EU-UK Trade and Cooperation Agreement: implications for employment law

The Trade and Cooperation Agreement (the “TCA”) agreed between the UK and the EU on 24 December 2020 opens up the possibility of changes to EU-derived employment law.  Last week the Government made clear that it has no current intentions to push through changes in the short term; longer term, the likelihood of changes depends both on how the TCA itself is interpreted and, of course, on developments in the political landscape.

Non-regression

The parties have committed not to weaken or reduce their labour and social standards below the levels in place at the end of the transition period in a manner affecting trade or investment, including by a failure of enforcement. This applies to fundamental rights at work, health and safety standards, fair working conditions, employment standards, information and consultation rights, and restructuring of undertakings.  There are also separate commitments covering working time rules in road transport.

Effective enforcement is defined as requiring an effective system of labour inspections, timely administrative and judicial proceedings, and appropriate and effective remedies, including interim relief, as well as proportionate and dissuasive sanctions.

Disputes will be subject to a 90 day period of consultations which, if the dispute it not thereby resolved, can be followed by a referral to a panel of experts. Remedial action can be taken (eg through temporary tariffs) if the panel of experts’ report is not acted upon.

There is also a continued commitment to respect the fundamental rights and legal principles set out in the European Convention on Human Rights.

The requirement for effective enforcement, including interim relief, could force the Government's hand in a number of ways:

• currently interim relief is only available in very limited types of unfair dismissal claim (although the EAT has recently suggested that this may be contrary to the European Convention of Human Rights - see our blog post here) and so may need to be extended;
• concerns over the effectiveness of the various UK enforcement bodies may make the Government's plans for a single enforcement body (announced in 2019) more urgent;
• any ideas of reintroducing tribunal fees or imposing a cap on discrimination compensation may also now need to be reassessed in light of the commitment on sanctions.

The prohibition on changes which reduce labour standards in a manner affecting trade or investment means that wholesale reform or repeal of protections is now off the table. The most likely targets for abolition were the agency worker and working time rules;  these are now highly likely to stay in place.  But what about amendments to reduce the administrative burden on employers (where these might not be viewed as impacting on trade or investment), such as changes to the complex rules on calculating holiday pay, carryover of holiday or the requirement to keep records of hours worked (where UK law does not fully implement EU law as construed by the CJEU in any event – see here)?

In mid-January 2021 the Financial Times reported that the Government was considering repealing aspects of retained EU employment law including the 48-hour week, the inclusion of overtime in the calculation of statutory holiday pay, and the duty to record working hours.  At that point the Business Secretary, Kwasi Kwarteng, confirmed that a review was taking place, but he repeated a number of times that the Government remained "committed to having a really high standard for workers" and would not "row back" on the 48-hour weekly working limit, rights to breaks at work, or annual leave entitlement.  A few days later it was reported that the review has been dropped.  It therefore seems that even minor amendments are off the agenda for the time being.

Future divergence

The UK is no longer bound to implement EU Directives.  However, under the TCA the parties have agreed to strive to increase their respective labour and social levels of protection in the future. If there is significant divergence giving rise to "material impacts on trade or investment", either party may take "appropriate rebalancing measures" to address the situation. Any alleged impact on trade or investment must be "based on reliable evidence and not merely on conjecture or remote possibility".

Rebalancing measures will be restricted with respect to their scope and duration to what is strictly necessary and proportionate in order to remedy the situation. If one party intends to apply rebalancing measures, it must consult for up to 14 days and can then apply the measures, unless the other party requests the establishment of an arbitration tribunal to decide whether the rebalancing measures are consistent with the agreement. If this happens frequently, there is a procedure allowing for the review and suspension of the trade and trade-related parts of the agreement in certain circumstances.

There are three EU directives where Member State implementation is due to take place within the next two years – the Whistleblowing Directive by December 2021, and the Transparent and Predictable Working Conditions Directive  and the Directive on Work-Life Balance for Parents and Carers by August 2022.  The bulk of all three directives are either already part of UK law or included in plans for the Employment Bill announced in the last Queen's Speech  (for example, carers' leave, and various rights for casual workers to tackle one-sided flexibility). Assuming these are implemented, it seems unlikely that any relatively minor differences remaining would justify "rebalancing measures".