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Brexit – what are the legal implications for businesses?

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The implications of Brexit for Commercial Contracts

The implications of Brexit for UK Data Protection Law

What does Brexit mean for UK employment law?

Brexit - what now for TUPE?

Brexit and immigration: rights and documentation of EEA nationals

The implications of Brexit for Intellectual Property Rights

The implications of Brexit for Commercial ContractsJames Gill, Peter Violaris

None of us yet knows with any certainty what Brexit will mean for the UK if and when Article 50 of the Lisbon Treaty is triggered. Assuming Article 50 is triggered, the UK will (at least in theory) then have two years to negotiate the terms of the UK’s exit from the EU. However, as there will be economic consequences for most businesses in the meantime, now is the time to consider existing and proposed new contracts with customers and suppliers to identify risks (and opportunities) and to plan strategies for those trading relationships.

The result of the referendum may mean that businesses wish to extract themselves from some contractual relationships. Conversely, some businesses may stand unexpectedly to profit from their contractual relationships. Well advised counterparties are likely to have considered the risks associated with their contractual relationships involving the UK. Successful, long-term trading relationships usually require a ‘win-win’ situation, so it would be wise to consider the impact of the referendum not only on your own business but also on that of your counterparties and to have a plan in place as to how you will approach this.

This note looks at some initial steps that businesses can take to identify and manage risk in existing and new contracts.

Existing Contracts

If you haven’t already, it is time to identify which of your contracts may be affected. In particular, think about the following issues:

• Currency exposure: given the recent drop in sterling and likely on-going exchange rate fluctuations, it should be a priority to identify those contracts where payments are made or received in a foreign currency or are pegged to a certain exchange rate.

• Liquidity and solvency: orders for goods or services involving large expenditure or capex may be postponed or cancelled. Identify which of your customers or suppliers, on whom you have a material reliance, may be adversely affected. You may wish to ensure that, wherever possible, you have adequate protections and contingency arrangements in place. This may, for example, involve a review of insolvency related termination rights. Also consider the consequences of termination, such as the existence and adequacy of your audit and retention of title clauses.

• Material adverse change: if you are commercially exposed and a successful renegotiation is not on the cards, see if you have the benefit of a ‘material adverse change’ (MAC) clause, which may give you a ‘get out of jail’ card. These clauses are typically found in M&A or longer-term sourcing deals and usually allow a party to terminate or to pursue a different pricing strategy.

• Force majeure clauses: similarly, if you find yourself in a tight spot, a widely drafted force majeure clause (which refers to acts of government, regulatory bodies or similar) might just provide you with the commercial leverage that you need, if only to force a renegotiation.

• Regulation: if you operate in a regulated sector, such as financial services, much will depend on whether the UK can join the EEA via EFTA or have its regulatory regime recognised as ‘equivalent’, but in the meantime consideration should be given to how you will perform if regulatory permissions, such as EU passporting, are no longer available to you or your clients. For the time being at least, regulated businesses can continue to operate under their relevant passports as before.

New Contracts

With new contracts, ensure that you very carefully review the likely Brexit possibilities, especially where there could be a material adverse impact on risk, revenue and/or cost, and assess whether you have adequate contractual flexibility and/or commercial headroom to allow your trading relationships to prosper. In particular, think about:

• Pricing mechanisms: most existing contracts will assume tariff and quota-free trading within the EU. Also, most businesses could, before the Brexit referendum, calculate their cost base with relatively certainty, including the cost of compliance with regulatory requirements and other costs based on the free movement of goods and people. In order to deal with the uncertainty of Brexit, and to maximise competitiveness, you may need to adopt more sophisticated pricing mechanisms which expressly allow adjustments on the occurrence of one or more pre-defined events.

• MAC or Brexit clauses: as mentioned above, consider including a provision in your contract that enables you to terminate and/or to adjust pricing if one or more pre-defined events occur. Before you suggest this to your counterparty, do think about whether your customer or supplier might insist on a reciprocal right and, if so, whether, on balance, it remains appropriate to propose the provision.

• Intra-group arrangements: the Anti-Tax Avoidance Directive recently agreed is unlikely to be implemented in the UK and public country-by-country reporting of tax liabilities seems unlikely to apply in the UK unless the EU designates the UK as a tax haven. However, EU Directives also provide protection from certain kinds of double taxation (e.g. intra-group withholding taxes) and include other tax measures which support free establishment within the EU. The UK’s double tax treaty network will not be affected by leaving the EU, but the EU protections are sometimes more generous. This may justify a re-think about the structure of royalty and other revenue flows and costs within group structures.

• Territorial scope: whether you are dealing with franchises, software licences or the exploitation of other intellectual property rights, think about the extent of the rights being granted or received within the EU, and what ability you have to protect or adjust the scope of grant and/or associated revenue flows and cost commitments.

• Exit planning: ensure you have adequate provisions to deal with an orderly and seamless exit. Unexpected events currently seem increasingly likely, so well considered exit planning will become more important.

