A hard Brexit is looking increasingly likely – what are you doing to prepare?

Brexit recap: Where we are

For the past three years, employers in the UK and across the globe have had to navigate Britain's uncertain withdrawal from the European Union. Deadlines have shifted. Negotiations have started, stopped, and restarted. There have been calls to hold another referendum on whether to separate from the EU. And, recently, after failing to secure parliamentary support for a withdrawal agreement that her government negotiated with the EU, Prime Minister Theresa May announced her resignation.

While the status quo continues to be uncertainty, time is running out. The current Brexit date is now Oct. 31, 2019. The EU has indicated that it will not agree to any further extensions.

Possible paths forward

There are various scenarios for how Brexit will unfold, including the UK adopting a Withdrawal Agreement negotiated under Prime Minister May, the Norwegian model, the Swiss model, and “hard Brexit,” all of which are discussed below.

Withdrawal agreement

Prime Minister May reached a draft Withdrawal Agreement with the EU. Under the agreement, the UK would remain in the EU customs union and the free movement of people would be preserved through the end of a transition period.

During the transition period, the UK would change some of its laws. For instance, changes to the UK’s immigration scheme would likely occur – Prime Minister May has been advocating for a more skills-based immigration system. The Withdrawal Agreement would preserve workers’ protections that the UK has enacted to comply with EU law, however, some Members of Parliament want to change these laws entirely.

The withdrawal agreement lacks permanent resolution, but it would allow trade and labor to happen as it has been for another 21 months while also avoiding the immediate, and somewhat uncertain, impacts that would occur under a hard Brexit.

Norwegian model

The Norwegian option is modeled on Norway’s relationship with the EU. Norway is not a member of the EU but has entered into over 130 agreements with the EU, including the European Economic Area (EEA) agreement. Norway pays a contribution to the EU budget and is fully integrated into the EU single market.

Norway has also incorporated significant aspects of EU legislation into their laws. However, Norway does not have the ability to vote on or influence EU legislation.

Swiss model

The Swiss option is modeled on Switzerland’s relationship with the EU. After Swiss voters rejected a referendum to join the European Economic Area in 1992, Switzerland and the EU negotiated a series of bilateral agreements over a period of several years.

Switzerland is a member of the European Free Trade Association but is not part of the EEA. Switzerland also adopted some parts of EU law via legislation, but not to the same extent as Norway. Under the Swiss model, Switzerland does not have full access to the EU single market.

Hard Brexit

Under hard Brexit, the UK would separate from the EU without any agreements in place. Without any such agreements, World Trade Organization rules would apply by default. The UK would no longer be required to contribute financially to the EU, nor would it have obligations to apply EU laws. Trade in services would be restricted, and tariffs would be placed on certain goods. In practice, the UK and EU would apply the same tariffs and other trade restrictions to each other that they apply to the rest of the world.

In addition, under hard Brexit there would be impacts to the free movement of people. Free movement of people is a right of EU citizens to work and reside in any EU member state. The free movement of people has been a driving force in the migration of workers in the EU. This has direct impacts on the broader EU labor market. Hard Brexit would mean that UK citizens lose their right of free movement, and EU citizens who are residing in the UK would have to apply for residence status to remain in the UK.

What would a hard Brexit mean for employers?

What would a hard Brexit would look like for employers with operations or physical presence in the UK or EU? This is not to say that employers should avoid planning for other outcomes – organizations should plan for as many scenarios as possible.

Residency and Citizenship

Hard Brexit could have immediate and near-term impacts to an organization’s workforce.

Employers with offices in the UK should evaluate their workforce. If you have EU nationals residing and working in your UK offices, such workers may be forced to relocate under hard Brexit. As such, you may want to proactively confirm the residency status of such workers and then assess their impact to your operations. For instance, you may want to consider the roles these workers are filling and your ability to hire new employees if necessary.

If you are concerned about EU nationals being forced to leave the UK, you may want to consider reminding workers of their ability to apply for residency status under the EU Settlement Scheme. This applies to any EU nationals who were living in the UK on or before Apr. 12, 2019 – if the worker arrived after, it is less clear if they can apply under the settlement scheme.

While you cannot insist or require that an individual employee apply for UK residency status, you may act as a resource. You can provide details about the application process and provide reminders of the deadline to apply, which is Dec. 31, 2020. You can stress that the application process may not be available in the event of a hard Brexit.

