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24 June 2016

What does Brexit mean for Retail employers?

The vote to Brexit leaves the UK with a huge amount of uncertainty, but one thing is clear: there is potential for significant change to UK employment law. But what is really likely to happen? And how does this affect the retail sector?
There’s no doubt that the retail and leisure sectors (particularly food manufacturers and restaurants) will be affected by Brexit, being the sectors with the highest proportion of EU nationals among the workforce. The ability to attract and retain workers is a key business risk within these sectors. Retailers including Asda were publicly in favour of staying in the EU, and the ambitions of retailers and restaurant brands hoping to expand into Europe will inevitably be affected by Brexit.
Employing staff from Europe
A major concern is the question of what will happen to the right to employ European nationals. The sector notoriously relies heavily on European workers to meet its workforce needs. The issue of the UK’s control over its borders has been a keen driver in the Brexit debate. It’s possible that the UK would be required to allow the free movement of people as a price for access to the single market. If that isn't agreed, it’s widely accepted that it is not in anyone’s interest (the employee’s, the employer’s, or the government’s) to require EU migrants to leave the country, so it’s likely that there would be an amnesty whereby existing EU migrants could stay, for some period of time, in return for not requiring UK citizens living and working in the EU to return to the UK.
But in the longer term, given the focus placed on immigration control in the debate, it seems almost certain that the UK will introduce measures to protect its borders to restrict the rights of free movement within the EU. If a work permit scheme was applied to all EU workers, it will be harder for many retailers to recruit all the store staff they need in major cities, and employers who depend on large numbers of European workers to staff warehouses and depots will also face staffing shortages. This may lead to higher wage costs, already affected by the National Living Wage, which in turn could lead to further pressure to increase retail automation to reduce operating costs. Businesses may also look to restrict expansion strategies, rationalise staff, and put on hold any plans to invest in other ways in the development of the brand, at least until the current financial and legal uncertainties are resolved.
Employment law change is inevitable
Reducing employment regulation by the EU was another key driver in the “Leave” campaign. Now that the UK has voted to Leave, it is inevitable that there will be a review of UK employment regulation.
From a purely legal perspective, because a significant amount of our current legislation derives from EU law and there is minimal other international law which affects employment laws, without any international restrictions the government has wide-ranging powers - in theory - to reduce or remove employment rights, virtually to zero if it wanted to. But the reality is that a very drastic change in employment rights is unlikely for a variety of reasons:
First, the UK Government will need to negotiate its trade relationship with the EU. This will take a long time; likely to be at least two years. If the UK wants to remain part of the EEA single market (rather than negotiate trade agreements separately with each member state), the EU is likely to require it to continue to be bound by European Directives on labour law, rather than allow it to undercut EU states with less rigorous employment laws. If that happens, the UK could be left with exactly the same obligations to comply with EU employment law.
A large amount of employment law, contrary to popular opinion, is actually entirely UK law, implemented by UK governments either before it was introduced by the EU, or implemented entirely independently, without any influence from Europe. For example, rules on unfair dismissal, Equal Pay, sex, race and disability discrimination, our enhanced rights to maternity and paternity leave which are more generous than the EU minimum, shared parental leave, and the National Living Wage. It’s unlikely the government will want to undo these existing “UK” rights.
A large number of employment laws which originate from the EU have become ingrained into UK working culture and are unlikely to be scrapped. It would be politically unattractive to attempt to remove rights to family leave, protection from discrimination, and paid holiday.
What will change?
Exactly what the government targets to change will depend on the government (and the new Prime Minister) in place at the time, and what is politically feasible or has caught public support. Regulations which are often cited as restrictive, and which a Conservative government may well target, are:
Working Time rules
These are the most often-criticised EU derived Employment rights. However, the right to paid holiday is now deeply embedded in UK working culture and the UK gold-plated the EU minimum entitlement to 4 weeks’ holiday, increasing the right to 5.6 weeks’: it is therefore very unlikely the UK would support a return to US-style minimal holiday rights. Some aspects of paid holiday are unpopular with business, particularly the right to continue to accrue paid holiday whilst on maternity and sick leave, and the recent swathe of case law which requires employers to include overtime and other remuneration as well as basic pay when calculating holiday pay.
Agency Worker regulations
These are likely to be the most popular candidate for complete repeal. Rules which allow agency workers the same rights as permanent employees after 12 weeks are unpopular with business and aren’t likely to be as closely protected by the population at large or trade unions as other employment rights.
The Transfer of Undertakings (Protection of Employment) Regulations (TUPE)
Although TUPE can be unpopular, the basic principle of automatically transferring employees when a business is transferred is often in business’s interests. There are less popular aspects of TUPE which could be revised in order to make it more business-friendly, in particular rules preventing changes to terms, the consultation requirements, and potentially some outsourcing provisions – although these were actually an enhancement of the EU minimum. Additional unpopular aspects are the application of TUPE on a secondary transfer after a public to private sector transfer, as well as TUPE applying to intra-group transfers.
Discrimination law
Whilst any change to “allow” discrimination by UK employers is likely to be politically unpalatable, the Beecroft Report of 2011 recommended introducing a cap on discrimination claims. That would have been impossible under EU law but could now be possible. If the right to compensation were reduced, this could significantly reduce the financial risk of claims and may as a knock-on result reduce legal costs.
Collective consultation
Some EU-derived collective consultation rights such as works councils and transnational works councils are likely to be removed, although in practice they have little impact on UK employers. Trade unions are likely to fight hard to protect collective redundancy consultation rights which were already watered down to more manageable levels by the last government, although it’s possible the current trigger for collective consultation (20 redundancies) may be increased to 50 or 100 redundancies.
ECJ case law
An interesting issue is what status existing decisions, which have been obliged to implement the ECJ’s position on certain aspects of discrimination and other law, will have on the UK courts. Technically the decision of a higher court is binding on a lower court, unless the facts of the case are different enough to justify not following the previous case law. Will the fact that the decisions of the ECJ are no longer binding mean the previous higher court decisions can be ignored? Or will UK courts continue to view ECJ decisions as persuasive, even if not ultimately binding? This is impossible to predict but if the mood is to regain “control”, it’s quite possible the UK may want to break away from ECJ influenced decisions, even though this could result in a less progressive and more conservative approach to discrimination rights.
Preparing for Brexit
Unfortunately, the retail sector, like most employers, can do little but wait and see how the exit negotiations play out. If the UK does decide to overhaul its employment laws, a substantial amount of work will go into un-picking the existing primary and secondary legislation and introducing replacement law. A key pressure point will be the potential loss of access to EU workers as a source of staff, which coupled with the introduction of the National Living Wage, is likely to place particular pressure on the retail and leisure sector.
One issue for planning ahead is that most UK employment contracts reflect EU derived rights, particularly on holiday and working time, and the contracts will still be enforceable until they are varied by the employer. Employers will have to consider how to change contractual terms, ideally through carefully negotiated and phased changes, rather than having to resort to the mechanism of wide-scale termination and re-engagement on revised terms.

This article was written by Susan Thomas.
For further information please contact Susan Thomas on +44 (0)20 7203 5245 or