The Talent Ramifications of the Brexit Deal (or No Deal)

The Talent Ramifications of the Brexit Deal (or No Deal)

The UK’s planned exit from the European Union is fast approaching, and a new deal over the terms of that exit faces an uncertain future in the UK parliament. Whatever happens, there will be talent implications for employers and HR leaders in the UK and Europe. Below is our broad look at the background of the process and terms of the latest proposed deal, and what the potential consequences could be — viewing several key issues through the lens of HR, including immigration, employment law, and the risks of a no-deal Brexit.

Fast Facts

  • The UK will formally exit the European Union on March 29, 2019, marking the deadline for UK and EU negotiators to reach a deal on an orderly Brexit transition. UK Prime Minister Theresa May has reached a draft agreement with the EU that would provide for a 21-month transition period, after which the UK would be able to control immigration from the EU, while backstop measures would allow the UK to remain in the EU customs union and enable a soft border between Northern Ireland and the Republic of Ireland if a final trade deal is not reached by December 2020. The transition period could be extended once, into 2022, if the UK and EU agree to do so.
  • A scheduled Parliament vote on the deal with the EU was delayed on December 10 after the May government realized the agreement would most likely be rejected. May then survived a confidence vote two days later, and plans to continue lobbying for the deal, which will not be scheduled for another vote in Parliament until sometime in January.
  • May’s deal, as drafted, would preserve the free movement of labor between the UK and other EU countries for the duration of the transition period, while any EU citizens living in the UK before the end of that period would have a right to stay, but would have to apply for residency documentation. Afterward, EU citizens would no longer have special privileges in immigrating to the UK. May has proposed a skills-based system for admitting immigrants after Brexit, but some business leaders and the National Health Service fear this system will leave them short-staffed in roles that would not qualify as high-skill under May’s scheme but for which native talent is in short supply.
  • The UK government has pledged to uphold employment laws based on EU regulations after Brexit, but some of these laws may be partly amended to be more flexible for employers or to reduce their liabilities. Unions, however, fear that these protections may be weakened substantially.
  • If there is no deal by the March 29 deadline, the UK will face a “messy” exit from the EU—likely causing severe economic disruptions. In the event of a no-deal Brexit, the UK would revert to trading with Europe under World Trade Organization guidelines, reintroducing customs and border controls. A no-deal Brexit can be expected to hurt the pound and cause instability in the British financial sector, which could spread to continental Europe and the rest of the world.
  • In a no-deal scenario, the government has promised that EU citizens’ immigration status would not change before 2021, but it remains unclear what employers will have to do to ensure that their European employees are able to continue living and working in the UK. Many businesses have put contingency plans into action to protect against the consequences of a no-deal Brexit, but most HR managers in the UK are underprepared for this scenario. In any case, Brexit is expected to result in a labor supply shock and make it more challenging for UK employers to fill job vacancies.

Background

On June 23, 2016, citizens of the UK narrowly voted to withdraw their country from the European Union. The “Brexit” referendum sent a shockwave through the British, European, and global economies, and prompted concern and uncertainty at many organizations in the UK and abroad.

Conservative Prime Minister Theresa May, who came to power shortly after the referendum in 2016, has worked to cut a deal with Brussels that preserves the UK’s strong trade ties with the EU, but has also stressed that no deal is better than a bad deal as far as her government is concerned. UK and EU negotiators deadlocked over several key points where London and Brussels are at cross-purposes, and uncertainty over whether and how these obstacles will be overcome has been a major source of anxiety for UK businesses over the past two years.

Chief among these issues are immigration and the free movement of people between the UK and the rest of the EU. May has stressed the need for the UK to “take back control” of its borders, even if it meant losing access to the EU’s single market. Free movement of people is one of the “four freedoms” underpinning that single market; the UK wants to preserve free movement of goods, services, and capital, while regaining the right to restrict immigration from the EU. For its part, Brussels has resisted creating new forms of special treatment for the UK that would make Brexit easier, partly to discourage other EU countries from pursuing exits of their own. Another, related area of disagreement is the border between the Republic of Ireland and Northern Ireland, which forms the UK’s only land border with another EU country. Many businesses on the island of Ireland have supply chains that cross that border every day and employees living on both sides of it; creating a hard border with customs and immigration controls would be costly and complicated for these organizations.

The deadline for reaching an agreement is March 29, 2019. If no agreement is reached, the UK will “crash out” of the EU and trade with the bloc under World Trade Organization guidelines. May announced on November 25 that her Brexit negotiators and their counterparts in Brussels had reached a draft agreement that would solve some of these challenges.

A vote on the deal in the UK Parliament had been scheduled for December 11, but May called it off one day before when it was clear that the deal was going to be rejected. Many MPs opposed the agreement, claiming the proposed Brexit is too hard or not hard enough, or because they believe the country should hold another referendum on the question before proceeding.

