Brexit Bulletin: Issues That Firms Should Be Considering Now

Dechert LLP

Dechert LLP

Four months have passed since the UK voted to leave the EU. We are still some way from knowing the likely terms of a post-Brexit agreement, even if the Conservative Party conference and other recent statements have given some indications of likely UK government priorities and timing. However, we do know that a Brexit will happen, and businesses need to make plans for it. While some of those plans can wait until there is greater certainty about future arrangements and whether there will be a transitionary period, this note highlights some of points which are likely to apply to most firms, and which firms can and should be considering now.

Contractual Arrangements

Firms should already be reviewing their existing contracts – at least those which may still apply at the point of Brexit - and amending the standard terms of business they propose to use from now on, to anticipate whether those contracts will operate in the same way once the UK ceases to be an EU Member State. Particular considerations include:

  • Do your contracts rely on the Rome I rules as regard the law that applies to them? It cannot be assumed at this stage that the Rome I rules would be applied by the UK, to which it had initially opted out only later to opt in.
  • Do your contracts assume that enforcement of disputes will be governed by the Judgments Regulation? Whether English courts remain subject to the Brussels Convention in the longer-term will impact on the issuing of injunctions and the conduct of arbitrations however it is likely that Member State courts will continue to recognise and enforce English judgments made under exclusive English jurisdiction clauses.
  • Where contracts provide that they are subject to “English law” or “Scottish law”, at present this would be taken to include EU law which applies in England/Scotland by virtue of the UK’s status as an EU Member State. When the UK leaves the EU, it appears likely that much EU law will, at least initially, be “saved” so as to continue as UK law, but it will lead to changes, and even where the text of a law does not change, UK judges may not follow ECJ precedents in interpreting such laws. In time, the UK may decide to change any law carried over in this way.
  • Do your contracts contain provisions which assume that the UK is an EU Member State? This may include references to the EU that are formulated on the assumption that this includes UK, or may be less obvious – eg references to rights or obligations arising from specific EU laws which currently apply to the UK.
  • Do your contracts rely on or assume the availability of free movement within the EU, or of any EU-level consolidation (such as engaging an EU-wide regulatory body)?

Looking ahead to drafting future contracts, a business may wish to consider the inclusion of its own Material Adverse Change (MAC) clause, or even a bespoke Brexit clause. Such provisions could mirror the emerging negotiations between the UK and the EU, placing breaks in contracts should an unforeseen or undesirable relationship be agreed. Having such a clause offers businesses the flexibility to respond to rapidly changing developments without being held to costly or inappropriate contractual terms, but also requires greater due diligence on the part of firms to understand the implication of these clauses should they be included. Firms should also be alert to the possible inclusion of such Brexit clauses by counterparties when negotiating contracts.

Data Protection

The incoming EU General Data Protection Regulation will come into force throughout the EU in May 2018. At that point, UK will, it is assumed, still be an EU Member State and the new Regulation will therefore apply within the UK. The Regulation introduces a number of new elements, creating new accountability obligations for businesses that are considered data processors, offering greater protection to individuals and their data rights, especially with respect to cross-border and intra-group transfers and establishing a new fines regime with a reinforced role for Data Protection Officers which will require most businesses to undertake a full analysis of their current compliance procedures. These developments will require businesses to check compliance conform to the new standards and create new systems to reflect the developments contained in the Regulation. The new rules will also bring some benefits for businesses, such as a less stringent notification procedure for DPA approval, though some of these benefits are likely to cease to apply to the UK post-Brexit, even if the UK were to carry over the substance of this Regulation into UK law:

  • the ‘one-stop-shop’ element creating a more streamlined system for companies based in numerous Member State whereby businesses now only need to liaise with one lead authority in the EU rather than one in each jurisdiction; and
  • a new independent supranational board offering opinions and guidance has been established for greater consistency.