• Data and privacy: the ICO has made clear since the referendum that reform of data protection law is still required in the UK. It has said “If the UK is not part of the EU, upcoming EU reforms to data protection law would not directly apply to the UK. But if the UK wants to trade with the Single Market on equal terms we would have to prove ‘adequacy’ - in other words UK data protection standards would have to be equivalent to the EU’s General Data Protection Regulation (GDPR) framework starting in 2018.” The sensible approach for now is for businesses to continue to plan for compliance with the GDPR, especially as the GDPR will in any event have extra-territorial effect and, unlike the UK Data Protection Act, apply directly to data processors as well as to data controllers.

• Intellectual property: it seems likely that there will be a process for EU TMs and registered Community Designs to be converted into UK rights. Nonetheless, contracts involving provisions dealing with registered trade marks or design rights, should be drafted to allow for additional UK registrations to be added to the scope of the contract.

• Movement of workers: for now it is business as usual, but if the UK is unable to negotiate the continued freedom of UK nationals to travel within, and live in, the EU, there will almost certainly be additional cost and administration to be factored into the end pricing of goods and services. The same may apply for EU nationals wishing to work in the UK, who may be required to obtain visas under UK immigration rules.

So what next?

The best outcome for many UK businesses may be for the UK to achieve EEA membership through the European Free Trade Agreement (EFTA) (as is the case for Norway, Iceland and Liechtenstein) allowing the UK to continue to enjoy the benefits of free movement of goods, services, people and capital, but without the full privileges and responsibilities of EU membership. This would of course involve some fairly masterly negotiations with the EU and some political fudging in the UK (especially in respect of the free movement of people). The worst outcome may be a world of tariffs, quotas and no regulatory passporting or consistency. While most businesses that trade with the EU will no doubt hope for something closer to the first scenario, only time will tell what is negotiated.

Some may struggle to tolerate the uncertainty and some will, with curiosity and optimism, embrace it. What is certain is that those businesses who plan ahead will be far better placed to prosper in the future.

The implications of Brexit for UK Data Protection LawDr. Nathalie Moreno

The UK referendum outcome to leave the European Union has opened a Pandora’s box of what the legal landscape may be in the UK after Brexit. However, to a large extent, this is not the case for the data protection law regime which will apply in the UK in the post-Brexit era.

The current Data Protection and Cyber Security regime

In May, the EU adopted a new data protection framework for its Member States in the form of the General Data Protection Regulation (GDPR). Replacing the Data Protection Directive from 1995, the GDPR, which provides a unified approach to data protection rules, will be directly applicable in all Member States as of the 25th May 2018 after a two-year transition period.

Following suit, the Directive on network and information security (NIS Directive), which aims to level the playing field for key internet companies and infrastructure operators by introducing harmonised rules to apply in all EU countries is expected to enter into force in August 2016. Member States will be given twenty one months until May 2018 to implement changes to national law.

Finally, the e-Privacy Directive is currently under review with the long-awaited public consultation launched on 11th April 2016. This Directive complements the existing data protection regime and sets out more-specific privacy rights on electronic communications service and network providers. However, the Directive now needs to be amended to ensure consistency with the privacy rules under the GDPR.

However, some uncertainty does still remain around how data protection laws will apply after Brexit.

The UK already has its own legislation in the form of the Data Protection Act 1998 (DPA). This Act implements the 1995 EU Data Protection Directive. From a historical point of view, the EU Commission and the UK have had a fractious relationship on data protection issues as the UK never fully implemented the Directive in the eyes of the Commission. In fact, the Commission has been regularly threatening to bring infraction proceedings against the UK over the years. This situation has not improved, with the Snowden affair shedding light on mass surveillance practices within the UK.

What will happen in the post-Brexit era?

The landscape of data protection law post-Brexit will depend on the choices the UK will make but it is also important to stress that any changes will not happen instantly. For the EU exit process, a Member State must give the European Council at least two years’ notice of its intention to leave under Article 50 of the Treaty of the European Union and a withdrawal agreement will need to be negotiated with the Union, taking account of the framework for its future relationship with the Union.

Given this two-year notice period, it is likely that the exit process and the implementation of GDPR and the NIS Directive may run in parallel.

Currently, there are two scenarios that will arise from this:

1. If the GDPR comes into force before the exit, the DPA can be repealed and the GDPR will have direct effect in the UK.

2. If the GDPR is not yet in force at the time the UK exits the EU, this means that the data protection regime in place will depend on the UK government’s choices. Either the UK exit option requires the adoption of EU laws as part of the single market, as part of the EEA for instance, following the Norway Model or the UK exit does not require the adoption of EU laws therefore leaving the UK with no other option than to reintroduce its own Data Protection legislation. This may be the case if the UK were to choose to implement a Switzerland Model for instance which has a free trade agreement with the EU and a number of agreements which give it access to the single market for most of its industries but not for the banking sector and other parts of the services sector, which together make up almost 80% of the UK economy.

This latter scenario is of primary interest as the UK may be tempted to actually adopt a more business friendly GDPR. Indeed, the UK has expressed strong reservations against the most onerous provisions of the GDPR. Of particular concern have been the level of the new fines, the obligation to employ data protection officers and the way the right to be forgotten and the one stop shop approach will need to be implemented.