Prime Minister May said on December 10 that she would ask the EU for new “reassurances” on the deal, and in particular the backstop plan for the Northern Ireland border, which many MPs said they opposed. The EU has maintained they will not renegotiate the agreement, however. May’s government offered no specific timeline as to when there would be another scheduled vote in Parliament on this or any revised deal — but has said it will not happen until January. There is also a January 21 deadline to present the deal to Parliament. May survived a confidence v

Here is a broad outline of what might happen next and the key issues HR leaders need to understand:

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New Apprenticeships Decline in England After Levy, Prompting Calls to Drop Target

New Apprenticeships Decline in England After Levy, Prompting Calls to Drop Target

The number of people starting apprenticeships in England declined by 59 percent in the final quarter of the academic year, May–July 2017, to 48,000 from 117,800 in the same quarter of last year, Rob Moss reports at Personnel Today based on new figures from the UK Department for Education. While not unexpected, the decline underlines the rocky start that has befallen the UK government’s controversial apprenticeship levy scheme, which went into effect in April. Both union and industry leaders suggest to Moss that the levy has been making apprenticeships more difficult to organize:

In the lowest level training schemes, intermediate apprenticeships, the number of starts fell by 75%. Tony Burke, assistant general secretary at Unite, said the trade union had concerns about the lowest grade of apprenticeships and whether these were beneficial. He added that there was “a great deal of frustration” with the new scheme. “Some businesses view this as a disaster. The levy has made things more complex so they are not taking apprentices on,” Burke said.

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Relocating From London After Brexit Will Cost Banks Millions

Relocating From London After Brexit Will Cost Banks Millions

One of the industries that stands to be hit hardest by Brexit is the financial sector, as many banks have headquartered their European operations in London and rely on EU passporting rights that allow them to access the entire single European market without dealing with regulatory authorities in each country. Like other organizations, banks have also benefited from the free flow of talent among EU countries, which the UK’s withdrawal from the union will close off.

While the uncertain future of post-Brexit Britain is motivating many banks to transfer many of their London staff to other European countries, these relocations are proving extremely costly, Bloomberg Businessweek’s Gavin Finch reports, with banks expecting to spend $500 million or more. These costs reflect the shortage of experienced bankers in alternative hubs like Dublin, Paris, and Frankfurt, as well as the reluctance of employees to leave London:

“There’s no doubt that the costs are significantly bigger than the banks originally expected,” said Jon Terry, a partner and pay specialist at PricewaterhouseCoopers LLP. “There aren’t enough qualified people in local EU markets to meet the needs of the banks, so they are going to have to rely on moving more expensive staff from elsewhere. And a lot of those people don’t want to move.”

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UK Employers Concerned After Brexit Immigration Plan Leaked

UK Employers Concerned After Brexit Immigration Plan Leaked

A leaked draft of the UK Home Office’s plans for a post-Brexit immigration policy has caused a stir among employers in the country, the Guardian reports, with some industries, including building, agriculture, and hospitality, saying they could face “catastrophic” labor shortages if the plan is enacted as written:

About 2.2 million European Union nationals work in Britain – roughly 7% of the overall workforce – with some subsectors of the economy almost totally reliant on migrants, official figures show. … The hotels, retail and hospitality industries, in particular stand to lose from the reforms. Some 75% of waiters and 25% of chefs working in the UK come from other EU nations. “If these proposals are implemented it could be catastrophic for the UK hospitality industry,” said Ufi Ibrahim, the chief executive of the British Hospitality Association.

Hospitality firms need at least 60,000 new EU workers a year in order to fill vacancies, according to research for the BHA by the accountancy firm KPMG.

UK businesses were already worried about the impact of Brexit on the UK’s already tight labor market and their ability to meet their staffing needs and grown. The Home Office’s plans, which cater strongly to the demands of “hard Brexit” advocates who favor a crackdown on immigration from the EU, are unlikely to allay those concerns. The 82-page document, which the Guardian outlined when it emerged on Tuesday, proposes to end the free movement of labor between the UK and the EU as soon as Brexit comes into effect, and thereafter to phase in a new immigration system that end the right of most European immigrants to settle in the UK:

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UK’s Shocking Election Result Multiplies Brexit Uncertainty

UK’s Shocking Election Result Multiplies Brexit Uncertainty

When UK Prime Minister Theresa May called a general election for June 8, she had hoped to shore up her Conservative party’s majority in parliament and give her government a clear mandate to proceed with Brexit and its broader reform program. Unfortunately for May, Thursday’s polls did not go as planned: The Conservatives lost 12 seats while the opposition Labour party gained 31. While the Conservatives remain the largest party in Parliament, they no longer command a majority alone, so May must form a minority government in coalition with another party in order to hold her place in 10 Downing Street.

