The EU-UK trade agreement is in place: Here’s what UK employers need to do now

2 February 2021
On 24 December 2020, just days before the end of the Brexit transition period, British and European Parliaments ratified the EU-UK Trade and Cooperation Agreement.

The Agreement is the product of months of intense negotiations, with compromises made on both sides. It contains many unprecedented provisions that UK- and EU-based businesses hope reflect a strong bond that will continue between the parties for years to come.

This article addresses some important Agreement provisions that UK employers need to account for now, along with other important considerations in the wake of Brexit.

Employment law: Non-regression measures

All employment legislation originating from the EU and introduced before 31 January 2020 still applies to UK employers, per the European Union (Withdrawal) Act 2018. Consequently, EU-derived laws such as working time regulations continue to apply to UK employees.

Many experts and commentators have been speculating about whether and the extent to which the UK will abandon EU employment laws. After all, the UK government negotiated the freedom to diverge from them.

The Agreement provides that the UK and EU must not weaken or reduce the level of certain employment rights in place as of 31 December 2020, but only so far as this affects trade or investment. The agreement also stipulates that both sides must effectively enforce their employment laws and standards. UK employers must continue to ensure the following for their employees:

  • fundamental rights at work;
  • health and safety standards;
  • fair working conditions;
  • employment standards;
  • information and consultation rights at a company level; and
  • the restructuring of undertakings.

While the Agreement’s provisions restrict the UK's ability to make significant employment law changes, they do not amount to a complete prohibition. Again, the Agreement prohibits the weakening of employment rights only when doing so would affect trade or investment.

For example, if the UK removed EU-derived protections such as working time and TUPE, that would likely give UK employers a competitive advantage over their EU counterparts and consequently affect trade. As a result, it is likely that the UK would be prohibited from abolishing TUPE protections under the Agreement.

If on the other hand the UK makes a minor change to its employment laws — for example, by amending a small aspect of its agency workers laws — doing so will (likely) not affect trade. As a result, the change would be permitted under the terms of the Agreement.

If a disagreement arises as to whether a proposed change in law or regulation would constitute a regression under the Agreement, and a resolution cannot be reached by consultation, the parties would need to appoint an independent panel of experts. The panel will review and prepare a report detailing its determination as to whether either party has failed to meet its obligations.

Employment law: Re-balancing measures

To ensure that neither the EU nor the UK creates any significant divergence when implementing new labour laws, both parties may implement appropriate "re-balancing measures." In these cases, the concerned party notifies the other party of the measures they intend to take and provide proof of a material impact on trade or investment based on "reliable evidence." Any proposed measures should address only what is strictly necessary and proportionate to remedy the situation. Both parties will then enter a consultation period, followed by an arbitration process if they cannot reach a resolution.

These re-balancing or non-regression provisions aim to ensure a level playing field between UK- and EU-based employers so that neither can obtain an unfair competitive advantage through access to lower employment standards and cheaper labour.

Immigration law: The EU Settlement Scheme

Since the UK’s EU Settlement Scheme launched in March 2019, more than 4 million people have applied. EU, EEA and Swiss citizens wishing to continue living in the UK after 30 June 2021 can still apply for "settled" or "pre-settled" status in the UK. Typically, an applicant must have started living in the UK by 31 December 2020.

The Scheme will be open until 30 June 2021. However, EU citizens should apply as soon as possible, particularly considering significant delays in processing applications due to Covid-19. Family members can also apply and should do so simultaneously as the qualifying EU national to whom they are related.

EU citizens currently residing in the UK who plan to travel outside the UK should ideally apply and achieve confirmed settled or pre-settled status before they travel, but at the very least they should make their application and travel with their application documents. This will ensure they do not face difficulties on re-entering the UK.

EU nationals who have been residing in the UK for five years or more will be qualified for settled status, giving them permanent leave to remain in the UK. Those with less than five years of residency will be eligible for pre-settled status, giving them leave to remain for up to five years, at which point they can gain settled status.

Immigration: The new points-based system

The UK initiated a new points-based immigration system on 1 January 2021. It aims to attract people who can add to the UK's economy and treats EU and non-EU citizens equally. The new system does not affect Irish citizens, who will continue to benefit from longstanding alternative arrangements.

The points-based system introduces a broader entry route for skilled workers who have already obtained a job offer from an affirmed employer sponsor and accumulated the necessary points to apply. In order to be eligible:

  • the job offer must be at the skill level of English A-Level, equivalent or above,
  • the candidate must speak English to the required standard,
  • the salary must meet a relevant threshold, but not less than £20,480.

Points are attributed to each of the above criteria.

If a candidate receives an offer for a role on less than the relevant salary threshold, but not less than £20,480, it may be possible to "trade" points on other specific characteristics against the salary requirement. For instance, if an individual has a higher-level degree related to the position offered, or the role is on the Shortage Occupation List, he or she may attract additional tradable points.

The new immigration system doesn't include a general visa route for lower-skilled workers earning on or near the national minimum wage. It could be argued that this is a significant limitation on the new points-based system. It is notable, however, that the new system broadens the skilled-worker route to include lower skills and salary thresholds than the previous points-based system.

Nevertheless, there is ongoing concern over the new system's possible effects on adult social care in particular. The standard pay for caregivers is nowhere near the relevant salary threshold, even if a given role meets the skill requirement. The government argues that UK nationals and the 4 million EU nationals who have already applied to stay in the UK should be sufficient to fill these and other lower-skilled, lower-paid roles. Given this more limited talent pool, however, employers in the services industry and other relevant industries should encourage their existing EU workers to use the EU Settlement Scheme.

UK employers that want to recruit skilled EU and non-EU workers must now apply for and secure a sponsorship licence from the Home Office. They must also ensure they are up to date with the sponsorship-scheme changes.

Steps UK employers should take now

We recommend that employers take the following steps to reassure and retain their talent:

  • Conduct a full audit of your workforce to identify employees affected by Brexit. Often overlooked are the family members of EU nationals, such as a US national working in the UK as a European national family member.
  • Actively encourage your employees to consider their status and assist them in applying for relevant documentation.
  • Offer support and resources to your employees. For example, host information workshops presented by immigration experts to provide current information, and share the EU Settlement Scheme toolkit (including factsheets, posters and videos) to raise awareness.
  • Undertake full right-to-work checks on your employees. Encourage your employees to apply for the EU Settlement Scheme as soon as possible, particularly where you anticipate overseas travel.
  • Analyse your talent pipeline. If crucial staff or recruits are based in the EU, but have lived in the UK before and may be eligible for the EU Settlement Scheme, encourage them to apply as soon as possible.

For now, UK employers and employees can take comfort knowing that the EU-UK Trade and Cooperation Agreement is in place and that there will likely be no significant or abrupt changes to workers’ rights.

Employers should, however, be mindful that the clock is ticking on the EU Settlement Scheme application deadline. If employers want to retain EU national employees critical to their businesses' continued success, they need to encourage their staff to apply soon. However, according to guidance from the Home Office, employers cannot yet ask employees about their status under the EU Settlement Scheme, as EU nationals still have until 30 June 2021 to apply. If an employer does ask, this could lead to claims of race discrimination on the grounds of nationality.

UK employers should also keep in mind that the new points-based system does not differentiate between EU and non-EU citizens. UK employers may therefore want to broaden their prospective talent pool by looking beyond European borders.

This article was originally published on 6 November 2020 and has been significantly revised to account for the EU-UK Trade and Cooperation Agreement and other developments.