Brexit from an HR Perspective
By Gareth Jarman, Director, HR Advisory, Radius
Editor’s note: The coming UK referendum on whether to remain in or leave the European Union could have serious ramifications for multinationals operating in the UK. This post is the third post of a three-part Radius series examining a potential Brexit and the related legal, HR and tax implications companies should be aware of. Read part one here and part two here.
The debate on the possible effects of the UK leaving the European Union is in full flow. Those in favor of and those against a “Brexit” are posting statistics to bolster their respective arguments. In truth, leaving the European Union (or Community) would be unchartered territory for this island nation, and indeed, for those countries remaining in the EU.
Amid all the claims and, frankly, all the scaremongering, it is important to remember that if the UK does indeed vote to leave the EU, a two-year transition period will ensue during which practical details will be negotiated by myriad institutions and governments. It is a journey where nobody can claim to truly know the end impact – just like when the UK opted not to adopt the euro and lose the British pound.
So, we are in a position of great uncertainty, but swift changes in any event are unlikely. If the UK does leave the EU, I will also be keeping an eye on the remaining EU member states and their reactions to a Brexit. There are regional implications beyond one (large) country that are difficult to predict. That said, HR professionals should be considering the following areas, which could be affected by the UK’s defection from the EU:
- Long-Term Planning
- Employment Law
While the UK is the world’s fifth largest economy, the prospect of its departure from the EU has many in the global economy wary of attendant risk. The coming vote is already affecting the nation’s economy. For example, large companies developing their business in the UK are in effect asking themselves: Is now the time for large capital investment? In addition, there are reports in the run-up to the referendum that the recruitment of permanent positions in the UK is slowing as organizations pause to consider the likely impact of a vote to leave the EU.
As we know, a slowdown in recruiting and a subsequent reduction in employment would lead to reduced tax income for UK authorities and budgets. This is an unwelcome possibility as the UK tries to move out of recession and bolster its global competitiveness. Along with this possibility, if UK voters elect to leave the EU, we could see UK-located organizations looking to move their operations to remaining EU countries for the benefits of relatively unencumbered trade and free movement of labor across member states. Those UK voters who support leaving the EU would be quick to point out that leaving would give the UK greater control over lawmaking, which could in theory promote competitiveness and security.
In the long-term, then, it’s plausible that operating in a post-Brexit UK would have mix of significant advantages and disadvantages over operating in the EU. Unfortunately, nobody really knows the long-term effects of a possible Brexit, and therein lies the predicament.
At this point, and likely for months after the referendum (assuming voters decide to leave the EU, which is of course no sure thing), it will be extremely difficult to assess the benefits and risks associated with operating in the UK. I would question whether there would be a wholesale repealing of EU legislation – the time, logistics and impact of doing so, to me, make this unlikely. As I see it, most businesses will continue operating as they have in the UK, complying with new laws and requirements as they evolve.
Perhaps the most emotive element of the “in or out of the EU” debate is how an “out” vote could affect immigration. Britain has long attracted migrants from around the world, many with scarce skillsets, who have helped drive its economy. Sourcing scarce skills has been enabled in part by the UK’s EU membership, as EU citizens have the right to work anywhere within EU borders. Industry leaders will tell you how important this is.
If the UK leaves the EU, how will UK authorities manage their borders and promote greater perceived balance in “net migration?” While the UK is not part of the Schengen Agreement — which promotes that free movement through borderless migration — these questions are still particularly poignant, especially in light of added security concerns that Europe is facing amid mass migration from overseas, along with non-member countries such as Turkey hoping to join the European Union.
On the one hand, we are already seeing an increase in permanent residency applications for those non-UK citizens already living and working in the UK. These workers have to be qualified in order to apply in the first instance, but the process ensures that those with the desired skills are granted permanent residency. And the rise in applications is evidence that the UK is still seen as an attractive place to live and work, even with the possibility that it will leave the EU.
Those campaigners who want to leave the EU have proposed a “points-based” system of immigration, similar to that used in Canada or Australia. Such a system would establish a more closely managed “right to work” process in the UK focused on attracting particular skills, such as IT, engineering and medicine. This is not dramatically different to what is in place now. But a Brexit would take the UK out of the EU and so take away the right of some 400 million people to decide if they wanted to move to the UK. According to Brexit supporters, this would give the UK needed controls.
The UK’s referendum is evidence that operating within the EU can be challenging for its member states. Many EU citizens inside and outside the UK bristle at the idea of someone from an unelected bureaucracy, or European court, telling them what to do. However, when we really get into the detail of European Commission employment legislation, it is important to note that a lot of it has been put in place to promote greater workplace rights and equality. Interestingly, this legislation largely corresponds to more progressive-thinking legislation from within the US, such as anti-discrimination law and the promotion of workplace flexibility and social change. Indeed, many would argue that a great success of the European Union “project” has been to better the rights and standards of the many millions of ordinary workers within its borders.
The often quoted burdensome legislation that “Brexiteers” would like to see repealed frequently relates to employment laws such as TUPE — the UK’s implementation of an EU Directive to ensure that workers retain their employment rights when they’re transferred to a new employer — and the EU Working Time Directive. Replacing or amending such legislation could improve efficiencies and reduce administrative burdens and costs. In many other areas related to labor law, it’s unlikely that UK employers would be required to make sweeping changes to their company employment contracts and policies, noting that customary practices are in place and in many cases “contractualized.”
Whether or not it decides to remain in the EU, the UK still needs strong measures of certainty, stability and opportunity, like all economies and, it should be said, all businesses. UK business and HR practitioners should rest assured that they will not see massive change this month. Any deregulation from Europe will take time. And if voters opt to remain in the EU, then the UK will continue to navigate its way around EU legislation as it has always done, when possible opting out, as in the case of the aforementioned Schengen Agreement.
Here’s a “twist.” Should the UK elect to leave the EU, there are warnings from European leaders regarding other member states questioning their relationship with the Union. And herein lies a dilemma for the EU in terms of compromise with the UK. In the event of a Brexit, therefore, I foresee that the impact on those states remaining in the eurozone will potentially be as significant as the impact on the UK itself.