On Friday, the Guardian reports, May and Democratic Unionist Party leader Arlene Foster announced that they had agreed to form a government, though it remains unclear whether that will constitute a formal coalition or whether parliamentarians from the right-leaning Northern Irish party will merely agree to back Tory legislation. In exchange for their participation, the DUP is reportedly demanding “a promise that there will be no post-Brexit special status for Northern Ireland,” which the party fears would de-couple the region from the rest of the UK.

Indeed, far from ensuring May a clear path to Brexit on Britain’s terms, the election has thrown the fate of the UK’s withdrawal from the European Union into greater doubt. Negotiations with the EU over the terms of the divorce are scheduled to begin in June 19, and as the Guardian’s Brexit editor Dan Roberts explained on Twitter Friday morning, May must now walk into those talks with her position significantly weakened, as well as complicated by the DUP’s desires regarding Northern Ireland. Roberts also runs through the possible scenarios for how Brexit will proceed now that May has lost a commanding majority:

Theresa May’s stated strategy of walking into Brexit talks and threatening to walk out again if she does not like what she hears is in tatters. Though the economic costs of crashing out without a deal were always hard to contemplate, it is now clear there is no political support for such a high-stakes gamble. Whoever goes into the talks – which are due to start in 10 days’ time – will no longer be believed if they hold a gun to the country’s head and threaten to pull the trigger.

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Workers’ Rights, Gig Economy Take Center Stage in UK Election

Workers’ Rights, Gig Economy Take Center Stage in UK Election

In the lead-up to the upcoming general election on June 8, both of the UK’s leading political parties are positioning themselves as friends of the working class. Prime Minister Theresa May, in particular, is pledging a “new deal” for British workers that she describes as the greatest expansion of employee rights by any Conservative government, Sky News reports:

Mrs May, who is trying to position herself as the politician on the side of working people, will commit to increasing the National Living Wage – currently £7.50 an hour – in line with average earnings until 2022. The Conservative party did not say how much that would mean in real terms, although George Osborne, the former chancellor, said in 2015 he expected it to hit £9 by 2020. Labour has promised to increase the National Living Wage to £10 by 2020. …

Her package will also include a commitment to protect workers’ pensions in the wake of the BHS scandal; a new right to request leave for training purposes; a right to leave for workers who suffer the tragedy of losing a child; and the introduction of returnships for people coming back into work after a period of time off. Mrs May will also change the Equalities Act to extend protections from discrimination to those suffering fluctuating or intermittent mental health conditions.

May is also promising new protections for workers in the gig economy, which has come in for increasing scrutiny and criticism in the UK lately. These new protections, Sky reports, will be based on the findings of a commission headed by Matthew Taylor, a former advisor to Tony Blair who May appointed last October to investigate the major employment issues in the modern economy.

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What Employers Need to Think About as Brexit Begins

What Employers Need to Think About as Brexit Begins

Last week, UK Prime Minister Theresa May sent a letter to President of the European Council Donald Tusk notifying him of the UK’s intent to withdraw from the EU in accordance with Article 50 of the Lisbon Treaty, starting the two-year clock on negotiations over the terms of the divorce. Brexit has officially begun, and while it does not have any immediate impact on UK employment or immigration law, the triggering of Article 50 marked a symbolic point of no return.

In a white paper issued shortly after the Article 50 letter was delivered, the UK government laid out its legislative plan for disentangling the UK from EU law. The government is preparing what it calls a “Great Repeal Bill” to come into effect on the same day Britain exits the union, which will rescind the 1972 European Communities Act that rendered EU law effective in the UK, but retain much of it as domestic law. According to the white paper, the bill will convert directly-applicable EU laws into UK laws, preserve legislation the Parliament has already passed to implement EU obligations, and provide that case law from the Court of Justice of the European Union has the same precedent status in British courts as rulings by the UK’s own Supreme Court. EU law will thus remain in effect in the UK in its new, domestic version, unless or until Parliament votes to change specific laws.

As of now, it is impossible to say for sure which of these laws might change. Previously, the government pledged that the Great Repeal Bill would not remove any of the rights workers enjoy under EU law, but many Brexit supporters favor changes in employment law and skeptics suspect that the government may not honor this promise to UK employees.

The greatest concern for most UK employers regarding Brexit is its impact on immigration law and the freedom of movement between the UK and the remaining EU countries. In a so-called “hard Brexit,” in which the UK leaves the EU quickly and decisively at the likely cost of some concessions from Brussels, EU citizens will likely lose their right to emigrate freely to the UK, though most observers expect some sort of grandfathering arrangement to be reached that will allow those already settled there to remain. The same applies to the many UK citizens living in continental Europe. A clearer picture of the likely post-Brexit scenarios will hopefully emerge once the negotiations begin in earnest next month.

In the meantime, UK industries are lobbying the government to secure a deal that protects free trade with Europe and the status of Europeans already in the UK, Bloomberg reported:

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