The Business Guide to a No-Deal Brexit
By Spencer West LLP
With the government pushing for Brexit on 31 October 2019 and the possibility of a deal drifting ever further out of reach, our experts at Spencer West have compiled a quick guide to some of the main areas of concern for UK businesses. Pick and mix the answers relevant to your business from the below.
Import and export issues
As well as more obvious issues such as tariffs, VAT and customs formalities, issues include wood packaging materials (pallets) which are exempt from ISPM15 requirements for heat treating within the EU, and CE marking which will no longer be able to be based on certification from UK laboratories. UK based hauliers have been granted leave to operate in the EU without restrictions under the EC’s contingency notice, but only until the end of this calendar year.
The increased customs requirements are quite substantial and potentially complex, including a requirement for an updated EORI registration, the replacement of a UK guarantor (for VAT purposes) with an EU based entity, and replacement of any binding tariff information (BTI) or binding origin information (BOI) decisions previously issued by the UK, with the equivalent from an EU customs authority, and likewise any Entry Summary Declaration (ENS) issued by the UK will not be recognised and will need to be re-issued.
Intellectual property protection
Regarding trademark protection, post-Brexit the Community mark system will no longer apply in the UK. The UK government plans to set up a “UK equivalent right” and within 9 months of Brexit re-registration of marks will be required (with “minimal administrative burden”, supposedly) in order for protection to be maintained. Patent protection should broadly be unaffected as it isn’t EU based, but if the Unified Patent Court eventually comes into force, the UK is unlikely to be able to participate.
A number of EU Directives aimed at protecting IP will cease to apply to the UK which will raise issues in many different contexts. For example, broadcasters will need to clear copyright in every country, rather than being able to rely on clearance in the country of origin. Businesses will also face a lack of reciprocal protection of database rights.
Unless and until the EU issues an adequacy decision, the UK will be treated as a third party country under GDPR for the purposes of export of data, and companies wishing to transfer data from the EU to the UK will need “appropriate safeguards”: probably, either binding corporate rules (for transfers within the group), or Data Processing Agreements with the appropriate standard contractual clauses. If a company with binding corporate rules nominated the UK Information Commissioner’s Office as the lead authority, it would need to re-register with a different EU authority.
The UK currently is party to a number of EU and related treaties that ensure that contracts that are governed by English law and which designate English courts as the forum for resolving disputes will be recognised, respected and enforceable across the European Union and the Lugano Convention Area. Those treaties also require the UK to reciprocate in relation to contracts governed by the laws of and/or subject to the jurisdiction of the courts of participating European jurisdictions. In addition, the UK is party to treaties that simplify the service of proceedings across Europe.
Brexit had threatened to disrupt those arrangements, but it is likely that the majority of the disruption has been averted, even in the event that the UK does not enter into a withdrawal agreement that replicates the current mechanisms.
In particular, the provisions of the Rome I and II Regulations will require the EU and Lugano Convention member states to uphold the choice of English law as the governing law of a contract post-Brexit, while it is likely that the UK will enact analogous reciprocal legislation. Moreover, the UK, the EU and Denmark are parties to the Hague Choice of Court Convention, which requires the signatories to uphold contractual choice of court provisions that designate the courts of another party to the Convention. The UK will accede to the Convention shortly following Brexit.
In addition, the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters will provide, in principle, for the mutual recognition and enforcement of judgments between contracting states without any review of the underlying merits. It is a game-changing treaty analogous to the New York Convention on the Recognition and Enforcement of Arbitral Awards, and it is likely that both the EU and the UK will swiftly become parties to it.
Finally, it is worth bearing in mind that Brexit will have little impact on arbitration (whether in the UK or elsewhere in Europe), as the international regime governing the recognition and enforcement of arbitral awards (principally the New York Convention) is a non-EU arrangement (although the EU and Lugano Convention member states are, individually, parties to it). Care and specialist legal advice should nonetheless be taken when drafting an arbitration agreement, given the number of available institutions and the jurisdiction considerations that are involved.
The above arrangements will not eliminate post-Brexit challenges in relation to the resolution of international contractual disputes, particularly where complex dispute resolution provisions are present in the contract. Challenges will also remain in relation to disputes involving parties whose assets are in a Lugano Convention state (pending those states' signature and ratification of the Hague Conventions referred to above), as well as in relation to service of English proceedings in mainland Europe (in general, English rules on service of proceedings are more flexible and commercial than those of other European jurisdictions). Contractual choice of law and forum clauses should never be treated as boiler-plate; they are essential to making sure that the contract works smoothly, and that disputes are resolved quickly and cost-effectively. Please consult one of our jurisdictional specialists for advice and assistance when drafting your agreements.