GDPR post-Brexit

However, it’s important to bear in mind that whatever relationship the UK negotiates with the EU, the GDPR rules will be applicable to all UK businesses.

This is due to the fact that the GDPR has an extraterritorial effect, applying not only to all organisations established in the EU that process personal data but also to any organisation established outside the EU which offer goods or services in the EU or which monitor the behaviour of EU data subjects. The Founding Fathers of the European Union would be proud to see that the GDPR may be put to the Brexit test and still be applicable to a great majority of UK businesses operating in the EU. It clearly reflects the ever closer interplay between data protection law, competition law and consumer protection laws in the EU.

The GDPR varies substantially from the current regime. Data processors as well as data controllers will have direct obligations.

UK businesses may be subject to fines representing up to 4% of their annual global turnover or 20 million euros. They will need to implement requests made in the name of the right to be forgotten and have to appoint a data protection officer. Data owners will also have to move away from the current system whereby each data protection authority is responsible for its data controllers and migrate to a one stop shop system which grants main responsibility to a leading authority linked to the main establishment of the data controller or the data processor. Also, it remains to be seen whether the UK will favour the adoption of some legislation compliant with the NIS Directive even if not bound by it, solely in the interest of facilitating trade with EU partners.

European data transfers

One of the most sensitive data protection issues is what will happen to data transfers from EU countries to the UK.

There are two main options to consider. Firstly, if the UK remains part of the European Economic Area (EEA) this would mean that the EU/UK data flows will be subject to all applicable EU Data Protection rules, including the GDPR, as the EEA is effectively an area of “free movement of personal data.”

The second option is a little bit more like playing a wild card. If the UK does not remain part of the EEA, then it may seek confirmation from the European Commission that it provides “adequate protection.” Just like any other country, the UK may apply for an “Adequacy Decision” from the Commission and join a restricted list of countries offering adequate protection for data transfers to the UK (this list currently includes Canada, Israel, Argentina or Switzerland for example). Although this looks like a safe path, it may not be granted that easily given the history of the difficult relationship between the UK and the EU.

If post-Brexit, the UK were to decide not to be part of the European Economic Area, and should the UK not be granted an Adequacy Decision by the Commission, data transfers from the EU to the UK would be made significantly more difficult and burdensome. If there was no Adequacy Decision by the Commission, the alternative is for “appropriate safeguards” to be put in place. These would include options such as binding corporate rules and standard data protection clauses. But both of these options would impose similar sorts of constraints to those applying within the EU. So, although the UK might be able to tweak current EU data protection rules, there would be no space for a substantial deviation.

Finally, the adoption of the hugely controversial EU-US Privacy Shield plan, which succeeds to the Safe Harbour framework, has set the standard for data flows between the EU/UK and the US. However, in a post-Brexit situation, the UK will face a complex negotiation of its own Privacy Shield deal with the EU which may not consider it to be a priority in the big scheme of the renegotiation package.

ICO Post Referendum Statement

It does not come as a surprise that the Information Commissioner (the ICO) has fully validated the fact that although the forthcoming reforms to EU data protection laws may not apply directly to a post-Brexit UK which would be no longer a member of the EU, a great part of the data protection standards the UK will have to adopt ought to be “equivalent” to the EU’s GDPR if the UK hopes to continue to trade with the single market, as of 2018.

The ICO reiterated its commitment to take on board that “With so many businesses and services operating across borders, international consistency around data protection laws and rights is crucial both to businesses and organisations and to consumers and citizens”

It is fair to say that the legal basis for data protection rules may change after Brexit. However, businesses should be aware of how these changes will impact their trading relationship and it would be prudent to review current data protection policies and structures so as to be prepared to abide by the GDPR rules when doing business in Europe after Brexit.

What does Brexit mean for UK employment law?James Davies

On 23 June 2016, the UK voted to leave the European Union. The implications for the workplace could be huge, as a significant proportion of our employment law comes from Brussels. Once out of the EU, the UK government could in theory repeal discrimination laws, collective consultation obligations, transfer of undertakings regulations, family leave, working time rules and duties to agency workers among other laws. But would the government really do that?

Possible implications of a Brexit

Many EU employment protections, such as equal pay, race and disability discrimination laws, and the right of return from maternity leave existed in some form in the UK before being imposed by Europe. It seems unlikely that a UK government would rescind rights that predate European laws. Another reason that the government might be reluctant to repeal employment law protection is that much of it is regarded, by employers, employees and even by politicians, as a good thing. Employment rights such as family leave, discrimination law and the right to paid holiday are now widely accepted; indeed, family leave rights in this country go further than required by EU directives.

One very pragmatic reason for the UK to continue to follow European employment law is that, it will wish to stay in some sort of trading relationship with the EU, its biggest export partner, albeit not full EU membership. The arrangements that Switzerland and countries in the European Economic Area, such as Norway, have with the EU involve adherence to a significant amount of EU employment law. Any trade agreement between the UK and the EU is likely to require something similar.

It will take some time for the UK to extricate itself from the EU. Once the UK has given the EU formal notification of its withdrawal, there will be a two year period in which the parties will negotiate the terms of departure and possibly put in place new trading arrangements. Some commentators believe it will take considerably longer than that to agree exit terms but, unless both the UK and the European Council agree to extend negotiations the UK will simply cease to be a member of the EU at this point.

