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27 March 2019
The final form of Brexit remains uncertain, as does its impact on European works councils governed by UK law.
This article discusses what course of action businesses should take as the United Kingdom approaches its (projected) departure from the European Union.(1)
Changes to United Kingdom's European works council legislation
Parliament has now approved the Employment Rights (Amendment) (EU Exit) Regulations 2019, which amend the United Kingdom's European works council legislation in the event of a no-deal Brexit.
In summary, and contrary to the government's commitments to preserve all UK employees' rights, the regulations will:
The regulations preserve the application of the United Kingdom's European works council legislation only to employers that:
As far as is known, no business meets these criteria. In short, the regulations end the United Kingdom's legal framework for operating European works councils.
Brexit likely to frustrate existing Article 6 European works council agreements
The ending of the United Kingdom's legal framework for operating European works councils and the United Kingdom's withdrawal from the European Union's legal framework lead to the question of what will happen to existing UK law-governed Article 6 European works council agreements.
Arguably, the UK law doctrine of frustration provides the answer. This applies where a supervening event occurs that is neither party's fault and significantly changes the nature of a party's obligations from what they could reasonably have contemplated when reaching the agreement. In this situation, the agreement is treated as frustrated and both parties are discharged from further performance of their obligations.
The High Court's recent decision in Canary Wharf (BP4) T1 Ltd v European Medicine Agency indicates that Brexit is likely to frustrate UK law-governed Article 6 European works council agreements (even though the European Medicine Agency's lease at Canary Wharf will not be frustrated on the facts of this case) for the following reasons:
But even if a UK law-governed European works council agreement is frustrated, then – unless the exclusion of UK employees removes a business from the scope of the European Works Council Directive – Brexit should not be treated as a basis for ending other non-UK European employees' European works council rights. A new representative agent should be appointed to take over responsibility for operating the European works council once Brexit is effected and they should be instructed to continue providing information and consultation on the same basis as before Brexit, insofar as this is possible.
How to appoint a new representative agent
Employers with European works councils currently governed by the United Kingdom's European works council legislation are strongly advised to conditionally appoint a new representative agent in a state that will remain in the European Union. This will avoid the application of default rules for determining the governing law of a European works council arrangement based on which undertaking in a member state happens to employ the most employees. Ireland is the almost exclusive destination of choice given its:
Some businesses have already designated new representative agents in Ireland in light of Brexit. Some of these designations have gone unchallenged; however, in HPE (EWC/19/2018), Unite the Union is questioning the right of non-EU-based companies to re-designate. Unite has hinted that UK-based companies conditionally designating might also be challenged in due course. The decision in HPE will provide critical guidance on avoiding legal challenges to relocating a representative agent.
The best approach for businesses will depend on their exact circumstances. Specialist advice should be obtained given the potential criminal penalties, including imprisonment, for individuals who are responsible for their business failing to comply with its legal obligations.
UK law-governed Article 6 European works council agreements should, if possible, be novated with the European works councils' consent from the existing UK entity to a new chosen representative agent with immediate and unconditional effect from Brexit, in order to minimise the risk of future disputes.
Nonetheless, the following general approach could be adopted in the event of a no-deal Brexit. Notably, each suggestion can be implemented unilaterally without employee representatives' consent:
Employers should immediately take advice and start preparing the above documentation given the high-risk of a no-deal Brexit.
For further information on this topic please contact David Hopper, Vince Toman or Kerry Salisbury at Lewis Silkin by telephone (+44 207 074 8000) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Lewis Silkin website can be accessed at www.lewissilkin.com.
(1) More information on Brexit and European works councils is available here.
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