A large amount of employment law protection was already in place in the UK before the laws were subsumed by EU law. The government has proposed maintaining current UK employment laws so that existing workers' rights are unchanged following exit day. It is unclear how the government can ensure this happens, as it cannot bind future parliaments. Commentators have suggested that there may be some “tweaks” to make certain legislation more business friendly but that will be a matter of political appetite.
Possibilities and considerations in a no deal scenario include the following:
- For discrimination, a full scale repeal of the Equality Act 2010 is unlikely, but it might be amended by imposing a cap on awards (similar to unfair dismissal compensation).
- The rules that employees transfer to the new owner of business undertakings as a matter of law is likely to remain, but could be amended to make it easier to harmonise terms of employment.
- The right to statutory paid holiday is provided through the Working Time Regulations 1998 and a repeal is unlikely, but the effect of a number of ECJ decisions could be limited, such as accrual of holiday while on sick leave and calculating holiday pay by reference to more than just basic pay. The cap on maximum weekly working hours could also be removed.
- The law governing agency workers is complicated –the current regulations implement the EU Temporary Workers Directive and could be changed, although the government has not indicated this so far.
- The Posted Workers Directive will no longer apply where EU workers are posted into the UK or UK workers are posted into the EU (except where a UK national who is legally residing in an EU member state is posted to another EU state). EU member states must ensure that UK workers posted to their country do not receive more favourable working conditions than EU workers posted there.
Changes to recognition of professional qualifications
- Registered European Lawyer status, which allows EEA lawyers to practise permanently in the UK under their existing title, will cease on exit day. From exit day, EEA lawyers will be treated in the same way as lawyers qualified in any other third country jurisdiction and will no longer be able to carry out reserved activities such as the conduct of litigation, conveyancing, probate activities, notarial activities and the administration of oaths, and will no longer have a right of audience in the UK courts. EEA qualified lawyers will be required to apply to be formally admitted into the UK legal profession in order to be able to continue to practise after exit day.
- Those EEA lawyers who have already been formally admitted into the UK legal profession before exit day will continue to be able to practise.
- Other professionals, such as doctors, nurses, dental practitioners, veterinary surgeons, midwives, pharmacists and architects who gained their professional qualification in another EEA country but whose qualifications have been formally recognised before exit day, will also not be affected. However, EEA professionals wanting to practise their profession in the UK who have not started an application for a recognition decision before exit day will be subject to new (as yet unpublished) arrangements.
- UK professionals wanting to practise in the EU after exit day will need to check the national policies of the relevant Member State. However, the European Commission has stated that UK professionals whose qualifications have been formally recognised in an EU Member State before exit day will not be affected.
Employing EU nationals
Businesses should support their employees in registering for the scheme now to maintain and evidence their employees’ right to work in the UK. The government has said that it will not expect UK employers to distinguish, post-Brexit, between EU nationals who have the right to work and those who do not. What does that mean? If an employer hires an EU national post-Brexit, after checking their EU passport, and it turns out they did not have the right to work, is that employer indemnified indefinitely against illegal working fines? Unlikely.
In a no-deal scenario, EU nationals and their family members already resident in the UK before Brexit must register for the EU Settlement Scheme by 31 December 2020. A legislative mechanism exists to maintain a modified version of their current rights until the registration deadline and the government has stated that they will be able to continue to live and work in the UK until the registration deadline. Those who do not apply by that time will not have the right reside or work in the UK.
EU national employees and their family members who have been resident in the UK for 5 years may be eligible for settled status, which means that they can live and work in the UK indefinitely. Those who have less than 5 years’ residence in the UK may be eligible for pre-settled status, which is effectively a 5-year, non-extendable visa permitting work.
In a plan published in January 2019, the previous government provided for EU nationals arriving in the UK after a no-deal Brexit having the right to work in the UK for 3 months. If they wanted to stay and work longer, they would have to apply for European Temporary Leave to Remain. Otherwise, they would not have the right to work in the UK, despite having EU passports. EU Temporary Leave would be granted for three years. Employers could sponsor post-Brexit arrivals from the EU to work in the UK if they want them to stay longer than three years and they meet the future sponsorship requirements.
The current government announced on 19 August 2019 that it will publish details of a different plan for EU nationals arriving after Brexit. We do not yet know the extent to which the current government will diverge from the previous government’s plan for European Temporary Leave to Remain.
Our immigration team can help your employees register for the EU Settlement Scheme. We have developed a streamlined process for registering employees en masse. Please get in touch for details.
The information provided here is intended as a guide only. If you need legal advice, please contact the Spencer West LLP Partner known to you or email firstname.lastname@example.org.