Even after the process has been completed and the UK has left the EU (and assuming no other restrictions imposed by another free trade agreement), European law might continue to apply in one way or another because disentangling it from UK law will take some time. Some EU-derived laws are contained in secondary legislation made under powers given by the European Communities Act 1972 (ECA), the law that implements EU law in the UK. If the ECA is repealed, all the secondary legislation made under it - such as the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) - will fall away unless preserved by another piece of legislation. The repeal of the ECA would not, however, affect EU law implemented through primary legislation, such as the Equality Act 2010 (EqA). Primary legislation would remain in force until repealed piece by piece.

It is therefore unlikely that all EU law will be removed at once. The approach is more likely to be gradual, with legislation being repealed – or merely modified – over time. So, if freed from European constraints, what is it likely that the government would actually change?

Agency Workers

The most likely contender for complete revocation is the Agency Workers Regulations 2010. These are unwieldy, unpopular with business and not noticeably popular with workers either.

Discrimination and family leave

For the reasons already mentioned, any wholesale repeal of equality protection or family leave seems improbable. Although the government could repeal the EqA after exiting the EU, it would be a controversial move. It is difficult to imagine many employers arguing that they should be free to discriminate and any change to the existing regime of direct discrimination, indirect discrimination and harassment seems unlikely. There may, however, be some small modifications. It is possible that, following a Brexit, a cap could be imposed on compensation for unlawful discrimination. Another possibility is that the government could change the law to allow positive discrimination in favour of under-represented groups in a way that is currently impermissible under EU law.

Rights to parental and family leave in the UK are a mixture of rights deriving from the EU and rights originating in the UK. UK maternity leave and pay preceded the EU rights and are more generous in some respects. The new right to shared parental leave and the right to request flexible working are both purely domestic in origin. Accordingly, although some critics consider these rights to be a burden on business, there seems little political appetite for their repeal or even for watering them down.

Transfer of Undertakings

TUPE can attract a bad press, but the principle that employees should transfer when a business changes hands or is contracted out is often useful for business and is incorporated and priced into many commercial outsourcing agreements. For this reason, although there may be some businesses that would like to get rid of TUPE, it seems more likely that the government would make some small changes to make it more

business friendly, such as permitting the harmonisation of terms following a TUPE transfer.

Holidays and working time

The right to statutory paid holiday under the Working Time Regulations 1998 (WTR) is also now broadly accepted. However, there are aspects of this right, and of other rights under the WTR, that the government might want to amend if not prevented from doing so by membership of the EU. Various European Court of Justice (ECJ) decisions on holiday pay are unpopular with UK businesses - for example, the right to keep accruing holiday while on sick leave and the fact that holiday pay should be based on all aspects of remuneration, not just basic pay. The government might choose to tweak these laws to make them more commercially acceptable, such as by retaining a right to paid holiday based on basic pay whilst limiting rights to accrue and carry over holiday pay. The UK may also wish to remove the cap on weekly working hours under the WTR. It is less clear that there is a demand to limit the WTR rights to other rest breaks or the protections for night workers.

Collective redundancy consultation

Collective redundancy consultation obligations were reduced by the last government. The requirement is now not particularly onerous and it is not clear what might happen to it following a Brexit. Trade unions are likely to fight against any proposal to remove it altogether but employees arguably do not feel strongly about this right (and many do not know about it). On the other hand, it is not obvious that businesses regard it as a burden that should be removed. Similarly, other collective consultation rights such as national and transnational works councils are possible candidates for repeal but the obligations imposed by them on UK businesses are relatively light.

Legal precedent

If we retain some EU law following Brexit, the UK courts are likely to continue to regard judgments of the ECJ on those laws as persuasive, even if not binding. In any event, pre-Brexit UK court decisions incorporating ECJ reasoning would remain binding on lower courts and tribunals. It is not clear how far UK courts would be able to treat exit from the EU as a material circumstance that would allow them to depart from precedent. They might do so, but could feel obliged to follow precedent in order to preserve legal certainty.

In conclusion, it seems unlikely that UK employment law will be transformed in significant ways, particularly in the short term.

Brexit - what now for TUPE?Jonathan Carr

Following the UK’s vote to leave the European Union, much is being discussed and written about the future shape of post-Brexit employment law, shorn of the requirement to comply with underlying EU directives. While many EU-derived employment laws are widely supported and so expected to be retained in largely unchanged form, what does the future hold for the much maligned Transfer of Undertaking (Protection of Employment) Regulations 2006 (“TUPE”)?

TUPE, first introduced in 1981, is the UK’s implementation of the EU Acquired Rights Directive. Labour and Coalition governments have both tinkered with TUPE in recent years in order to promote greater certainty in outsourcing situations (2006) and to give it a slightly more pro-business makeover (2014). It is also noteworthy that TUPE is an example of where the UK has gone further than EU law actually requires. Some of this so-called “gold-plating” was stripped away by the 2014 reforms (notably in relation to restrictions on changes to terms and conditions), but the concept of a service provision change (“SPC”) remains an exclusively UK enhancement to the minimum requirements of EU law.

