What would withdrawal from the EU mean for UK employers?

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In July 2012, the Government announced a review to examine the balance of competences between the UK and the EU. This is essentially an assessment of the costs and benefits of the relationship between the two. Chris Fisher and Purvis Ghani of Mayer Brown look into the pros and cons of EU membership for employers.

The balance of competences review is intended to consider all the areas where the EU Treaties give the EU competence to act and the areas where the Treaties apply directly to the member states of the EU without needing any further action by the EU Institutions.

Impact of EU membership on the workplace

In late October 2013, the Government launched a call for evidence on the balance of competences on social and employment policy. This call for evidence covers the main areas of regulation that impact on the workplace: equal treatment, regulation of the employment relationship, social protection and health and safety at work. These areas raise fundamental questions about the role of the EU and the interrelationship between the economic goal of achieving a fully functioning single market and the wider EU values and objectives to support social progress.

The call for evidence has been launched against the background of David Cameron’s desire to recast the UK’s relationship with the EU and hold a referendum by 2017 (or perhaps earlier) on whether or not the UK should remain in the EU on renegotiated terms. With the balance of competences review well underway, a fierce debate on the pros and cons of membership of the EU rages on.

Level playing field

What benefits has UK membership of the EU brought for HR professionals? The idea of businesses competing within a single market is premised on there being a level playing field. This applies equally in the context of employment regulations. Minimum EU standards for employment law can create a more level playing field between businesses across the EU and encourage fair competition.

These minimum standards can also encourage free movement of workers, which means that businesses can attract the best talent from within the EU without any immigration restrictions and related bureaucracy. Having a set of common employment rights amongst an entire workforce within the EU arguably helps companies manage their business across the EU more efficiently and to compete more effectively.

For many HR professionals operating within companies that have operations across the EU, a common minimum set of standards can help manage the HR side of the business more effectively. There is familiarity on the HR and employment issues that can arise across all EU jurisdictions. This can even help to create economies of scale by creating EU-wide employment policies and contracts. Good examples of minimum sets of employment rules that apply across the EU are anti-discrimination laws, working time rules and the transfer rules arising from the Acquired Rights Directive.

Preventing a “race to the bottom” on employment rights

Another argument in favour of EU membership is that workforces are happier and more productive with a common set of employment rights applied across all sectors and countries within the EU. A minimum level of employment rights helps shift the focus of competition away from labour costs towards quality and service, which benefits other businesses and consumers in turn. It prevents a “race to the bottom” on employment terms and conditions, and can help move the UK towards becoming a highly skilled and productive economy with talent management commitments that develop and attract the best workers. For HR professionals, a more productive and happier workforce is less likely to create contentious employment issues amongst staff.

Excessive regulation?

The arguments that are put forward against EU membership often focus on the burden that EU employment regulations pose on businesses. It is not uncommon to hear complaints about the excessive volume and prescriptive nature of employment regulations, particularly on smaller businesses. For example, the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), which implement the Acquired Rights Directive, is often criticised as presenting significant hurdles for businesses wishing to outsource operations or expand by buying businesses or parts of other companies.

The collective redundancy rules imposed by the EU are another example of employment regulation that can have an adverse impact on business. These rules can make it harder for businesses to make staff redundant during difficult times. This can reduce their ability to keep their businesses afloat and, in less extreme cases, reduces the funds available for investment and operational restructures to drive business forward and compete more effectively. For HR professionals, these laws can pose complex and challenging problems in dealing with staff in a uniform and consistent manner across other EU jurisdictions.

Lack of uniformity

Despite the EU’s intention to create some uniformity in labour market regulation, member states have implemented EU legislation quite differently (sometimes by gold plating), which has often led to a lack of uniformity in employment laws across the EU. For example, the service provision changes introduced under TUPE do not appear in the Acquired Rights Directive. This can lead to challenges for HR professionals when trying to assess whether or not an EU outsourcing transaction is in fact caught by the local law that implements the Acquired Rights Directive. It is sometimes argued that this lack of uniformity has effectively cancelled out some of the intended benefits of EU membership.

Implications of withdrawal from the EU

Many aspects of UK employment law are based on EU legislation or have been influenced by EU legal jurisprudence. The implications of the UK withdrawing from the EU on UK employment law are therefore difficult to predict. However, a withdrawal would undoubtedly create a whole new raft of challenges around the interpretation and implementation of existing employment laws. What would happen to the existing case law which has been determined in accordance with EU legal jurisprudence? Would businesses and HR professionals be able to completely disregard past practice, which has been informed by EU case law? It will be some time before the answers to these questions start to emerge. In the meantime, the call for evidence closes on 14 January 2014 and the responses to this exercise will help to inform the debate about the UK’s relationship with the EU and the impact of a withdrawal from the EU.

More information on the call for evidence on the balance of competences is available on XpertHR.


About Chris Fisher and Purvis Ghani

Chris Fisher is partner and Purvis Ghani is senior associate at Mayer Brown International LLP.
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