The decision of voters in the United Kingdom (UK) to leave the European Union (EU) has important implications for global mobility professionals. At the heart of the “Brexit” debate was the fundamental disagreement over the principle of free movement of people across the EU's 28 member states and a growing demand within the UK to have some control over immigration numbers from the EU. While the relocation industry - and the majority of "Remain" supporters - regarded free movement of labour as positive, the referendum decision means that the UK's departure from the EU will almost certainly be accompanied by the introduction of UK-EU immigration controls.
What happens next?
The UK Government has to decide when it will start the formal "Article 50 process", the EU's process - as yet unused - which exists for the exit of a member state. The UK Government is in no rush to begin the process and has suggested that this could be delayed until a new Prime Minister is in place in October. Initial feedback from the EU suggests that pressure will be placed on the UK to move faster in order to end the current state of uncertainty.
Once the Article 50 process is underway, the UK and EU have a 2-year period to agree on a "separation" plan and a future relationship. The UK will also begin its own trade negotiations with non-EU countries.
The legal consequences for the UK are relatively clear:
- EU treaties, directives, regulations and decisions of the European Court of Justice (ECJ) will cease to apply to the UK unless specifically preserved by UK law;
- The ECJ will no longer have jurisdiction over the UK;
- The UK will no longer have the right to participate in EU agencies and it is assumed that agencies which are currently UK-based will relocate to a EU member country.
By contrast, the new trading relationship between the UK and EU is entirely a matter of speculation, with each of the existing models, such as Norway, Switzerland or Turkey, having real downsides from a UK perspective. Negotiations are likely to be long and difficult.
Following its departure from the EU, the UK will be able to discard EU free movement rules and plans to introduce new controls on EU migration. In practice, this is likely to mean a significant fall in low-skilled EU migration to the UK, based on extending the current requirements for non-EU work visas to EU nationals.
It is argued that the positive consequences of ending the UK's involvement in free movement of labour will be reduced pressure on public services and housing, and slightly less downward pressure on semi/unskilled wages. On the other hand, cutting off the supply of EU migrant labour may disadvantage sectors currently reliant on this labour, such as food processing, hospitality and construction. Affected companies are now assessing the potential impact of restrictions being placed on EU nationals working in the UK and on UK nationals working in their mainland Europe offices.
Looking at previous agreements between the EU and its neighbours, a UK rejection of any future arrangement involving "free movement" with the EU has the potential to make for a less advantageous trade deal with the EU. The principles of the EU single market require removing obstacles to the free movement of people alongside the free movement of goods, services and capital. So restrictions on one of these four freedoms are likely to be met with restrictions on other aspects of trade as well. This would pose particular challenges for the UK’s financial services industry, which currently is able to access the entire single market of 500 million people.
Questions also arise about EU citizens currently living and working in the UK - and UK nationals working in the EU. In theory, many people could be required to return to their countries of origin. However, it is far more likely that some form of mutual amnesty will be agreed.
It has to be stressed that the UK will remain in the EU until the withdrawal process has been completed and, as a result, EU nationals in the UK, or considering moving to the UK, will still be able to exercise rights of free movement. There have been suggestions that the UK Government could seek to impose temporary restrictions on this right, but there are no concrete proposals.
Will we see businesses relocate from the UK to EU countries?
UK financial institutions are undoubtedly concerned about the impact of Brexit. The "passporting" rules that allow EU-headquartered banks to carry out business in other member states will cease to apply to the UK. Unless a new passporting arrangement is negotiated with the EU (and approved by all member states), UK financial institutions will be considering the need to set up new headquarters in EU locations such as Dublin, Frankfurt or Paris.
Early evidence, since the Brexit vote, does suggest that some banks will indeed move their headquarters or significant parts of their operations from the UK. On June 25, it was reported that HSBC will move up to 1,000 staff from London to Paris, while JP Morgan has already emailed its UK workers warning that it will "need to make changes to our European legal entity structure and the location of some roles". According to The Sunday Times (June 25), "as many as 100,000 bankers could move from London to other European cities after Britain severs its EU ties".
Will Brexit affect other legal/tax aspects of international relocation management?
