The Referendum vote to leave the EU has left us with more questions than answers, and the way forward is not clearly signposted. What should we look out for in this uncertain future?
James Partridge, Senior Partner at Tunbridge Wells solicitors Thomson Snell & Passmore, describes the impact that the Leave vote will have on businesses and looks at five key areas
1. Commercial contracts
Local businesses should plan ahead and review their commercial relationships during the next two years in order to minimise the impact.
For example, any provisions in the contract such as ‘an exclusive right to operate in the EU’ will give rise to uncertainty.
Contracts may need to be terminated in case force majeure provisions – circumstances beyond the control of the signatories – are triggered when the UK leaves.
Such terminations may have to rely on Brexit being classified as ‘material adverse change’.
Pricing arrangements may also need to be re-evaluated.
When negotiating contracts, businesses should consider expressly including or excluding the Brexit from any force majeure provision.
New contracts might also feature termination rights that can be activated when the UK leaves the EU, and provide alternative mechanisms.
2. Dispute resolution
Much of the legal framework for disputes between businesses in different EU countires is governed by EU regulations.
Parallel proceedings – simultaneous litigation arising out of a common set of facts – are not allowed.
Recognition and enforcement of judgments are relatively simple, and permission to serve a claim ‘outside the jurisdiction’ – in another EU country pre-Brexit – is not required. It is unclear whether similar rules will continue to apply.
Intellectual Property: UK businesses currently rely to a large extent on Community Trade Marks or European Design Rights to protect their brands and products in the EU. Such protections may no longer apply.
Insurance: UK firms may now lose EU freedoms to write insurance business in any other member state.
Insolvency: The EU has made little progress in harmonising insolvency laws so the impact of Brexit should be limited.
Sanctions: The UK will no longer be involved
in any such EU programme and, subject to any United Nations sanctions, is able to operate its own regime against other countries.
Trade: In the EU, goods, services and people can move freely between member states. The UK has two years to negotiate separate agreements with the EU, which could make trade more complex and expensive.
A large amount of the UK’s employment law comes from the EU, for example the Working Time Regulations and the Agency Worker Regulations.
Once we leave, we will have free rein to repeal all those laws, but in the short term, during negotiations around the exit, there will be no significant changes.
The introduction of gender pay gap reporting and the apprenticeship levy are both UK-led initiatives, so our employers should still expect them to be implemented as planned over the next 12 months.
The EU laws that are most likely to be considered for amendment include:
1 The Agency Workers Regulations, which entitles agency workers to the same treatment as comparable employees in terms of employment and conditions after 12 weeks in a job.
2 Parts of the Working Time Regulations – which limit how many hours can be worked each week – including how holiday is calculated and accrued during sick leave.
3 Imposing a cap on the amount of compensation that can be awarded for claimants who win discrimination claims.
Changes to employment law could be a hot topic in the next general election.
4. Commercial property
We may now see overseas investors taking advantage of a fall in the value of sterling but otherwise it is too early to predict the full consequences of Brexit.
The initial reaction of the financial markets has been dramatic but the key will be how long this continues and how far-reaching the disruption is.
Investment advisors have been scaling back their operations in the UK anyway, regardless of Brexit, since they believe the upturn in the UK property market will reach its peak in 2016.
Within hours of the referendum result, some of our clients put decisions on hold. Uncertainty is always unwelcome in the property business.
No doubt there will also be opportunities arising, so investors, developers and funders should be vigilant and get in early.
5. Data protection
All businesses handle personal data relating to employees, customers or suppliers. Data protection rules cover what they can do with such data and how it must be kept secure.
UK companies should already have been preparing for the EU’s General Data Protection Regulation, which takes effect from 2018.
Both the current and future EU data protection regimes allow the transfer of personal data within the European Economic Area (EEA) – or single market – but there are very tight regulations on any transfers outside of the EEA.
If the UK ends up outside the EEA, there would be significant challenges to businesses’ ability to share data across Europe.
Non-EU countries, such as Singapore, are adopting laws that follow the EU model in order to gain access to EU data.
As a condition of being granted access, countries have had to introduce export controls to prevent EU data reaching jurisdictions that are considered unsafe.
The UK could be included in this scenario if our post-Brexit data protection rules did not match those of the EU.