Potential effect of Brexit
- The United Kingdom is scheduled to exit the European Union on 29 March 2019. With the countdown to Brexit now measured in weeks, and with scant definitive information from the Government on how the UK’s relationship with the rest of the European Union will function, owners of businesses of all sizes are rightly concerned about the effect Brexit will have on their operations.
- In this note, we highlight seven key areas of business law and draw out the potential changes and challenges that entrepreneurs are likely to face in each, based on what we currently know..
EU Law in the UK
- As an EU member state, EU law currently takes effect in the UK in two primary ways. EU laws called ‘Regulations’ are immediately and directly enforceable as soon as they are passed, whereas other EU laws, called ‘Directives’, need to be implemented into UK domestic law.
- In preparation for Brexit, the UK Government passed the European Union (Withdrawal) Act 2018 (“EUWA”), under which the entirety of EU law as it stands on 29 March 2019 will, in essence, be copy-pasted directly into UK domestic law.
- Contract law governs global trade, so is understandably already one of the most homogenous areas of law among different countries. The UK’s departure from the EU, with or without a deal, will not change the basic validity of contracts and how they are enforced throughout Europe, or further afield. However, businesses would be prudent to review their existing and new commercial and consumer-facing agreements for provisions that may become ambiguous after Brexit.
- The most obvious example might be a reference to “the European Union”. This should be clarified; does it mean the EU member states when the agreement was entered into? If so, listing the countries that the agreement applies to would remove that uncertainty. If instead it is intended mean the members of the EU at the time of reading, the wording could be amended to something like “the Member States of the European Union, from time to time”. If the latter approach is taken, the agreement will apply to the UK up until Brexit but not afterwards.
Wordingof this type will also mean that such agreements will automatically refer to future members from the point at which they join the EU.
- Where an agreement between a UK business and an entity or individual resident in the EU states that it will be subject to “all applicable laws” or words to that effect, consider whether to clarify if this means that EU law, as it stands at some future date, should govern the performance of the contract particularly when dealing with individual consumers. Consider whether an exclusive jurisdiction clause, specifying which country’s courts will ultimately decide upon any disagreement, might be an appropriate addition.
Businesses should carefully consider whether Brexit – and the UK no longer being subject to EU law – might trigger a termination or force majeure clause in any of their existing agreements.
- The Enterprise Investment and Seed Enterprise Investment Scheme (‘EIS and SEIS’) tax incentives exist to encourage investment in small businesses. The EU has, until now, maintained the right to be consulted on any changes to EIS and SEIS, since these schemes count as forms of state aid. However, as they are ultimately provided for under UK law, Brexit will not directly affect them.
Data Protection & Privacy
- Anyone supplying services or goods to EU domiciled individuals will still be required to comply with the General Data Protection Regulation (GDPR), irrespective of the nature of the UK’s future relationship with the EU.
- In the event of a ‘no deal’ Brexit on 29 March 2019, the UK becomes a ‘third country’ and consequently in the absence of an ‘adequacy decision’ by the European Commission, as is likely, this will mean that UK entities may no longer be able to receive and process personal data from individuals or entities resident within the European Economic Area (EEA), unless they can demonstrate compliance with the stringent requirements that apply to transfers to third countries.
- The UK Government, for its part, will transpose a version of GDPR into UK domestic law and has stated that it intends to follow the EU’s classification of non-EU countries in relation to whether or not they are sufficiently secure third countries. This means that even following a ‘no deal’ Brexit, the transfer of personal data from the UK to EEA entities should be unaffected in the short term.
- However, transfers made between the UK and the United States under the EU/US ‘Privacy Shield’ regime will no longer be possible unless the US entity receiving data has publicly declared that it has updated its commitments in relation to the transfer from the UK.
Regulation & Competition
- UK competition law is largely harmonised with European legislation. The Competition Act 1998, requires UK courts to interpret domestic competition rules in accordance with EU competition case law to the extent possible. This means that on 29 March 2019 little will change immediately. However, although the UK Government has not indicated any intention to pass new competition legislation, it is likely that, in the absence of a definitive commitment to
maintaina regime of equivalence, the two systems will gradually diverge.