Much of the UK employment law comes from the EU, but this is usually in the form of Directives (which the UK Parliament turns into law) rather than Regulations (which automatically become law in all member states). For example, Transfer of Undertakings (Protection of Employment) and Working Time rules come from the EU, but became law under UK legislation, so Brexit has no direct impact on these employment rights. But, a future UK Government, unfettered by EU membership, will have the ability to amend or repeal such legislation.
The cross-border transfer of personal data of assignees and their families is a critical aspect of international relocation management. The EU heavily regulates this area and the relocation industry is following closely the current debate over the proposed EU-US Privacy Shield, which followed the ECJ's decision to declare Safe Harbour invalid.
In addition, the EU has passed a new General Data Protection Regulation (GDPR), which will become law in all member states in May 2018. Following the Brexit vote, the UK's Information Commissioner's Office (ICO) has published a statement confirming that the GDPR will not directly apply to the UK, but pointing out that if the UK wants to trade with the Single Market on equal terms, it will have to prove "adequacy" of its data protection rules by May 2018.
It is too early to say what form the UK's adequacy might take, but the ICO has recommended that businesses should continue to make arrangements to comply with the GDPR. Further communications from the ICO should be monitored closely.
This area of law is particularly important for relocation management companies which have extensive supply chains around the world. This is covered by the UK Bribery Act, so is not affected by Brexit.
Tenancy law in the UK is not affected by EU membership, so no change here.
VAT is an EU-wide tax, which the UK required to adopt at accession in 1973. How it will apply in the future for importers and exporters will be part of EU-UK negotiations. Direct taxes such as income tax and corporation tax are not subject to EU regulation.
EU Cross-Border Pension Schemes
These schemes are covered by a EU directive, but are relatively uncommon as the directive required the schemes to be fully funded and therefore more stringent than schemes operating within a single member state. So this is not an area where we would anticipate great change.
In summary, it is clear that, from a mobility management perspective, the big, game-changing issue is immigration law. Next to that, we can expect some (relatively insignificant) changes in areas such as employment law and protection of personal data.
What should employers be doing now?
All UK-based companies need to address some basic questions:
- Do we have product sales or supply chains that span the EU or other countries with which the EU has trade agreements?
- Do we provide services which are reliant on EU passporting regimes or other mutual recognition of qualifications or standards?
- Do we employ staff from the EU in the UK or vice versa?
If the answer to any of these questions is "yes", then the Brexit vote creates a period of uncertainty, which will only end when the UK's negotiations with the EU are concluded.
Many UK-based employers are now taking practical steps in preparation for Brexit and these will typically include:
- Preparing a list of EU citizens currently on assignment in the UK - and UK citizens currently on assignment in the EU.
- Carrying out workforce audit checks on which employees can apply for permanent residence under local rules (which in the UK would require a minimum stay of five years). Eligible employees can secure a more permanent right to live and work in the UK or other EU jurisdiction and thus avoid the immigration restrictions which will follow Brexit.
- Issuing a supportive internal communication to potentially affected staff.
Wider and more fundamental business exercises are underway in many companies, with a focus on some examples as follows:
- Planning for the labour mobility restrictions and labour shortages that could result from Brexit. If radical proposals (such as a business relocation from the UK or a downsizing) are possible, an audit may be carried out to identify who could be affected.
- Assessing if it could become more difficult to recruit and retain employees or to move them from the UK into the EU and vice versa, which could give rise to skills gaps, an inability to service customers in relevant jurisdictions and a loss of talent.
It is significant that the Brexit decision has already triggered the drafting of legislation in Scotland (which voted to remain in the EU), for the holding of a referendum on whether Scotland will remain part of the UK or become an independent country within the EU. It is conceivable therefore that the potential relocation of financial posts from London will be in the direction of Edinburgh rather than Frankfurt.
Future Brexit Education by Worldwide ERC®
Worldwide ERC® will continue to keep its members updated about key information regarding the UK leaving the EU. Expect to receive emails and educational sessions on specific areas such as immigration changes which are of direct interest to the workforce mobility industry.
This update was prepared by Gordon Kerr who is Vice Chair of the Worldwide ERC® Government Affairs Global Forum and Director of Employee Mobility for Morton Fraser. Gordon is based in Edinburgh, Scotland.