The EU Referendum and its impact on businesses

posted by AlisonHoy

Businesses face a period of dealing with uncertainty as a consequence of the result of the EU Referendum. We can assist in advising on likely legal implications as a consequence of the decision, and implementation of changes that arise over time.

At this stage we set out an overview of the main issues at present.

UK exit process and procedure

The current plan is for the government to proceed with the formal exit process under Article 50 of the Treaty of the European Union following David Cameron’s departure from office in October 2016. The UK will then have two years in which to negotiate the terms of its exit from the EU. In the absence of a deal in that period, the time limit can be extended, but only with the unanimous agreement of the 27 remaining member states. At the same time, the UK will be seeking to negotiate its trading relationships, both with member states and with the rest of the international community.

Therefore in terms of existing legislation, the status quo should apply until the UK has formally left the EU. During the Article 50 process, and in accordance with the European Communities Act 1972), EU regulations with direct effect will have to be followed, new EU directives will need to be transposed into UK law (provided the time limit fits with the exit timetable), and the UK courts will continue to have regard to the decisions of the EU courts and European Commission practice until the formal exit has taken place.

There will need to be a wholesale review of UK legislation. Experts think that this process is likely to take a considerable time and may result in practice in a significant amount of “lifting and shifting” of the existing rules into domestic legislation for expediency’s sake, particularly as the exercise to repeal the least popular elements of EU-derived provisions will be a painstaking process.

Even if the UK government does manage to agree a trade deal with the remaining members of the EU that does not require the UK to continue to comply with EU law, since a significant percentage of our law is derived from EU law and those laws cannot be rewritten overnight, this issue will arise even if the UK no longer has to comply with any EU law following the UK leaving the EU.

Implications for business

There will be implications for a wide range of legal areas that affect businesses.

Contract law (except in the area of consumer rights), tort and trust law are legal principles that are developed and maintained by English courts, and so are broadly unaffected by EU law. However, there are potentially complex implications for the conflict of law rules and the conduct of disputes for cross-border contracts. Businesses that trade across international borders in the EU will therefore be affected.

The Companies Act 2006 and the competition legislation both derive at least in part from, and run in parallel with, EU legislation, but, unless there is a political will to “deregulate” certain aspects, they are unlikely to change significantly.

Contractual relationships

As English contract law has broadly continued to develop outside the EU influence, the likely implications will be on cross-border contracts and disputes, rather than on domestic matters.

Parties will need to think very carefully about how the referendum result impacts their existing contractual relationships and plan accordingly. The result itself may not affect parties’ existing contractual relationships now, but it may do once the response to the result becomes clearer. Any new contractual arrangements must be considered, to the extent relevant, against the background that the UK will be leaving the EU at some stage in the coming years.

Intellectual property

Under the terms of the Article 50 process, EU trademarks and Registered Community designs will still give protection in the UK until at least June 2018, possibly longer. It is likely that there will be some mechanism for these rights to be ‘converted’ into UK rights. This in itself will be a huge administrative task.

For trademark and design owners filing new applications there is a choice of filing both UK and EU-wide applications now, or apply EU wide and ‘convert’ at a later date. 

Employment

The free movement of people was, of course, one of the key areas of the referendum debate, and will be of particular interest to international employers. For the moment, it is business as usual.   

When the UK leaves the EU and if it does not negotiate to maintain freedom of movement rights, EU workers might be required to apply for visas under UK immigration rules. UK nationals living in the EU would similarly have to apply for visas to work there. In addition to the cost of visas, low-skilled workers are unlikely to satisfy the eligibility requirements for UK work visas. This could result in staff shortages and the need for employers to raise salaries to attract staff.

Procurement

One of the areas where there the decision to leave the EU will have an impact is in projects, research and so forth funded by the EU, or in some way related to the EU. Those dependent on those projects and research that are funded may be immediately affected.

If you have any queries regarding how you should review your practices, procedures and contractual relationships please contact us on 029 20 34 55 11 or cardiff@berrysmith.com.