Dan Tench and Alicia Videon of international law firm Olswang set out ten things companies should be considering in light of the UK’s vote to leave the European Union
1. The Brexit options
Brexit covers a multitude of possibilities. Broadly they comprise (a) joining the EEA which would allow the UK to access the single market but mean that it will still be subject to the majority of European law; (b) joining EFTA, which provides more limited access to the single market but means that fewer European laws have to be adopted; or (c) joining neither but perhaps entering a bespoke trade deal with the EU, in which case the access to the single market and the laws to be adopted could be a matter for almost limitless negotiation. The impacts of these options would potentially have very different effects on businesses. To determine how a Brexit will affect a business in the long term, it will be necessary to monitor closely the direction of travel towards these options.
2. The Brexit path
The UK is likely in theory to remain a full Member of the EU for at least the next two years, as provided for under Article 50 of the Lisbon Treaty and in reality the process to complete independence is likely to take much longer than that. However, despite this being the clear legal position, the political reality may be somewhat different, for example in relation to the extent the European Commission is prepared during the Brexit process to engage with UK issues.
3. The immediate business and investment environment
The most significant likely immediate consequence of a Brexit vote (apart from the impact on currency and stock markets) will be a downturn in business confidence and a possible recession. The financial sector has particularly been identified as being vulnerable and this will have knock on effects. Accordingly, businesses would be prudent to consider contingency planning in view of the highly uncertain global economic outlook.
With currency and stock markets already showing the anticipated volatility, companies should be particularly vigilant about liquidity needs and the strength of their counterparties to withstand currency and other adverse economic shocks.
Even if there is no significant downturn, the investment environment is likely to change significantly, at least in the short term. Businesses needing investment should consider whether the usual sources remain open to them or whether alternative funding may be required.
4. Contractual issues
Many contracts will have been written on the basis of the UK being in the EU. For example, there may be provisions which assume a prevailing European law. Also the ensuing economic and investment conditions may have consequences for the performance of contractual obligations. Businesses may want to review their contracts with third parties to assess whether any issues arise resulting from the Brexit vote.
5. Outstanding European litigation
European law is likely to remain part of our domestic law for at least the next two years. For that reason, there is no obvious reason why litigation which involves issues of European law should be withdrawn. However, where there are esoteric points of purely European law, there may be less readiness on the part of litigators and courts for great resources to be expended on determining these given that the shelf life of the relevance of these issues may be limited. Equally, where there is a case with an outstanding reference from a UK court to the Court of Justice of the European Union, in theory whilst the UK remains a Member State of the EU, there is a right for these cases to be heard and the matter to be resolved. However, whether in reality it is considered worthwhile is another matter.
If it becomes apparent that we are facing a recession in the UK, then all eyes will be on the next budget and there have been suggestions that an emergency budget may be required in order to raise taxes.
Whilst the vast majority of our taxes are domestic ones, VAT is imposed under EU Directives. The most likely ultimate result of the Brexit vote on VAT will be to replace the current system with a purely domestic one, with supplies between the UK and Member States the obvious area of change. However, since recent changes to VAT have made it increasingly a point of consumption tax (such that supplies are taxed in the jurisdiction of receipt) a move to a domestic system of UK VAT could - for many supplies - look very similar to the pan-EU system we have today.
In the longer term, it will be interesting to see how our tax legislation, which has been designed to comply with EU law in many areas, will develop. For example, being released from the shackles of state aid rules, should allow tax incentives to be designed in a more targeted way to assist specific sectors.
7. Data protection law after Brexit
One area of onerous European law is data protection. That was due to become even more onerous with the General Data Protection Regulation scheduled to come into force in May 2018. The Brexit vote is likely to offer little respite. If the UK remains in the EEA, since data protection law is comprised within the four freedoms, the UK will have to adopt the Regulation as if it were in the EU. But even if the UK adopts a different route, if it wants to benefit from being given safe harbour designation so that data transfers can be allowed from EU Members States to the UK and back, it is likely that it will in any event have to adopt data protection laws broadly akin to the Regulation. Accordingly, we believe that the process of readying businesses for the Regulation should proceed.
8. Employment law after Brexit
If, as is widely anticipated, Brexit does lead to a recession and the departure of international businesses from the UK, workers will inevitably be affected, and we may see a return to the mass redundancy programmes of the late noughties, as well as an increase in Employment Tribunal claims. In the short term, workers’ legal rights are unlikely to be affected, certainly over the next two years. However, in the longer term, the Government, and particularly a Conservative Government, may be tempted to water down or even repeal some secondary UK employment legislation introduced pursuant to the European Communities Act, such as the Working Time Regulations 1998.
It is however highly probable that some things won’t change. For example, anti-discrimination legislation is so fundamentally engrained in British culture that any significant amendments to it (other than to extend its reach) would almost certainly be met with resistance from the general public and voters. In addition, family-friendly rights such as the right to maternity and parental leave and pay are unlikely to be altered dramatically given the social policy behind their introduction.
9. Intellectual property law after Brexit
There will be no immediate impact, but once the UK exits the EU the availability of IP rights covering the UK will change. The European Patent Office is not an EU body and therefore it, and our membership, will not be affected by us leaving the EU. The forthcoming Unified Patent System is likely to be at least delayed by the exit of the UK, and intensive negotiations will be required to ascertain whether the system can still be brought into force, and whether the UK can be part of it. Since none of the changes will happen for some time, and are so unpredictable, we do not advise clients take any action at the moment.
As regards trade marks and designs, following a Brexit, the UK will no longer be part of the EU Trade Mark regime, which is available only to EU Member States. Existing EUTM registrations would cease to apply in the UK, although it is likely that transitional provisions would be put in place to allow brand owners to convert part of their EUTMs to national UK registrations (possibly retaining their original priority dates). In the same way, Registered Community Designs would cease to apply in the UK (subject to transitional arrangements) and new RCD filings would no longer cover the UK. Brand owners may wish to consider supplementing their portfolios now with UK national applications for their core brands and designs.
The economy of Gibraltar has grown rapidly over the past two decades particularly in relation to financial services and gambling operators. These are significantly dependent on access to a single EU market and the free movement through the border with Spain, which has been guaranteed by the EU Treaty, although not always properly respected by Spain. Spain’s acting Foreign Minister has already indicated that Spain will seek joint sovereignty post-Brexit, prompting the UK Government to re-affirm its sovereignty commitment to Gibraltar just hours after the Brexit vote. There may be concerns that following a Brexit vote, Spain will quickly move to impose onerous restrictions on the border, which could in the extreme call into question the viability of some business operations in Gibraltar as well as impact the thousands of Spanish workers employed in Gibraltar. Although in theory these restrictions may be unlawful under the Treaty, whether there is the political will to oppose them, for example in the part of the European Commission, is unclear. For these reasons, an early assessment of the viability of Gibraltar operations may be sensible.