Europe: what’s really going on?

If you judged the Brexit debate by the headlines, you’d probably go insane. But when it comes to the HR aspects of EU membership, we’ve got the real facts

When the dust settles over the potential withdrawal of the UK from the European Union, there will be ample contenders for the prize of most outlandish claim, hailing from both sides of the debate. For now, the favourite is surely when rival newspapers simultaneously claimed that Brexit would force Manchester City to deport some of its most successful players, and that Blackpool would become as globally recognisable as Las Vegas in an independent Britain. It’s safe to say that both are untrue.

Of course, in reality, no one can guarantee how things will play out if there is a majority vote to leave. And it’s precisely this uncertainty – mainly around immigration, employment law and the economic impact – that is giving HR professionals pause for thought.

The government has said if the public votes ‘leave’, it would invoke Article 50 of the Lisbon Treaty, which effectively gives the EU notice of the UK’s intention to withdraw. A period of at least two years where the UK would negotiate its new relationship with the EU would then follow – so it’s unlikely anything dramatic would happen immediately.

“For the first two years nothing big would happen, but the uncertainty would be palpable as soon as the clause to exit was invoked. This would affect hiring decisions and investments,” says Dr Swati Dhingra, lecturer in economics at LSE, and co-author of Life after BREXIT: What are the UK’s options outside the European Union?

Some surveys suggest that employers are already exercising caution. The latest Report on Jobs from KPMG and REC found that growth in permanent hires has slowed as companies take a ‘wait and see’ approach, while demand for temporary staff and interims is growing at a much sharper rate. In another survey, from recruitment company Reed, 55 per cent of employers said leaving would put jobs at risk. Ed Vernon, chairman of recruitment consultancy Macildowie, agrees: “Any serious shocks to the economy as a whole will hit the jobs market. Employers are hedging their bets because of the uncertainty – they want to remain flexible in case there’s a downturn.”

EU nationals working in the UK are already asking employers what the implications might be for them, according to Punam Birly, who leads the legal services employment and immigration practice at KPMG. “We’ve seen a number of applications from people – including CEOs – for permanent residence. It’s something they might have done eventually anyway, but they’re doing it now because they don’t want to take a risk,” she says.

If immigration rules are tightened as a result of leaving the EU, she adds, employers with staff on frequent assignments to Europe, or those who ‘commute’ from one country to another, could find themselves with – at best – a mountain of paperwork to deal with. At worst, there could be a significant talent drain as skilled employees choose to work in another country where there is a diminished administrative burden.

Many argue that this lack of flexibility could hamper the UK’s ability to access skills, particularly in areas such as IT, where organisations struggle to fill certain roles. “The IT industry is heavily dependent [on overseas talent] and is constrained by the skills that are available [in the UK],” says Vernon. “In many cases it relies on bringing expertise into the UK from the EU – not to displace jobs, but to facilitate more local people to be employed, and in higher-value jobs.”

The ‘leave’ campaign’s counter-argument is that, outside of the EU, the UK can be more competitive on prices and wages will go further, so more jobs would be created post-exit. “I think we’d see a re-allocation of resources from manufacturing to services; the number of jobs overall would expand because the economy would become more effective,” says Patrick Minford, professor of applied economics at Cardiff Business School and member of Economists for Brexit.

The fortunes of the labour market could be influenced by whether the UK still wants to maintain certain ties with the EU, aping other non-EU countries’ relationships with member states. Norway, for example, retains many of the benefits of membership, including free movement of labour, but has no say over EU rules. Switzerland has a more remote relationship involving around 120 bilateral trade agreements, but it must follow EU law in areas that give it access to the EU market. “Whatever deal the UK strikes, part of that agreement will be trade rights, and hand-in-hand with that would be some right to work in the UK for EU nationals – even if it was watered down,” says Owen Jones, partner and head of business immigration at law firm Doyle Clayton.

One avenue that could be explored post-exit is the introduction of a points system that enables migrants with in-demand skills to gain access to our jobs market, similar to systems in Canada and Australia. “A logical system would be to only let in the people you need; we could still be a liberal country in our approach to immigration, but we’d have more control over migrants coming in,” adds Minford.

