EU-UK Trade Agreement: People issues

Prior to the announcement of a trade deal with the EU, employment lawyers speculated that areas of potential employment law reform post-Brexit might include the ability to harmonise terms and conditions of employment after a TUPE transfer, the complex provisions on calculation of holiday pay under the Working Time Directive, rights granted to agency workers under the Agency Worker Directive and, potentially, caps on discrimination claims. 

However, in light of the Agreement, reform seems unlikely; most of these matters would fall within the definition of labour and social protection which the UK commits to upholding to ensure a level-playing field.  We do not anticipate UK divergence in relation to anti-discrimination law, family-friendly rights and the broader ESG agenda.

Overview

• The EU (Future Relationship) Act received royal assent bringing the EU-UK Trade and Cooperation Agreement ("the Agreement") into UK law on 31 December 2020. At 11pm on 31 December 2020, the transition period ended, and the UK entered into a new trading relationship with the EU under the TCA. The deal will not be fully operational until it is fully ratified by the EU, but it will apply provisionally from 1 January 2021, pending approval and ratification in the European Parliament.

• From 1 January 2021, the UK left the EU Single Market and the Customs Union. The EU-UK Agreement provides for zero tariffs and quotas. It represents a fundamental shift in the EU-UK relationship with a very substantial reduction of market access in services between the EU and UK

• The Agreement contains far-reaching level playing field provisions.  Both the UK and EU commit to upholding common standards to ensure the protection of labour and social standards, environmental protection, the fight against climate change, including carbon pricing, and tax transparency.

• The UK and EU have agreed that either party can seek redress if it considers that the other party has introduced economic measures which represent unfair competition in the field of subsidies and labour and social, environment or climate protection. The Parties acknowledge that significant divergences in these areas can be capable of impacting trade or investment between the Parties in a manner that changes the circumstances that have formed the basis for the conclusion of this Agreement. There is a rebalancing mechanism which enables either party to introduce unilateral action as is strictly necessary and proportionate in order to remedy the situation. The Dispute Settlement provisions of the Agreement do not apply to the level playing field provisions, which are subject to special arbitration procedures.

• In terms of labour law, the parties agree not to weaken or reduce their labour and social protections below the levels in place at the end of the transition period (31 December 2020), including by failing to effectively enforce their law and standards. This commitment is known as non-regression from levels of protection.

• There is also a commitment by the UK and EU to continue to strive to increase their respective labour and social levels of protection.

• It will be interesting to see whether the UK's failure to keep step with evolving EU employment law would constitute significant divergence sufficient to trigger the rebalancing mechanism above. The EU would have to demonstrate that there is a material impact on trade and investment. This could arise both where the ECJ make significant decisions on employment law issues (eg on Working Time Directive), and where EU Directives come into force (such as the Whistleblowing Directive which is due to be implemented in Member States by 17 December 2021 the Transparent and Predictable Working Conditions Directive and the Work-Life Balance Directive due to implemented by Member States by August 2022).

• Briefly, also of importance from an employment law perspective is data transfer. Under the Agreement, the UK has a four-month window (which can be extended to six months) during which the UK will still not be treated as a third country for GDPR purposes. This will enable the continued free flow of data from the EU and EEA Member States to the UK. This is conditional on the UK not changing its data protection laws from what was in place at 31 December 2020 and the UK not exercising any of its designated powers without agreement from Europe. We expect a formal decision on adequacy to be made by the European Commission in the coming months.

• There will be new immigration requirements for UK citizens carrying out business in the EU (and vice versa). The Agreement permits UK and EU business visitors from the other territory to stay for a period of up to 90 days in any six-month period and includes non-discrimination provisions.

Comment

• The absence of change to UK labour law (at least in the short term) is not unwelcome in the context of the pandemic. While some employers may have hoped for reduced employment law complication, not least on holiday pay, there is value in not having to deal with further change at present.  

• The practical issues arising out of the end of the transition period are therefore already well known.  Many financial services firms have already implemented contingency plans over the last couple of years to preserve market access for their clients following the UK's withdrawal from the European Union. In order to meet local regulatory demands for substance, staff have already been relocated to the EU entity or required to adopt a new approach to their daily working practices through secondment or dual contract arrangements involving splitting time between the UK and the EU-27 location. It remains to be seen how regulatory expectations of substance evolve over time.