With the UK’s future within the EU due to be decided by a referendum on Thursday 23 June 2016, many business owners are starting wonder what implications a possible “Brexit” may have for their business.
But just how are we to decide whether our future really is better inside or outside the EU? The question of Great Britain exiting (“Brexiting”) the EU is hugely complex and multi-faceted. In this blog we briefly consider, and mainly from an employment law perspective, some of the most important issues.
The EU as a ‘single market’ started life after the end of the Second World War. The single market allows both people and goods to move freely across and within all the EU member states. This freedom of movement arguably results in stronger trade links and trade practices enjoyed by those EU member states.
If the UK votes to leave the EU, it will have to negotiate a new trading relationship with the remaining 27 member states. Would a post-exit deal allow UK firms to sell goods and services to other EU countries without being hit by high tariffs and other restrictions? Other non-EU countries such as Norway and Switzerland have managed to negotiate trade deals with the EU. However, in case of Norway the price of that deal included agreeing to the free movement of labour under the Schengen arrangement. It would be cruel irony if becoming a party to the Schengen arrangement (which has been so vigorously criticised by Brexit campaigners) turned out to be price which the UK had to pay in order to strike a trade deal with the EU.
The arguments on each side of the debate range from a Brexit putting unnecessary obstacles in the way of UK trade to the converse creation of a more competitive trading market which would positively impact on smaller and medium-sized businesses.
As the debate started to gain momentum, we saw the bosses of some large businesses such as Asda, Marks & Spencer and BT publish a letter in the Times warning that an exit would deter investment in the UK. Their concern is that an exit would be too risky. However, pro-exit campaigners pointed out that two-thirds of the FTSE 100 companies had not signed-up to the letter. It seems that “yes” and “no” campaigners all have their private agendas. It would be refreshing if they were honest about that when lobbying for our support.
The job market is closely linked with trade so it is hard to consider one without the other. A major consideration in any argument whether to stay or leave the EU will focus on the impact on the job market. The arguments on each side of the debate paint very different pictures.
Those in favour of an exit forecast a boom in the jobs market as firms become freed from EU regulations and red tape, with small and medium sized businesses benefiting the most. That is something of a conundrum. The Brexit campaigners point to the UK’s high levels of trade with non-EU countries. But the majority of small businesses (which, in turn, employ the majority of working adults in the UK) are not involved in trade outside the UK. So how would the removal of EU red tape benefit the businesses which employ most of us?
Conversely, the ‘yes’ campaigners suggest that in the event of a Brexit, millions of jobs would be lost as global manufacturers moved to other EU countries because of uncertainties over trade tariffs. But would the likes of Toyota, Nissan, BMW and Ford seriously contemplate incurring the huge expense of removing production facilities from the UK?
It has been suggested that in place of free movement of labour within the EU, the UK would introduce an immigration system similar to that applicable to non-EU citizens. Currently, non-EU workers are assessed on their skills/level of study and allowed permission to remain in the UK for a limited amount of time. This would undoubtedly impact on UK businesses as they would be barred from freely recruiting labour traditionally accessed from within the EU – and there are plenty of employers (mainly in hi-tech fields) who complain that the existing restrictions (such as they are) frustrate their attempts to secure appropriately qualified staff.
UK individuals and businesses alike are affected by a multitude of EU-derived rules and regulations. A large amount of employment law comes from our membership of the EU. We are all familiar with TUPE (relating to the rights of employees in business transfers etc), discrimination rights, Working Time Regulations and the rights of agency workers.
An exit from the EU would mean that this legislation could be repealed. However, it is unlikely the UK government would do such a thing – certainly not in respect of all the EU derived legislation – but voters need to be aware that whilst EU membership can be seen to create ‘red tape’, it also brings with it laws and regulations which require member states to legislate to protect workers and improve their rights, whilst assuring consistency of employment rights across all member states.
The Federation of Small Businesses (“FSB”) has voiced the concerns of members about the perceived constraints of employment legislation arising from our membership of the EU. It has been suggested that likely changes the UK government would make following a Brexit would be to discrimination compensation limits (such as abolishing compensation for injury to feelings) and watering-down (or removing altogether) the Working Time Regulations. Given that, as we have already pointed out, small businesses employ the majority of working adults in the UK, an erosion of employment rights for most working people following a Brexit would seem likely.
A Brexit would also mean that regulations which directly impact on trade and businesses, such as agriculture, fishing, justice and home affairs, would no longer be imposed. However, there would be a period of significant change and uncertainty whilst domestic rules were put in place of them.
Any legislation that is repealed is certain to have a big knock on effect on businesses. Businesses large and small would plainly need to undertake a large-scale review of policies and procedures to ensure they were re-aligned to the new laws.
Whilst the referendum seeks to ask a very simple question – essentially: ‘should we stay or should we go?’ – it is important that voters recognise that David Cameron has already agreed certain changes regarding the UK’s membership in the EU, should we decide to stay. These changes include: limiting certain aspects of free movement, changes to certain benefits and welfare payments, and making it harder for the EU to impose legislation that a majority of EU member states disagree with.
We are entering a period of uncertainty. Businesses will be unsure how to proceed until the fate of the UK within the EU has been decided. And in the event of a vote in favour our fate will be no clearer on 24 June. Even the Brexit campaigners concede that a vote to leave would be followed by a long period of negotiation over the terms of departure as well as the terms of any new relationship with our former EU colleagues. It’s all very unsettling – which is no good for business.