What is the position?
Since the UK voted to leave the EU in June 2016, much has been written and discussed. Commentary has ranged from the childish to the provocative and from the ill-considered to the insightful and interesting.
After a significant period of deadlock, the UK general election result of December 2019 appears to have broken the impasse. However, what does this actually mean for you and your business?
Under the Brexit agreement, which the Prime Minister Boris Johnson has agreed in principle with the European Council, a post-Brexit transition period will run from 31 January 2020 until 31 December 2020. Theoretically, this transition period could be extended by up to two years, however, the UK government has been unequivocal in stating that the transition period will not be extended beyond 31 December 2020 (including stating it in their December 2019 general election manifesto).
The commencement of the transition period will see little change administratively for businesses in the UK – the vast majority of EU law will continue to apply to the UK, although the UK will not enjoy the same input into the making and amending of EU law as it did before the transition period. Significantly for the UK, during the transition period, the future UK-EU relationship will be negotiated. Despite the political declaration that accompanied the withdrawal agreement text being termed as non-legally binding, it is expected that much of the future UK-EU relationship will be based on that document.
The time when UK businesses may encounter substantial change to ‘business as usual’ will be at the end of the transition period. If a comprehensive future UK-EU relationship agreement does not come into force by the end of the transition period, this is likely to cause disruption for both the UK and the EU. To date, this has been referred to as a “no-deal” scenario.
The government’s self-imposed strict deadline of 31 December 2020 has already caused the EU to comment that it is unlikely that a full trade deal will be entered into between the parties before the end of the transition period, meaning that, even if a compromised agreement is reached containing the essential elements of a future relationship is reached ahead of the end of the transition period, it could have “no-deal” implications for areas outside of its scope.
Planning for Brexit
Following an extended period of uncertainty, one of the few things that seems relatively certain is that there are likely to be more twists and turns to come on the Brexit rollercoaster before the end of the transition period. Although the specifics of what each business should be doing to prepare for the UK’s anticipated exit from the EU varies depending upon individual circumstances, our advice to businesses in general is to continue with business as usual, keeping a close eye on the tone of the negotiations between the UK and the EU, with a view to developing and implementing your Brexit plans as the year progresses.
Wisdom tells us to prepare for the scenario which will be most disruptive to the status quo, to enable the best to happen. For most businesses, the scenario which will cause the biggest change in day to day operations would be a “no-deal” at the end of the transition period. The National Audit Office reported that the most significant risks to the operation of the UK border in a “no-deal” scenario were (1) business readiness, (2) EU member states imposing controls and (3) arrangements for the Ireland land border. Arguably, points two and three are beyond the direct control of many of us, but there is no need for businesses to be ill-prepared for Brexit.
From the extensive “no-deal” guidance which has been produced to date, businesses can already assess the level to which their businesses may be disrupted by Brexit and develop a strategy to respond to the issues, minimise threats and maximise opportunities. As well as considering the potential short-term and long-term economic effects of a “no-deal” scenario on matters such as borrowing costs, cash flow, consumer confidence, exchange rates and inflation, the other primary issues which most businesses should be considering include the following eight areas (as applicable):
Data protection and personal data flows
Thought should be given as to whether the business may need to take additional steps to comply with the EU data protection regime post-Brexit, for example, when personal data is transferred from the EEA to the UK. Although there will be no immediate changes to UK data protection legislation, businesses should map their personal data flows from the EEA to the UK and identify any potential action required for continuity of EEA-UK data flows. Also, privacy notices/policies and associated documents may need to be updated, for example, in relation to references to the EU and the UK.
EU programme funding
In a “no-deal” scenario, UK businesses will no longer be eligible to receive EU funding for projects under EU programmes, such as direct payments to farmers, Erasmus+, Horizon 2020 and nuclear research. A “no-deal” scenario is also likely to impact upon businesses who intend to access European Investment Bank loans. Businesses should review their current and proposed future sources of government funding and, in particular where EU funding has or will be relied upon, seek alternative funding sources, such as UK government sources of potential funding.
Intellectual property rights
A “no-deal” scenario will negatively affect the holders of certain EU intellectual property rights, including EUTMs, RCDs, unregistered Community designs, rights in databases and Community plant variety rights. Businesses should perform a simple audit of their intellectual property to determine whether they hold any affected intellectual property rights. Where such rights exist, efforts should be made to amend inbound and outbound licences of affected intellectual property to make it clear that the licences extend to any post-Brexit comparable UK rights that derive from the affected EU rights.
When considering cross-border trade in goods and services in preparation for Brexit, thought should be applied to the location of business operations in the UK, the EU and other countries, the location of customer bases and markets, the business’ own supply, production and distribution network (its supply chain), and that of its contractors. As part of a business’ plans, it should consider the effect of potential new tariffs on imports and exports, such as customs duties, the effect of any changes in regulatory requirements and the impact that safety controls and customs declarations may have on lead times. A strategy should be developed to counter any perceived risks.
Key contracts and agreements
The terms of material current agreements which will extend beyond the UK’s exit from the EU (including rolling-term contracts) and contracts for future agreements (including standard-form documentation) should be reviewed. In relation to the former, it would be sensible to consider any restrictions which exist in relation to potential Brexit strategies (such as relocation or early termination), the impact of increased costs under the contract and opportunities for renegotiation to include terms that provide cover against risks associated with Brexit. In relation to future agreements and standard-form documents, it is worth considering whether terms to provide flexibility for Brexit strategies or unanticipated eventualities should be included. Provisions may want to be introduced which facilitate changes in business costs and changes in access to labour or markets, and even thought given to whether basic terms such as the governing law and jurisdiction, alternative dispute resolution procedures, payment currencies, etc. should be varied.
If reliant upon internal legal resources, checks should be conducted to ensure that there is sufficient capacity to deal with Brexit-related increases in workload. Further, consideration may be required to ensure that any external advisors have the capacity and expertise to provide you with any Brexit support required.
Security, borrowings and funding
Consideration should be given to the business’ borrowings, investment plans, loans and security, including its ability to access finance and the impact that changes in the economic landscape may have, such as a reduction in investor confidence, potential increases in borrowing costs, further currency volatility and a potential downgrade in the UK’s credit rating. As part of the review, the terms of any existing and proposed finance agreements should be considered.
An important consideration for all businesses is the degree that the business relies on nationals from the EU, Iceland, Liechtenstein, Norway or Switzerland who work in the UK, or nationals from the UK who work abroad in one of those jurisdictions. Careful consideration should be given to the immigration status of key employees and, in particular, the likely effect of a future skills-based UK immigration system (particularly for businesses who use lower skilled workers).
Mitigating steps exist for most risks which businesses face. As an example, for those businesses which are concerned about the impact of Brexit on their workforce, strategies can be considered which might include providing information resources for staff, offering support on immigration issues, changing recruitment strategies, reallocating staff across businesses or sites, or considering alternative technological measures. Similarly positive steps exist in relation to all of the areas highlighted above.
As matters develop over the coming months, our specialist lawyers will continue to provide advice and practical guidance and, as always, be happy to discuss the specifics of how to best mitigate the threats and maximise the opportunities associated with Brexit.