So could TUPE now be for the chop? As with all things Brexit, the answer is not yet known. The starting question should probably be: why bother? There is clearly a possibility (albeit unlikely) of a wholesale clear-out of any EU-related legislation, in the hope that this somehow creates a more favourable business climate in the UK. But at the time of writing, the reflective and concerned mood in the country would not seem to support indiscriminate change for change’s sake.

A case could theoretically be made for the wholesale repeal of TUPE to stimulate foreign investment in UK businesses. One of the cornerstones of TUPE is the automatic transfer principle, which protects jobs when businesses are bought and sold. Without TUPE, the argument goes, ailing businesses may be more attractive to potential foreign investor purchasers who could then purchase the assets and leave the employees behind. But there is little evidence to suggest that TUPE deters purchasers, as employees who are surplus to requirements can usually be made redundant with relatively little difficulty. Facilitating higher unemployment figures would, moreover, not exactly ease problems for the government of the day.

On the flipside, there are two specific reasons for thinking TUPE may be spared. Firstly, in 2014 when the Coalition government had the opportunity to remove the gold-plating SPC provisions, it decided not to do so. Ministers ultimately appeared to be persuaded by the benefits of continuity and certainty that the SPC rules offered (although it is questionable in light of recent case law how much certainty remains). Employers usually plan and bid on the basis that employees transfer when a business or contract changes hands. If that assumption gets unravelled, it can only add to the economic and commercial turbulence that UK business will already be feeling. If certainty and stability are favoured objectives, the safe money will be on TUPE staying – at least for the medium term.

The counter argument is that as there will be so much uncertainty for businesses anyway as a result of Brexit, little would be risked by throwing TUPE on the bonfire at the same time. The political preferences of those in power will inevitably be the critical factor. It’s not rocket science to predict that a right-wing government in a post-Brexit era would be under pressure to deregulate heavily and create at least the impression of a more pro-business climate. A more left-wing Government would be more inclined to cling on to the employment protections for which TUPE stands.

However, as employment laws go, TUPE is relatively apolitical in the sense that it does not fit as neatly as others into an “employer vs employee” equation. Take SPCs, for instance. If TUPE was repealed in its entirety, not only would employees lose valuable protections, but there would be both winners and losers among employers as well. Take a business that loses a significant contract, to which many hundreds of employees are assigned, to a competitor. In a post-TUPE era, such a business may find itself left with all of those employees at the end of the contract and an unexpected and costly redundancy bill.

The second reason why TUPE may survive is that there is an unresolved question as to whether Parliament could get rid of it even if it wanted to. Many commentators have suggested that an inevitable precondition of continued access to the single market will be that the UK continues to honour fundamental EU employment rights, in order to maintain a reasonably level playing field. If that happens, the UK may well have no choice but to retain TUPE anyway. In the cut and thrust of exit negotiations, the retention of less emotive employment laws is probably something the Brexiteers would happily compromise on in return for the all-important single market access and greater political capital of migration controls.

If the UK is in a position to jettison EU-derived employment legislation at will, political motivations will no doubt dictate the pecking order with the most unpopular laws being the first to go. TUPE is an unfamiliar concept to much of the UK public and has what could be described as a “Marmite” standing in the business community. That suggests it would be unlikely to be front of the queue. The prevailing state of the labour market could also have a bearing. If there is a shortage of labour in many sectors as a result of immigration reforms, there may be less clamour from business to abandon the automatic transfer of employees.

A final question is what would happen to the significant body of European Court of Justice (“ECJ”) case law in the event that TUPE is retained

but the UK courts are no longer bound to follow the Court’s judgments. While the higher courts would most likely feel more liberated in their interpretation of TUPE, Employment Tribunals would no doubt continue to be influenced by past ECJ jurisprudence – at least until new binding case law emerged and they were told to do otherwise.

So the future is impossible to predict with any certainty but the odds would seem to be on TUPE remaining in some shape or form, albeit with a possible red tape and employee rights haircut. This leads us to the immediate problem of what businesses can do now to prepare for this uncertain future with or without TUPE. Current indications are that nothing is likely to happen in a great hurry, so we can expect TUPE to be around in its current form for at least another couple of years and probably longer. Forward-thinking businesses, particularly those who outsource or provide outsourced services, may nonetheless wish to consider the following:

• When tendering for new contracts that may have an expiry date past a likely Brexit, it would be prudent to consider the possibility that TUPE may not be around at that point - with the result that the incumbent provider will potentially need to redeploy or make its own employees redundant. We are increasingly seeing examples of service providers seeking to agree a shared apportionment of redundancy costs in this eventuality.

• Service providers may wish to review their business structure so they are better placed to cope without the automatic transfer of employees at the start and end of contracts. The ability to hire significant numbers quickly (particularly in an uncertain labour market) or to absorb periods of inactivity between losing one account and winning another will be greater challenges to grapple with. We may see short-term lay-off provisions coming back into fashion, or a trend towards broadening employee skills sets to make redeployment easier.

• Finally, businesses may wish to review existing agreements for the provision of services, particularly those with many years still to run, to assess the impact of TUPE being repealed in the meantime. The prognosis may not make pleasant reading for some parties, but at least there is time to prepare for this contingency.

