Employment law post-Brexit: Is change likely?

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Unpredictable market conditions mean a suite of business-friendly employment reforms could be likely

Following the EU referendum there has been a flurry of speculation about the impact of Brexit on employment law. Labour, the trade unions and many Remain supporters predicted that withdrawing from the EU’s protectionist influence would lead to the erosion of workers’ rights. Was this simply part of 'Project Fear' or a realistic prospect?

The new minister for Brexit, David Davis swiftly soothed worried workers by saying "[the] great British industrial working classes voted overwhelmingly for Brexit. I am not at all attracted by the idea of rewarding them by cutting their rights.” However, that's not his to deliver; employment law is not in his ministry’s remit.

Theresa May’s words on the topic were precise and carefully chosen. Rather than sweeping assurances she promised action on equality, executive pay and worker board representations. There are already indications she will deliver on these commitments.

But the broader context suggests that a suite of business-friendly employment reforms are likely in the medium term. Reasons to believe this may happen include:

  • Economic downturn. A downturn will put pressure on businesses, which will in turn put pressure on the government. This has already started to happen, with calls by trade associations for the government to change its policy on increases to the National Living Wage.
  • Increased competition for international investment. In the face of significant threat to the UK’s position as a gateway to Europe the government will need to work hard to attract and retain international investment. There are limited tools at its disposal to do so and many such as corporate tax reductions, have a direct public cost.
  • Expediency. There is already an appetite in the Conservative government and those who represent business to reduce employment red tape. Brexit and its consequences provide a perfect opportunity to do so.

Now is a good moment to recall the Beecroft Report, commissioned in 2011 by the newly-elected coalition government, to review the deregulation of employment. Its recommendations were radical and many were implemented in what was then the biggest employment law shake-up for a generation. However, some ideas, such as no-fault terminations and reconsidering the abolition of the default retirement age, did not survive. Perhaps these should now be considered unfinished business.

Unpopular EU-derived laws like the Working Time Regulations 1998 and the Agency Workers' Regulations 2010 are routinely trotted out as likely casualties of Brexit. While these will likely change there is no reason to assume that the government and lobby groups for business will confine themselves to EU-derived targets. Moreover, if we remain in the EEA EU employment law will largely still apply (except most discrimination laws). Opportunities to appease business and investors would need to be found elsewhere.

It’s perhaps more likely the focus will be on reforming laws that constrain employers’ ability to respond to unpredictable market conditions or that are persistently unpopular and expensive, irrespective of their origin. Areas of review could include:

  • Reform/repeal or delay of the National Living Wage;
  • Introduction of compensated no-fault dismissal;
  • Broader exemptions for start-ups/micro-businesses;
  • Simplification of consultation obligations on redundancies and TUPE transfers, particularly in the context of insolvency;
  • Relaxation of the prohibition on changing employment terms on a TUPE transfer;
  • Introduction of a cap on some discrimination claims and/or repeal of the reversed burden of proof.

Since most of these reforms do not relate to EU-derived law they would not have to be deferred until Brexit takes effect. In practical terms, pressure on political and parliamentary time and attention will mean employment law will not be the first order of business. The government is also likely to want clarity on its overall Brexit strategy before implementing change. Overall, these changes could happen within the next 12 to 36 months.

Much of the commentary on post-Brexit employment law reform has over-emphasised EU origin as a predictor of change. As we now know, the referendum vote was only partly about Europe and the consequences go far beyond the strict mechanics of treaty change. In employment law, like so much else, everything is different now.

Cerys Williams is counsel and Carl Richards partner at King & Wood Mallesons

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