Legal implications of Brexit
On 23 June 2016 the UK will vote on whether or not the UK should remain a member of the European Union, following an agreement on a package of reforms (such as restrictions on benefits to EU migrants) by EU leaders at a summit on 19 February 2016.
If the UK votes to remain in the EU, the current legal framework will effectively stay in place and business will continue much as normal.
The legal implications of a UK departure from the EU, though, will vary significantly depending upon which "out" option is taken by the UK Government following a vote to leave.
How would the UK leave?
According to Article 50 of the Treaty on the Functioning of the European Union, the UK would have to give two years' notice of its intention to leave the EU, during which the terms of its exit would need to be negotiated. At the end of that period, the UK would cease to be a part of the EU and the European Communities Act 1972 would need to be repealed.
What are the Brexit Options?
EEA but not EU – The UK could leave the EU, but have a similar relationship with the EU to Norway, Iceland and Liechtenstein and remain part of the European Economic Area. The free movement rules would continue, the UK would pay a reduced contribution to the EU budget and much of EU law would continue to apply (laws concerning employment, competition, procurement etc), but the UK would not have a role in making EU law.
EFTA but not EEA – The UK could re-join the European Free Trade Association, but remain outside the EEA in a similar way to Switzerland. The UK could enter into trade agreements with the EU in the same way as Switzerland and could conclude trade agreements with other countries.
Customs Union – The UK could enter into an arrangement with the EU where it had access to the EU market for goods (but not services) without paying customs duties. Turkey has a similar arrangement to this.
Free Trade Agreement – The UK could try to negotiate a Free Trade Agreement with the EU, covering both goods and services.
WTO relationship - The UK could entirely "turn its back" on the EU, and simply rely on its WTO membership to trade with the EU, in the same way as China and the US trade with EU Member States.
Agreements with third countries – Numerous of the UK's relationships with third countries, which are currently governed by agreements between the third country concerned and the EU, would need to be renegotiated by the UK.
Areas of UK Law which could be most affected by Brexit
Competition Law – EU competition law would still apply to UK companies trading in the EU. UK competition law also currently replicates EU law, in any event. However, EU state aid and public procurement laws could well cease to apply in the UK, depending upon the terms of Brexit.
Intellectual Property Law – The UK's current IP laws are primarily due to EU legislation. All pan-EU IP rights, such as the European Trade Mark, could cease to apply on Brexit.
Employment Law – The effects on UK employment law could be drastic. Most UK employment law rights (discrimination rights, holiday entitlement, minimum paid annual leave etc) derive from EU law. Brexit could lead to the repeal of TUPE and the Working Time Regulations. It could also lead to the end of free movement of EU workers, and different terms for future EU workers.
Environmental Law – Large parts of UK law on environmental issues is EU driven, including in relation to landfill waste and recycling.
Financial Services Regulation – Again, most current UK law governing financial institutions derives from EU law. Leaving the UK could lead to restricted EU market access for UK institutions.
What contingency planning could you do now?
- Review financial covenants, material adverse change clauses, termination clauses in loan agreements, leases, share purchase agreements and other contracts;
- Consider governing law and jurisdiction clauses in contracts;
- Consider whether territorial definitions in agreements referencing the EU should be amended;
- Review your business strategy if dependent upon EU grants;
- Assess the impact of Brexit on the sector you're in; and
- Consider whether to lobby or otherwise participate in the EU referendum process.
The fact that the terms of any Brexit are not known, though, does make contingency planning very difficult indeed!
The above article summarises complicated issues and legal advice should be taken in relation to specific queries, which we would be pleased to provide. If you would like to discuss any questions relating to Brexit, please contact Andrew Oldland at Andrew.firstname.lastname@example.org or Ian Holyoak at Ian.email@example.com, who would be pleased to assist.