Brexit and immigration: rights and documentation of EEA nationalsAndrew Osborne

Following the result of the referendum on the UK’s membership of the European Union on 23 June 2016, individuals and employers can take steps to mitigate the uncertainty relating to the UK’s potential withdrawal. This article summarises the rights of European Economic Area (EEA) nationals and their family members and the documentation they can obtain to evidence these rights. It looks at residence requirements and points to consider when applying for citizenship.

More general effects of Brexit in the immigration context are also briefly reviewed.

Rights of EEA nationals and their family members

The latest consolidated Immigration (European Economic Area) Regulations 2006 (“the Regulations”) set out the rights of EEA nationals in the UK. This is a different framework than the Immigration Rules, which apply to third-country nationals who are subject to immigration control in the UK.

Under the Regulations, EEA nationals have the right to enter the UK and have an initial right of residence in the UK for up to three months. In order to qualify for a right of residence beyond the initial three months (i.e. be a “qualified person”), an EEA national must be exercising treaty rights as a jobseeker, worker, self-employed person, self-sufficient person or student.

Third-country national family members of EEA nationals can travel to the UK with an EEA family member or join an EEA family member already in the UK. Under the Regulations, the following people are considered family members: spouse, civil partner, children and grandchildren of the EEA national or of their spouse or civil partner who are under 21 or are dependants, and dependent parents and grandparents of the EEA national or of their spouse.

The Regulations also provide for unmarried partners and relatives who are established members of an EEA national’s household to be treated as family members; they are deemed “extended family members”. Unmarried partners are those with whom the EEA national has been living with in a durable relationship for at least two years.

After five years of exercising treaty rights in the UK, an EEA national and their family members acquire permanent rights of residence. Continuity of residence requirements apply to family members of EEA nationals as well as to EEA nationals, so a schedule of absences should be kept in relation to each individual who eventually wants to apply for permanent residence. (Please see below for information on how absences from the UK affect continuity of residence.)

Documentation of EEA rights

Most rights under EEA law are not dependent on the individual or their family members making a successful application for documentation. However, the following third-country national family members are required to obtain residence cards:

• An extended family member must apply for a residence card before expiry of a family permit, and for a permanent residence card before expiry of

their residence card, or they will be considered an overstayer.

• Family members of an EEA national student, other than their spouse and dependent children, must apply for residence cards within three months of

the student’s admission to the UK

Also, since November 2015, EEA nationals and their family members have been required to obtain permanent residence cards before applying for citizenship.

Obtaining documentation of EEA rights facilitates travel and employment, so we have always recommended that EEA nationals and their family members apply for documentation. Since the referendum vote to leave the EU on 23 June 2016, we also recommend that they apply for documentation of EEA rights to optimise their chances of maintaining those rights. The issue of the maintenance of rights of EEA nationals and their family members is most likely to be determined by withdrawal negotiations.

The UK will withdraw from the EU according to the processes outlined in Article 50 of the Treaty of the European Union. Unless a different timeframe is negotiated, Article 50 dictates that the UK will leave the EU two years after the UK notifies the EU of its intention to withdraw. It

is not clear whether an Act of Parliament in the UK is required to authorise notification to leave the EU, or whether it is the prerogative of the Prime Minister to notify the EU of the UK’s intention to withdraw.

The main types of EEA documentation applications are as follows:

• Family permits – Third-country national family members of EEA nationals should obtain family permits before entering the UK. Family permits

document the right to travel to the UK and the initial right of residence. They expire after six months.

• Registration certificates – EEA nationals, including EEA national family members of “qualified persons’”, can apply for these to document an extended

right of residence in the UK.

• Residence cards – EEA nationals’ third-country national family members can apply for these to document an extended right of residence in the UK.

• Permanent residence cards – After exercising treaty rights in the UK for five years, EEA nationals and their family members may apply for

documentation of their right to reside, work, study etc in the UK indefinitely. The Home Office requires an EEA national to obtain a permanent

residence document before they make a citizenship application or their family members make an immigration application based on their relationship.

Absences from the UK

Periods of absence of up to six months in total in any year do not break the continuity of residence for purposes of acquiring permanent residence. “Any year” in this context means any 12-month period counting back from the date of acquisition of permanent residence. This means that an applicant can have been absent for up to six months at a time, for any reason.

One absence of up to 12 months in the five-year period does not affect continuity of residence for purposes of acquiring permanent residence, if it is for an important reason such as pregnancy and childbirth, serious illness, study or vocational training, or an overseas posting.

Note that the continuity of residence requirements apply to family members and that each family member has to provide a schedule of absences as part of their application for permanent residence.

Citizenship

Applicants who wish to apply for citizenship immediately following the issuing of their permanent residence card should support their permanent residence card application with evidence of exercising treaty rights for a five-year period ending at least one year before the date they wish to apply for citizenship. This is because applicants must have permanent residence for one year before applying for citizenship. Permanent residence applications can be backdated to evidence exercising treaty rights for a historical five-year period.