In the short to medium term, larger businesses that are considering M&A activity should be aware that, unless the business activities of all parties are strictly limited to the UK, there will almost certainly be a requirement to notify both UK and EU authorities.
A new and innovative business’ greatest asset is often its intellectual property (‘IP’). The UK recognises and protects IP via a number of pan-European mechanisms, not all of which are connected to the EU. Below we have picked out the two forms of IP that are most likely to be of interest to our clients.
Trade marksare used to protect words, signs or symbols that distinguish one person’s goods and services from another. They may currently be registered with either the UK or EU Intellectual Property Office. In a guidance note published on 17 January 2019, the UK Government stated that even in the event of a no-deal Brexit, European trade marksthat have been registered centrally will continue to be enforced in the UK. Naturally, trade marksthat were already registered in the UK will be unaffected. The overall impact on the ability of UK businesses to protect their brand identities throughout the EU should thereforebe slight.
- Patents are generally relied upon to protect new, unique and non-obvious inventions. They may also be registered with the UK Intellectual Property Office, or with the European Patent Office (‘EPO’). However, unlike the EU Intellectual Property Office, the EPO is not a body of the European Union. The UK’s membership of the EPO will
thereforebe unaffected by Brexit, and so European Patents which take effect in the UK will remain in force whether or not the UK leaves with a deal in place.
Businesses looking to protect their inventions should consider the markets in which they intend to operate when deciding whether to apply for a UK patent or a European Patent.
- Much of the law governing relations between employers and employees in the UK, including workplace rights on working hours, maternity and paternity leave, discrimination, health and safety, and redundancy pay – as well as worker’s rights on the sale of a business – stem from EU law.
- EU laws which currently apply directly to the UK will become UK laws under the EUWA, and those which were already incorporated into UK domestic law will be unaffected by Brexit. In principle, after Brexit, the Government could pass legislation to vary these rules. However, on 28 August 2018, the Government published a guidance briefing stating its intention to make only very minor amendments to reflect the fact that the UK will no longer be a member of the EU.
While the effects of Brexit on employment law are likely to be slight, whether we leave with or without a deal on 29 March 2019, employers would be wise to review their existing employment contracts and amend any references to rights defined by reference to EU law by incorporating the rights directly into the contract.
Visas & Immigration
- The rights of EU nationals to live and work in the UK after Brexit have been the subject of intense public interest and debate since the 2016 referendum. Under current UK Government proposals, EU nationals currently
residentin the UK, or who arrive prior to the end of 2020, will be entitled to apply for ‘settled status’ under an accelerated process.
- It should be stressed that no scheme has yet been launched and the embarrassing revelation in November 2018 - that the long-promised mobile application, through which EU nationals were supposedly going to be able to lodge their applications, may not be compatible with Apple’s iOS operating system - will not give much comfort to the three million plus potential applicants that the UK Government is on top of the situation.
timeof writing, the only other way for an EU national to apply for the right to remain in the UK is by applying for a or Document Certifying Permanent Residence (‘DCPR’), but this option is limited those who have been exercising rights of residence for at least five consecutive years. DCPR applications are processed by the Home Office on a case-by-case basis and require applicants to fill out an 85-page form and comply with onerous disclosure obligations.
- Businesses need not worry that their staff will be summarily deported on 29 March 2019, but for those seeking certainty about the status of their EU-national employees, there isn’t a lot of good news. For larger businesses, supporting qualifying employees through the DCPR process might be a viable option, but such applications will potentially be rendered redundant once any settled status application regime goes live.
- On balance, it seems likely that the UK Government will eventually deliver on their promise of a streamlined settled status application process. However, with Brexit fast approaching, this cannot come soon enough for EU nationals, their families and their employers. Please don’t hesitate to get in touch if you have any questions. The above summary should not be taken as legal advice. Our experienced team is well equipped to advise on any Brexit-related issues or concerns that you or your business may have.