data? What impacts will Brexit have on European works councils?

You will find a first overview of the impacts of a Brexit in respect to labor and employment law as follows.
Will “Brexit” mean the end of the freedom of movement of workers? One of the most important achievements of European unification is the freedom of movement of workers. It is one of the four basic freedoms of the EU and is anchored in Article 45 of the Treaty on the Functioning of the European Union (TFEU). According to the Treaty, every Union citizen has the option of taking up and performing work in every member state that under the same conditions as the citizens of that state. In the event of a “Brexit”, this privilege would be discontinued for both sides. A total of approx. 115,000 Britons live and work in Germany; approx. 262,000 Germans have settled in the United Kingdom. Considerable restrictions concerning the taking up of work could be imposed on them in future.
Restrictions in terms of cross-border employee deployment Employers would be considerably more restricted concerning the cross-border deployment of employees and would have to overcome formidable bureaucratic obstacles (e.g. applying for a work permit or (tedious) proof of precedence). Whether it actually will come to that, however, depends – in addition to the actual occurrence of “Brexit” – on whether Great Britain decides to conclude freedom of movement treaties with the individual EU states or whether an impervious visa system is implemented.
Expected job losses in the United Kingdom In any case, complete discontinuation of the freedom of movement of workers would impact considerably on multinational companies on both sides of the Channel. Recently, a study carried out by the Bertelsmann Foundation indicated the following: Of the companies questioned, in the case of a “Brexit”, 29 percent would either reduce their capacities in the United Kingdom or in any case relocate to an outside site. Job losses in the United Kingdom would be inevitable.
Possible options for future exchanges of employees Over and above these “threatening gestures”, the experts all seem to be preparing for three possible scenarios:

  • Option 1 – The “Norway” Scenario: The United Kingdom remains a member in the European Economic Area (EEA), in an existing economic treaty between the EU, Norway, Iceland and Liechtenstein. In this – for employers and employees alike – best-case scenario – most of the existing arrangements regarding freedom of movement in Europe would continue to apply.
  • Option 2 – The “Swiss” Scenario: There would be an individual-case solution between the United Kingdom and the EU, regulating the issue of freedom of movement in Europe. This would probably mean that the agreements would be less liberal than among EEA states and that as a consequence at the minimum this would result in bureaucratic obstacles concerning the cross-border deployment of employees.
  • Option 3 – The “Third Country” Scenario: In the third-country scenario, there would be no (short or medium-term) agreement between the United Kingdom and the EU. In this case, the United Kingdom would become a “third country”, i.e. British employees would be subject to the same restrictions as, for example, employees from the African or South American region.
    Employees who would like to work beyond the border would possibly have to apply for a (fixed-term) visa and in the course of this provide information on their intention to return and on their level of income. Highly-qualified British employees would not be able to move to and work in a different member state without further ado. They would have to apply for a “blue card” provided under EU law or to meet the requirements of staff postings within a group; much stricter rules apply than for EU citizens concerning both options. Less qualified employees and the self-employed would completely become subject to the strict national legal provisions concerning work in the EU.

Are companies who employ workers in the United Kingdom in store for labor law changes? Profound changes in British labor law in the short term probably are not to be expected. This is due, on the one hand, to the fact that large parts of British labor law (as also of German labor law) are not based on EU law but are subject purely to national legislation, for example, the right of termination or the laws concerning industrial action.

European provisions like the “transfer of business” directive, the data protection directive or the working time directive have long been a “thorn in the side” of many British employers. In our assessment, the motivation of employers’ associations to get rid of such mostly employee-friendly provisions that are viewed as a “run down relic” of the British EU era will be correspondingly big. Without EU membership, these laws could be changed in future without the consent of the other member states.
On the other hand, should the government in future lower employee protection standards, considerable resistance on the part of the trade unions and the employee representatives will likely be encountered. In addition, a lot of the laws based on EU law have found their way into British employment agreements and corporate policies, for example provisions on maternity protection, leave and data privacy protection. In our assessment, depriving employees of these acquired rights will be a considerable challenge. Their detailed implementation by British legislation remains to be seen.

Will it be possible also in future to exchange employee data? The smooth transfer of employee data to and from Great Britain also in future will be unavoidable. In this regard, the negotiating partners on both sides are likely to be interested in creating relevant treaties based on valid EU directives. The currently still valid data protection directive (Directive 95/46/EC of 24 October 1995), facilitating transfer of employee data within the member states would then no longer be applicable, however. Great Britain will no longer come under the scope of application of EU data privacy protection law but – in a worst-case scenario – would initially be classed as an “unsafe third country”. In such case, Great Britain would have to provide evidence of a “reasonable (level of) data protection”. However, what this means pursuant to the “safe harbor” decision of the European Court of Justice (European Court of Justice of 6 October 2015 – C-362/14) is debatable.
In perspective, it additionally must be noted that the new data protection basic regulation applying directly in the member states of the EU from the end of May 2018, will no longer take effect concerning Great Britain. Companies domiciled in the EU that transmit data to the United Kingdom, in all probability will additionally have to review their already concluded data transfer treaties with British (group) companies.

What impacts are to be feared concerning the European stock corporation (SE) and the European works council (EWC)? European law is the foundation of the European stock corporation “Societas Europaea” (SE). Within the framework of the withdrawal negotiations, rules will have to be created so that in future the SE will not exist in Great Britain without a legal basis and so that participation rights of British employees of an SE are maintained.
Under the Act on European Works Councils (Europäisches Betriebsrätegesetz, EBRG), the following applies: In the (unlikely) event that no new legal foundation could be agreed with the United Kingdom, British employees would no longer be able to be involved in a European works council. Inversely, this means that the other members of a European works council (EWC) would not have any entitlement to participation concerning the measures carried out by the group management of a British parent company.

What are consequences under social security legislation (e.g. in the case of foreign postings)? The future social security treatment of foreign postings is highly likely to be on the agenda of the forthcoming withdrawal negotiations. Up to implementation of the withdrawal, EU Directive VO (EC) 883/2004 of 1 May 2010 will apply to employee foreign postings to Great Britain. After that, however, the German-British social security treaty – that in the interim has become (almost) meaningless due to the EU membership of the two states – could gain in significance. The social security treaty has been valid up to today and has been continuously used for the exceptions that were not able to be regulated by means of the EU Directive. Companies must make arrangements for the circumstance that in future postings will be linked to complex legal issues, should Great Britain have to be dealt with like a third country.

Compliments of CMS-HS  – A member of the EACCNY