Where EEA nationals have dependent non-EEA national family members, the EEA nationals should wait for their non-EEA nationals to get permanent residence, before applying for British citizenship.

Once the EEA national becomes British, they and their family members do not benefit from EEA rights.

Note that the residence requirements for citizenship are more stringent than those for permanent residence.

Other points to consider when applying for citizenship include tax and whether dual citizenship is permitted by the country or countries of which the applicant is already a citizen.

General effects of Brexit

In the event that an ultimate Brexit withdrawal agreement terminates freedom of movement between the UK and the EEA, visas will be required for EEA nationals to work in the UK, (although a transitional regime might apply). The UK’s existing immigration category for sponsored skilled workers, Tier 2 of the Points-Based System, might be altered. Existing restrictions could be relaxed, e.g. quotas, minimum salary levels, sponsorship and compliance, and the Resident Labour Market Test.

Brexit may create burdens on UK employers. There are likely to be shortages of both skilled and unskilled labour. Industries which rely most heavily on migrant workers, such as finance, manufacturing, retail and hospitality and transport, will be most affected. Employers will also face higher costs if they have to support applications under the Immigration Rules for EEA nationals.

We recommend that employers check that their Prevention of Illegal Working processes and documentation are up-to-date to ensure a good relationship with the Home Office in the coming months and years.

The implications of Brexit for Intellectual Property RightsSimon Chapman, Jo Farmer, Dominic Farnsworth

What type of Brexit?

The extent of the impact upon intellectual property (IP) rights of any British exit from the EU will depend upon what comes next politically. Will the UK government negotiate membership of the European Economic Area (EEA) (like Norway for example), or will it decide to divorce itself more completely from the EU and its trade/legal systems?

In respect of the latter, EU-wide registrations for trade marks and designs would no longer cover the UK. But if the UK is a member of the EEA then it would likely need to continue to comply with relevant IP Directives and Court of Justice of the EU (CJEU) case-law, whereas if it took the more radical separatist approach it would not.

National rights versus EU rights

The EU has overseen the harmonization of many national IP laws with those of the EU and also the creation of unitary registered IP rights such as the European Union trade mark (EUTM) and the registered Community design (RCD) where a single registration covers all EU countries. The post-Brexit position with harmonized national laws should be relatively straightforward as the UK’s national law should continue to apply. However, the position with regards to the EU unitary registrations is considerably more challenging because by leaving the EU, the UK might not be a territory covered by the registration.

Trade marks and design rights

IThere has been no official guidance on what the future position will be, however there is some precedent from the experiences with the former Soviet and Yugoslavian territories. The logical outcome would be that the UK ‘component’ of an existing EUTM or RCD would be capable of being replaced by a national UK trade mark/design. The existing EUTM/RCD would of course remain in place for the other 27 territories.

This fix would still raise a number of issues for rights holders:

• The official and professional costs, procedural hurdles and timings of the ‘replacement’ process

• The position with old UK trade marks that have been ‘surrendered’ for seniority EUTM registrations

• An EUTM may have been used in one member state and this use then prevents it from an attack for revocation for non-use. If the EUTM has only been used in the UK, then would this mean that the reconfigured EUTM would be open to attack? Would it mean that a UK ‘converted’ mark that had not been used in the UK, but had been elsewhere, would now be open to attack?

• The future status of descriptive/non-distinctive EUTMs that only became registered due to their reputation in the UK

• The impact on Coexistence Agreements where a territory has been defined as the European Union or the rights granted by reference to the EUTM

Looking to the future (which is likely to be a parallel system of filing both a UK and an EUTM when looking for pan-European protection) is there any merit in looking at filing UK trade marks at this point in time?

Where a proprietor wants protection within the UK as well as EU territories for a new application they should probably now apply for both a UK national mark and an EUTM. The costs for applying for a UK mark now are unlikely to be materially different to the costs of any future ‘replacement’. This also avoids both the bottleneck when mass replacement applications might be made around the exit date and the potential for any unfortunate lacuna in protection that might be caused by such delay.

It is worth mentioning that many brand owners often register a UK national mark alongside an EUTM in any case because:

• A UK national registration prevents an ‘EUTM torpedo’. This is the strategic practice in litigation by which a defendant when served with UK Court proceedings applies to the European Union Intellectual Property Office (EUIPO) to invalidate or revoke the EUTM relied upon. The UK Court must then stay the proceedings until the (long drawn out) invalidation/revocation action is decided and so this kills a speedy determination of the claim (unless an interlocutory injunction is applied for and obtained)

• Where a client wants protection in certain British dependent territories then this can only be done by extending a UK national registration

Patents

Brexit will make very little difference to the existing UK systems for the grant and protection of patents. UK patents are currently obtained either through European Patent Office (EPO) or the UK Intellectual Property Office (UKIPO), or both. Unlike the EU Intellectual Property Office,

the EPO is not an EU institution. Under the EPO system, once a European patent is granted it is in effect converted into a bundle of separate national patents in the individual countries chosen by the patent owners. Existing UK patents, whether obtained through the EPO or the UKIPO would remain in force, and applicants would still have a choice as to whether to obtain UK patent protection in future cases through UKIPO or the EPO.

