How will the UK-EU trade agreement affect employment rights? What employers need to know

How will the UK-EU trade agreement affect employment rights? What employers need to know

Intellectual Property - managing the Brexit transition

The UK has entered into a “Trade and Co-operation Agreement” with the EU and the European Atomic Energy Community (the “Trade Agreement”). In exchange for zero tariffs and quotas in relation to trade, the UK and EU commit to economic and security coordination in relation to matters including fisheries, data protection, law enforcement, social security, energy, aviation and road transport. We set out below the aspects of the Trade Agreement that most impact UK businesses in relation to employment rights.

“Level playing field” commitment

A key aspect of the Trade Agreement is a commitment to ensuring a “level playing field for open and fair competition” between the UK and EU, acknowledging that significant divergences in areas such as employment law could give either party a competitive advantage so as to undermine the premise of the Trade Agreement. In the employment context, the UK government has effectively agreed not reduce the employment law rights that existed in the UK as at 31 December 2020 “in a manner affecting trade or investment”. This includes the UK failing to enforce its employment laws and standards effectively. 

Non-regression in employment rights

The Trade Agreement expressly confirms both the UK’s and the EU’s determination to maintain and improve their respective high standards in employment law and rights. It contains reciprocal commitments not to reduce employment rights in a manner that has an effect on trade or investment. This applies to fundamental rights at work, occupational health and safety standards, fair working conditions and employment standards, information and consultation rights at company level, and restructuring of businesses.

No requirement to harmonise employment rights

Although the Trade Agreement prohibits the UK from weakening or reducing its employment rights in a way that impacts trade and investment, the Trade Agreement does not go so far as requiring the UK to stay aligned with all EU employment rights. Indeed, such a requirement would be unrealistic, given that there is no uniform set of employment rights across EU member states as a result of the discretion afforded to member states in how they implement EU law. 

Effective enforcement of employment rights

The Trade Agreement recognises that a failure to enforce employment rights could also impact trade and investment and, therefore, such a failure would also be a breach of the Trade Agreement. The Trade Agreement requires the UK to have in place and maintain a system for effective domestic enforcement and, in particular, “an effective system of labour inspections”. The UK is to provide for “appropriate and effective remedies, including interim relief”, as well as “proportionate and dissuasive sanctions”.

“Rebalancing measures” to address impact on trade and investment

If the EU considers that the UK has reduced employment law rights in a way that impacts trade and investment, the EU and UK will consult with the aim of “reaching a mutually satisfactory resolution of the matter”. If the matter cannot be satisfactorily addressed through consultation, it shall be determined by a panel of experts. The panellists will comprise three members of the newly formed, ‘Trade Specialised Committee on the Level Playing Field for Open and Fair Competition and Sustainable Development. If the panel determines that “material impacts on trade or investment” between the EU and the UK have arisen as a result of “significant divergences” in employment laws and standards, the EU may take, “appropriate rebalancing measures to address the situation”. In assessing any impact on trade and investment, the panel will rely on “reliable evidence and not merely on conjecture or remote possibility”.

Renewed commitment to human rights

Under the Trade Agreement, the UK also commits to upholding and giving effect to the fundamental rights and freedoms set out in the Universal Declaration of Human Rights and in the European Convention on Human Rights (ECHR). 

Practical impact of Trade Agreement on UK employers

Divergence from existing EU law

Some employers may have welcomed the end of the transition period following the UK’s withdrawal from the EU as an opportunity for the UK to depart from EU law in a number of areas of employment law, including the calculation of holiday pay, the regulation of agency workers, and the extensive employment rights afforded in the context of business transfers. Although the Trade Agreement appears to restrict the UK from reducing employment rights, this limitation is heavily caveated: only changes to employment law that result in “material impacts on trade or investment” between the EU and the UK will be in breach of the Trade Agreement. 

A number of changes to existing employment law may be possible without materially impacting trade and investment. For example, it is likely that simplifying the calculation of holiday pay will have little or no impact on trade and investment. Furthermore, for the EU to invoke rebalancing measures, there would need to be reliable evidence of a material impact on trade and investment and, in many cases, this would be difficult to identify. However, wholesale changes to employment rights, such as significantly reducing the rights of agency workers, will more likely trigger the threshold for punitive action under the Trade Agreement. 

The UK is no longer required to implement new EU directives, and UK courts and tribunals are not bound by any new decisions made by the Court of Justice of the European Union. However, if the UK’s failure to implement new EU law results in a significant divergence in employment law and standards between the UK and EU that has a material impact on trade and investment, the EU may have recourse to the rebalancing measures set out in the Trade Agreement. There is, however, currently no indication that the UK government intends to set a significantly different employment law agenda to that of the EU over the first few years following the Trade Agreement.

Greater enforcement of employment rights?

The UK already has a relatively robust employment tribunal system; however, the requirements for “effective domestic enforcement” under the Trade Agreement arguably extend further than the system currently in place. The UK may struggle to establish that is has “an effective system of labour inspections” at present; however, in the Good Work Plan, the government confirmed that it would bring forward proposals for a new, single labour market enforcement agency to better protect the rights of vulnerable workers and to achieve greater compliance from employers. Such an enforcement agency may satisfy the relevant requirements under the Trade Agreement. 

In view of the enforcement requirements under the Trade Agreement, the UK may also be required to extend the right to claim interim relief for individuals bringing employment-related claims. The right to claim interim relief while awaiting a tribunal hearing only applies in a very limited number of circumstances at present. It is also unlikely that we will now see the re-introduction of tribunal fees, which are commonly viewed as an inhibitor to legal access, or the introduction of a cap on the compensation awarded for discrimination, given the need for “proportionate and dissuasive sanctions”.

Upholding human rights

The ECHR is given effect in domestic law by the Human Rights Act 1998 (HRA). Under the HRA, UK courts are required as far as possible to interpret legislation in a way that is compatible with the ECHR.  Any legislation declared to be incompatible with the ECHR remains in force until amending legislation is passed. There have been calls in recent years for the HRA to be repealed. The Trade Agreement would not prohibit this per se, provided that the UK continues to uphold and give effect to the basic human rights set out in the ECHR. There is, therefore, potential for parliament to replace the HRA with a new Bill of Rights.

Note: the provisions of the Trade Agreement were implemented into domestic law by the European Union (Future Relationship) Act 2020, which was passed on 31 December 2020. 

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