Brexit and UK employment law

Author: Darren Newman

Darren Newman

Now that the UK and the EU have agreed on the position of the UK post-Brexit, HR is left wondering what this means for UK employment law in 2021 and beyond. Consultant editor Darren Newman considers the impact of Brexit not only on retained EU legislation, but also on EU case law.

For the past 40 years, EU law has influenced and, on occasion, radically changed UK employment law. Sometimes, the link is easy to spot. Standalone regulations that implement EU directives, such as the Working Time Regulations 1998 (SI 1998/1833) or the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246), tend to come to mind when we talk about EU employment law.

But there are many rights scattered through our employment legislation that have their origins in an EU Directive. Examples include the health and safety rights in the Employment Rights Act 1996 that protect workers who leave their workplace "in circumstances of danger that they reasonably consider to be serious and imminent". These were implemented as a result of Directive 89/391/EEC (the health and safety Framework Directive).

Other employment law provisions have a more complicated relationship with EU law. The right to a written statement of terms and conditions set out in s.1 of the Employment Rights Act 1996 was first introduced by the Contracts of Employment Act 1963 - but was amended to comply with the 1991 Proof of Employment Relationship Directive (91/533/EEC). Much of the Equality Act 2010 is underpinned by EU law, but in key respects it goes beyond what is required by the various Directives dealing with discrimination. The relationship between EU and domestic employment law is messy and complicated. Luckily, the terms of our exit from the EU do not require us to untangle the two.

This is the result of the terms of the European Union (Withdrawal) Act 2018. The starting point is that on 1 January 2021 nothing changed. EU law was "retained" and all laws derived from the EU continue to apply until Parliament steps in to amend them. When the courts are interpreting those laws, they must continue to do so in accordance with the principles of EU law (s.6(3) of the European Union (Withdrawal) Act 2018) and the supremacy of EU law must continue to be respected in relation to rules already in force by 1 January 2021 (s.5(2)). This means, for example, that when considering the calculation of holiday pay, employment tribunals will continue to disregard the limited definition of a week's pay provided for in the Working Time Regulations 1998 (SI 1998/1833) and will apply instead the wider definition of "normal remuneration" required by the European Court of Justice (ECJ) to include such things as overtime and commission.

In the summer of 2021, the Supreme Court is due to hear the appeal in East of England Ambulance Service NHS Trust v Flowers and others [2019] IRLR 798 CA, which is concerned with whether or not the calculation of holiday pay should include voluntary overtime. The Supreme Court will decide the case based on the application of EU law in the same way as it would have done before Brexit and its decision will be just as applicable to annual leave taken after the end of the transition period.

Much has been made in political circles of the fact that the Supreme Court and the Court of Appeal (as well as the Inner House of the Court of Session in Scotland and the Northern Ireland Court of Appeal) have been given the power to depart from decisions of the European Court. But this is largely a red herring. These courts are not free to disregard ECJ decisions just because they disagree with them. They must apply the same test as they do when deciding to depart from their own case law (s.6(5) of the European Union (Withdrawal) Act 2018) and that is something that they do only very rarely.

This freedom to depart from ECJ decisions does not alter the fact that the UK courts must, until a law is amended, continue to apply the particular Directive that the UK law is implementing. In the context of employment law, ECJ decisions are concerned mainly with interpreting the relevant Directives and the EU Treaties make it clear that the interpretation of EU law is ultimately a matter for the ECJ. Given that, I find it difficult to envisage circumstances in which a UK court will feel confident that they know better than the ECJ what the requirements of a particular Directive are.

Therefore, the power to depart from ECJ decisions is more theoretical than real. Indeed, my expectation is that even though decisions of the ECJ reached after the end of the transition period will not be technically binding in the UK, our courts will still rely on them when they have to decide on the correct interpretation of a Directive. The question for the future is not whether the courts will interpret the law differently, but whether existing law will be amended by Parliament.

The unknown factor before the trade deal was finalised was the extent to which it would allow the UK to diverge from EU standards across a range of issues, including employment law. Now that we have the full Treaty, we can see that it contains what are called "level playing field" provisions. These seek to ensure that neither the UK nor the EU gains a trade advantage by undermining regulatory standards. Article 6.2 of the Treaty deals specifically with employment law and provides that neither side will "weaken or reduce" levels of protection "in a manner affecting trade or investment between the parties".

This obligation applies to our employment law regime as a whole - it is not just concerned with areas regulated by the EU. So it would be a clear breach of the agreement if the UK Government abolished the right to claim unfair dismissal or redundancy, even though those rights are not based on EU law.

But it is also clear that there is no obligation to maintain standards exactly as they are. The commitment is not to undermine them to the extent that the change affects trade or investment. There is no provision made for determining how any such change could be measured and this is essentially a political rather than a legal issue. The question really is what change would be significant enough that the EU would consider it worthwhile to initiate the dispute resolution procedures set out in the Treaty? For example, the EU might be sufficiently concerned to do that if the UK Government repealed the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) or the Working Time Regulations (SI 1998/1833). But suppose the Government were to place some sort of cap on compensation in discrimination cases or prevent workers on long-term sick leave from claiming holiday pay?  It is difficult to see EU Member States being quite so exercised about what might be regarded as technical changes. While we were in the EU, such changes would have been literally impossible as they would have been disregarded or even struck down by the courts. Now that Brexit has been completed there would be no legal basis for individuals to challenge such reforms. If the EU does not seriously object, the change can be made.

Of course, as yet, the Government has given no indication that it wants to amend any aspect of employment law previously governed by the EU. However, it is easy to think of small but important changes that might seem tempting. The idea of capping compensation for discrimination cases was seriously considered by the coalition Government of 2010 to 2015 but was rejected precisely because EU law would not allow it. TUPE is an established part of the employment law landscape, but successive governments have struggled with the requirement under EU law that contractual changes agreed in connection with a transfer should be void. The Government could simply amend the TUPE Regulations 2006 to remove any reference to the subject with the result that the normal rules of contract would apply. And, perhaps, even hardened Remainers might have some sympathy with the idea of clarifying the definition of a week's pay for the purposes of calculating holiday pay?

The Government has a list of outstanding commitments in relation to employment law. There are still measures proposed by the Taylor Review that were consulted on but never followed up. There are also proposals from the Conservative Party manifesto of 2019 - relating to redundancy protection for new parents and additional leave for carers - that will need to be enacted at some stage. When the Government publishes an Employment Bill (probably later this year), I would be surprised if there were not at least a few additional reforms put forward that would simply not have been possible before January this year.