However, Brexit is likely to have a major impact upon the proposed new system of EU-wide unitary patents and the related unified patent court structure (UPC). As with trade marks and designs, the UK would not be able to be part of the EU-wide unitary patent, and as a result the UK will probably also have to extricate itself from the UPC arrangements.

Copyright (and other national rights)

There is currently no system for the grant of EU-wide copyright protection - owners must rely upon the national copyright systems to provide protection separately in each country, with rights arising automatically rather than by way of registration.

However, the national copyright laws of EU Member States (including the UK) have been substantially harmonised by way of EU Directives, and by judgments of the CJEU which are currently binding on UK courts. If the UK leaves the EU (and remains outside the EEA), our judges would no longer be bound to follow the EU legislation and case-law, and one could expect over time to see increasing divergence, subject to limits imposed by international IP treaties to which the UK and EU are both signatories.

Exhaustion, Parallel Imports and Customs Recordals

Currently, the general position at law is that where goods legitimately have been placed on the market in the EEA the owner or licensee of the associated IP rights cannot use those rights to restrict further dealing with the goods (particularly resale) inside the EEA, because those rights have been ‘exhausted’. If the negotiated terms of Britain’s exit from the European Union leave it a member of the EEA, this general position is likely to continue in relation to all EU registered IP rights, e.g. it will not be possible to use an EU trade mark to curtail further dealings in the EEA with goods that legitimately had been put on the market in an EEA state. Similarly, UK rights would not normally be available to restrict further dealings in the EEA with goods that had legitimately been put on the market in the UK. If, however, the terms of Britain’s exit do not continue its membership of the EEA, then the principle of ‘exhaustion’ would be fundamentally altered: British IP rights could be used to take action against the importation of products from EEA states; and EU registered rights could be used to impose restrictions on the importation into the EEA of products from the UK.

The latter terms of exit would mean that it was prudent for rights holders who already make the single EU customs recordal (recording their EU trade marks and design rights with a single application, enabling customs officers in every EU member state to make seizures of potentially infringing goods) to also make an additional customs recordal with Border Force (the new name for UK Customs), recording their UK intellectual property rights. As well as assisting rights holders who wish to partition the UK as separate market for their goods, this will be particularly important for those plagued by counterfeiters. The single EU customs recordal has proved a useful defence system against the transport into the EU of counterfeit product; but counterfeiters are adept at seeking to get products to the UK and may seek to exploit failures by EU trade mark holders to achieve separate UK trade mark and design registrations and make the separate recordal necessary to engage the UK’s Border Force.

IP licences and contracts

Contracts and licences with IP at their core (such as franchise, agency, distribution agreements, trade mark licences and co-existence agreements for trade marks) have the potential to be affected by Brexit, particularly if IP rights are licensed for “the EU” as a defined territory.

Any change in the territorial scope of the “EU” is not relevant for any short term licences or agreements which are less than 2 years in duration (as this is the minimum negotiation period between the UK and the EU after Article 50 is triggered).

For any existing agreements with more than 2 years to run, it is recommended that parties review the territorial scope and if necessary agree amendments with counterparties to provide certainty.

For any new licences or agreements which refer to the EU as a territory, it is recommended that the UK is specified as an additional territory for clarity.

Conclusions

Uncertainty abounds until we know when (or even if) Article 50 is going to be triggered, and whether we are looking at a full blown divorce from all European markets, or whether we will negotiate to remain in the EEA. It’s going to take a number of years to come to any final conclusions on what the new IP landscape might look like, and in the meantime, it is recommended that IP owners review their national filing strategy, and the territory of any existing or new IP licences or IP agreements.

This publication provides general guidance only: expert advice should be sought in relation to particular circumstances. Please let us know by email (info@lewissilkin.com) if you would prefer not to receive this type of information or wish to alter the contact details we hold for you.

© 2016 Lewis Silkin LLP

5 Chancery Lane – Clifford’s Inn London EC4A 1BLDX 182 Chancery LaneT +44 (0)20 7074 8000 | F +44 (0)20 7864 1234www.lewissilkin.com

Dr. Nathalie Moreno

Partner, Data & Privacy

+44 (0)20 7074 8461 nathalie.moreno@lewissilkin.com

Jo Farmer

Partner, Brands & IP

+44 (0)20 7074 8111 jo.farmer@lewissilkin.com

Andrew Osborne

Partner, Immigration

+44 (0)20 7074 8262 andrew.osborne@lewissilkin.com

James Gill

Partner, Commerical

+44 (0)20 7074 8217 james.gill@lewissilkin.com

Dominic Farnsworth

Partner, Brands & IP

+44 (0)20 7074 8088 dominic.farnsworth@lewissilkin.com

For further information please contact:

Jonathan Carr

Partner, Employment

+44 (0)20 7074 8497 jonathan.carr@lewissilkin.com

Simon Chapman

Partner, Brands & IP

+44 (0)20 7074 8266 simon.chapman@lewissilkin.com

Peter Violaris

Senior Associate, Commercial

+44 (0)20 7074 8339 peter.violaris@lewissilkin.com

James Davies

Partner, Employment

+44 (0)20 7074 8035 james.davies@lewissilkin.com