The long-term, post-Brexit status of the incoming Regulation in the UK, is less clear, but given the expanded territorial reach also contained in the new legislation, UK-based data controllers and processors may still be impacted by it. The future ability to transfer personal data between the UK and the EU will likely depend on whether the European Commission deems the UK protection of personal data post-Brexit to be adequate - as is the case with the United States. This adequacy/equivalence status is something that may be specifically negotiated in discussions, whether as a transitional arrangement, or for the long term.

Employment, Free Movement of People and Workers

A “hard” Brexit outcome looks increasingly likely, a key feature of which, as the Prime Minister has made clear, is that the UK will “regain control of its borders”. This suggests that there will be restrictions on which EU nationals may enter the UK and on what basis they may stay in the UK – potentially with one rule for skilled workers, and another for non-skilled workers (and non-workers). The concern remains that many EU citizens currently working in the UK may decide to avoid the uncertainty which hangs over their long-term status by leaving for another EU country long before the negotiations are finished. However, it does appear that the ability of EU nationals already working in the UK to remain here will be protected. Nonetheless, firms need to think carefully about the terms on which they recruit staff from other EU Member States, whether they will be able to continue to do so with ease, and whether they are likely to find all the relevant skills from the domestic workforce.

The position of firms’ UK staff seconded to other EU Member States also needs to be considered. Whilst the UK remains an EU Member State, such postings can be done with little administrative fuss. However, this is likely to change, and employers may prefer to reconsider such secondment arrangements, until the shape of the post-Brexit position becomes clearer.

In the run up to and in the aftermath of the referendum, many commentators flagged the possibility of significant deregulatory reform of domestic employment law following Brexit, in light of the fact that the UK would then not be required to maintain those aspects of employment law required by EU legislation. Targets for potential reform included the agency workers legislation (including, in particular, parity of terms after twelve weeks), various provisions of the Working Time Directive, the obligation to conduct collective redundancy consultation with unions or employee representatives, and the difficulties which the transfer of undertakings legislation presents for harmonising employees’ terms and conditions post transfer. However, the Prime Minister’s speech to the Conservative Party conference suggests that reductions in worker protection are off the agenda given her statements that workers’ rights would not be under threat from a Conservative Government but would be protected and even enhanced.

Environmental Law

Environmental regulation has a far-reaching impact across businesses in the EU and the UK, whether through transportation, carbon foot printing, waste management, emissions or energy consumption. A significant number of the UK’s environmental laws are derived from European Union environmental law and policy. But environmental law is also an area where many commitments derive from international agreements, and where action by one country at national level is of limited impact; regional cooperation is essential. So for these reasons, wholesale reform seems unlikely, but it remains an open question as to how much of the existing legislation would (or could) be left in place, and firms should be ready for the possibility of some regulatory changes in this area in the years that follow Brexit even if not directly at the point of Brexit.

Intellectual Property

Owners of any sort of IP should take steps to ensure that their rights, both in UK and in EU, will continue to be protected after Brexit. Trade mark and registered design right owners have in recent years favoured protection at the European level rather than national levels because of the advantage of greater geographical protection that this offers. However post-Brexit, the protection offered by such pan-EU rights may cease to extend to the UK, conceivably even for existing registrations, and indeed the defence of EU trade mark registrations from revocation actions may be difficult in cases where the owner would seek to rely on its use of the mark in the UK; right holders would be well advised to consider applying now for UK trade marks and registered designs to ensure protection in addition to their ongoing EU trade mark,. Other IP rights will also be affected: EU unregistered design right is likely to be saved albeit as a domestic design right, and EU Patents are unlikely to continue to offer UK protection. Finally, the introduction of the unitary patent, and the choice of London as a base for the First Instance Court of the Unified Patent Court, due to come into effect in 2017 are under threat. Firms should act now to ensure that their UK and EU IP coverage is in place in order to ensure that they are not caught out if the new arrangements do reduce the protection offered by existing registrations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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