Employers with offices in the EU should, likewise, evaluate their workforce. If you have UK nationals residing and working in the EU, they may be forced to relocate if hard Brexit occurs because UK nationals will lose the right of free movement. Ask yourself the same questions you did of your EU workforce in the UK so you can understand the impact that these workers have on your organization and what it would mean if you had to replace them.

For these UK nationals, they may be able to remain in an EU member state. To do so they will need to secure residency status. Each country, however, has its own process with different timelines. Employers may want to study the registration processes in various EU member states to be able to act as a resource to help guide employees through the process and provide reminders of any deadlines.

For remote employees, citizenship and residency status is typically not as important. Although, some policymakers have begun suggesting that there should be a separate, independent registration process for remote workers. For now, employers should confirm whether citizen or residency status will impact any of their remote workers.

In addition, employers may need to evaluate their hiring and recruiting strategies going forward – this is especially the case for hiring in the UK. Some employers may already be feeling the impact of Brexit when it comes to hiring. This is due, in part, to perceptions being formed about the risks of relocating to the UK.

Some EU nationals are already starting to view the UK as a less attractive place to work, and as such are deciding against applying or considering jobs that are based in the UK. To overcome this, employers may need to adjust their recruiting or branding efforts. You may also want to consider whether you can retrain or upskill existing staff instead of looking abroad for talent.

Workers’ Rights

Employers may also need to navigate changes to legal protections covering their existing UK workforce. Much of workers’ rights in the UK comes from EU law, including the following:

• Limits on working hours
• Minimum fortnight and rest time off
• Annual leave
• Equal pay
• Maternity rights
• Parental leave
• Anti-discrimination laws
• Compensation for victims of discrimination
• Agency/temp worker protections
• Workplace health and safety

Not only are many UK workers’ rights based on EU law, but the EU has the ability to interpret and enforce the laws of EU countries. Specifically, the Court of Justice of the European Union (“CJEU”) is designed to ensure that EU law is interpreted and applied across EU countries in the same way, and to settle disputes when they arise. Recently, for example, the CJEU concluded that Spanish law did not require employers to monitor and track working hours the way EU law required. This will effectively require revisions to Spanish law. But it also provided an opportunity to employers all over the EU to review their practices and determine, based on the facts and circumstances of the legal decision, whether their existing practices comply with the law.

The bottom line is that a hard Brexit will likely diminish workers’ rights in the UK and will put employers in the position of deciding whether to maintain existing policies that are based on existing laws or make changes. For employers that offer benefits or protections that exceed the minimums under UK law, it is likely that employers will decide to make no changes. However, for employers who provide whatever is minimally required, a different path may be available.

European Works Councils

A European Work Council (EWC) is a council of European employee representatives of an organization and their management, the purpose of which is to discuss labor and employment issues.

In the event there is a hard Brexit, any European Work Council (EWC) that has been established under UK law will no longer be able to be legally based in the UK.

EWCs came into existence after the European Commission issued a directive requiring employers to establish a structure through which management can inform and work with employees on significant issues. Not every employer is required to have an EWC, however. Only employers that meet certain conditions must set up an EWC. Further, because each EU member state enacted their own laws to bring the EU directive into force, there can be different approaches within each member state.

Employers with their actual headquarters in the UK (or a group of companies called a concern) have the greatest likelihood of being impacted. But other companies who have designated a UK entity to act as a representative for EWC purposes may also be impacted. Such employers will need to consider relocating the EWC to a different country. In addition to not being able to house EWCs in the UK under UK law, hard Brexit would mean that UK employees would no longer be able to be represented on EWCs.

This blog provided a high-level overview of some of the potential impacts of a hard Brexit to employers. It does not cover every potential issue or consideration. We encourage you to seek guidance within your organization and as-needed with outside support as you prepare for the different outcomes of Brexit.

We will continue to follow and report on Brexit as we get closer to the Oct. 31, 2019 deadline.

Ceridian provides periodic and selected compliance updates that may have relevance to many of our customers. Ceridian provides this information to customers for general information purposes only. This information should not be construed as legal, tax or other advice specific to any individual or organization. Please consult your appropriate adviser for such specific advice.