But how would a system like this support employers that rely on lower-paid EU migrant labour? “EU migration is quite mixed in terms of skills,” says Stephen Booth, co-director of EU policy think tank Open Europe. “Although it tends to be concentrated at either end – so we have high-earning French bankers, and lower-paid Spanish baristas, for example. The question is: if we changed the policy, how would the labour market react? Australia and Canada may have a points system, but they still need a route in for low-skilled labour, which Australia has via its working holiday visa.”

The practical concerns for employers with a workforce made up of both British and EU nationals don’t stop there. The consequences for employment law of an EU exit could affect everything from working time to how we react to judgments handed down from European courts. Again, though, the ‘bonfire’ of workers’ rights predicted by Labour leader Jeremy Corbyn is at best an exaggeration. And during the two years of negotiation should an exit be invoked, it’s likely that nothing would change at all.

“Employment law will be fairly low down the list of priorities at first,” says David Speakman, counsel at law firm Linklaters. “There are something like 53 trade agreements with markets outside of the EU that the UK may have to renegotiate. We’ll have to work out how our financial institutions interact with those in the union, sort out how removing grants will impact on certain industries – lots of things are likely to be on the political agenda before it turns to employment law.”

Historically, a lot of legislation put in place to protect employees’ rights has hailed from Europe, so is there a chance that a UK government outside of the EU could row back on these rights? “There has been an explosion of legislation to protect employees’ rights since the 1990s,” says Jonathan Maude, head of employment at Vedder Price. “Much of it was driven by the EU, but the bulk of it – such as discrimination law – sits within UK society, and we can’t really argue with it. If we say that some of these rights should be eroded, that would impact on how we recruit. Millennials have grown up with these rights.”

It’s more likely, says Maude, that the government would tinker with aspects of EU-derived employment law that have proven unpopular with business, or created too much red tape. This might include changes to how the Working Time Directive is enacted in the UK, agency workers’ rights and some aspects of TUPE. “The changes are more likely to be around how people work, their terms and conditions, rather than direct cuts to people’s rights,” adds Maude.

But unpicking employment law is far from straightforward – the Working Time Regulations, for example, may dictate a 48-hour working week, but they also provide a generous paid holiday allowance of 28 days. The TUC claimed recently that “around a million workers are at high risk of being forced to work excessive hours if the UK leaves the EU”, but many employers include opt-outs from the 48-hour week in their contracts already. And, by the same token, if Britain did leave the EU, businesses could harmonise terms across borders by re-inserting the 48-hour limit into UK employees’ contracts to match teams in other countries.

“The majority of rights we get from the EU are enshrined in UK law – these would need to be repealed and stripped away, and I can’t imagine any government doing that,” says Martin Warren, practice group head for employment at Eversheds. Indeed, the direction of travel in recent years has frequently been towards offering greater protection to workers than EU law requires – shared parental leave and forthcoming grandparental leave, for instance – so there would be little political or social appetite for this to change. “We’ve maintained a momentum in increasing rights to protect atypical workers, irrespective of the colour of the government. A bonfire of workers’ rights is about as likely as World War III, to be honest,” adds Warren.

However, Jill Rubery, professor of comparative employment systems at Alliance Manchester Business School, believes “part-timers would be most vulnerable to any erosion of rights in the future”. They would be the worst hit by any changes to agency workers’ rights, she says, and already suffer from less access to some rights such as unfair dismissal – things that would be unlikely to become more progressive outside the EU.

While we wait for the outcome of the vote, what can employers do to prepare? Some, such as BMW (which owns Rolls-Royce Motor Cars and Mini in the UK), have urged staff to vote to stay in the union, putting a case forward that an exit would damage the car industry and could affect their jobs. Birly warns employers to tread carefully in how they treat the debate: “Views on Brexit can be highly personal and political, so you need to manage the debate in the right way, focusing on how it might impact on the workforce.”

She adds that companies with workers from outside the EU should be cognisant of treating them fairly. “A good first step is to see how many of your people might be affected,” she suggests. “How many EU nationals have you got – what’s the mix? The incoming immigration bill will tighten up rules on non-EU migration too, so this must also be considered.”

The debate will only get more contentious as polling day approaches. But whichever way you decide to lean, one thing’s for sure: HR can’t afford not to make its voice heard.


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