Brexit: Considerations for U.S. employers

June 29, 2016

Employment Law Alert

Author(s): Catherine T. Gonzalez, Courtney H. New, Jeffrey M. Tanenbaum

The June 23, 2016 UK referendum vote to leave the EU has sent financial markets into turmoil and raised questions as to global short- and long-term economic and political impact. US employers should now give early consideration to how potential post-Brexit employment law changes may impact on them and their future EU plans.

The June 23, 2016 UK referendum vote to leave the EU has sent financial markets into turmoil and raised questions as to global short- and long-term economic and political impact. It is clearly going to take time to work through the impact of this vote, and much remains uncertain. Anything from a Regrexit vote to various leave paths, to a break-up of the UK itself, to departures of other EU members may result.

Despite this uncertainty, and because of it, many US employers should now give early consideration to how Brexit may impact on them and their future EU plans.

Potential changes in employment law in the UK

US employers with workforces in the UK will want to monitor for potential changes in UK employment law.

There are quite a number of UK employment laws which have resulted from EU directives and EU case law. These include working time laws, family rights laws, agency worker regulations, TUPE [1] (providing protections to employees under certain transfers from one business to another) and anti-discrimination laws.

Significant change may be unlikely, particularly in the short term, as many of these laws have simply become part of UK workplace culture, and in a number of instances the UK has already gone beyond what was required by EU directive. However, some of these laws have met UK resistance and leaving the EU may result in some changes. As two examples, there has been notable UK opposition to both the 48-hour work week and agency worker regulations. It would not be surprising to see changes in such laws if the UK does indeed leave the EU.

Implications for immigration law

It has been common for US employers operating in the UK to be reliant on employees not just from the UK, but elsewhere in the EU. Indeed, ease of movement of workers between EU member nations has been one of the hallmark benefits of EU membership for many employers as well as employees.

Short term change in freedom of movement is not expected. And this is such a critical issue that it seems certain to be a specific subject of negotiations over the leave process itself. It is, however, such a fundamental component of EU membership that is difficult to see how the UK leaves the EU without change in cross-border employee movement. Thus, it is certainly possible that workers in the UK from elsewhere in the EU will have to depart the UK. Alternatively, such workers may be placed in a different immigration category. And, of course, workers from the UK would no longer have free access to work in other EU member states, in the absence of a new negotiated agreement to grant such privileges on a bilateral or multi-lateral basis.

UK political developments will also play a major role here. An immigration control bill has already been suggested by the “Leave” movement and proponents may push Parliament to adopt this bill even prior to the UK’s formal exit from the EU. In its current proposed form, the statute would end the automatic right of all EU citizens to enter the UK by the next election and instead force them to apply by way of the same points-based system as current non-EU citizens do. This would essentially level the playing field across nationalities. One interesting aspect of this is that it might have the effect of benefiting US workers seeking to relocate to the UK.

The US immigration system does not necessarily provide a better option for foreign talent so it seems unlikely that Brexit will motivate employers to move jobs to the US, but it is possible that some US employers may find that restrictions on movement of workers in the EU to the UK may make UK operations less desirable and may cause them to return such operations to the US. However, if movement does take place, it seems more likely jobs will move to one of the remaining EU member nations.

Retirement plans

Investment products in defined contributions plans will be affected by Brexit and, of course, for anyone with fiduciary responsibilities, the duty to act prudently should prevail. Any decision to drop an investment product from or add one to a plan’s line-up should be made in accordance with the plan’s Investment Policy Statement and after consulting with the plan’s investment advisor.

ERISA disclosure rules also generally require 30-days’ advance notice to plan participants before removing an investment fund from a plan or adding a new one.

Finally, if an informed and reasoned decision is made to stay the course for now, fiduciary prudence still requires the ongoing monitoring of the plan’s investment offerings.

A step back from the globalization of employment law?

The EU has been serving as a model and incubator for the development of international employment law. The UK vote to leave the EU suggests that the movement towards global, or at least multi-lateral employment law which has seemed slow but inevitable, may now be on an even slower path.

As a result, it may now be some time before we see something like the recent enacted, globally harmonized system (“GHS”) for hazard communication in other areas. This may prove particularly problematic for issues such as data security, privacy, supply chain management and effective global response to communicable illnesses.

Next steps for employers

  • For employers with a UK workforce, monitoring of developments in UK employment law will obviously be critically important.
  • For employers with a workforce in the UK or elsewhere in the EU with UK citizens (or for those planning such a workforce), it may be prudent to check and document immigration status and monitor immigration law developments so that prompt action can be taken when changes in immigration law take place.
  • Employers looking to expand in the EU will likely now want to consider where in the EU they will want to locate facilities based on the availability of skilled labor and the potential for economic disruption and lack of political stability caused by Brexit.
  • Fiduciaries will need to act prudently and reasonably to maintain fiduciary duties with regard to defined contribution plan investments.
  • Employers may want to consider modifying employment contracts and policies to address the potential risk of unenforceability following Brexit or other member departures from the EU.
  • Employers should consider developing an information packet for employees and a process for on-going communication with employees based in the UK or elsewhere in the EU to help address their concerns.
  • Employment contracts, handbooks and other policies should be reviewed to determine if any other changes should be made as a result of Brexit.

  1. Transfer of Undertakings (Protection of Employment) Regulations 1981 [Back to reference]

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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