Brexit: The Legal Consequences

Katrien Wilmots, Vol. 37 Associate Editor

The chances of the United Kingdom leaving the European Union seemed remote only a couple of months ago. However, recent surveys of the British public and talk in parliament have made the idea of a “Brexit” not just mere talk but an actual possibility.[1] The British Prime Minister, David Cameron, has been focusing on negotiating a deal with the EU in order to avoid a Brexit,[2] but recent developments do beg the question what the consequences of an exit would be, and more specifically what the international legal consequences would be. Law firms in London such as Clifford Chance, Freshfields Bruckhaus Deringer, and Hogan Lovells are already preparing for a possible Brexit and have assembled dedicated teams to advise the would be widespread consequences of an exit including “implications for tax, employment, financial regulation, intellectual property and company law.”[3] As a member of the European Union, the supreme law of the land in Britain is EU law. In a landmark case in 1963, Van Gend en Loos v. Nederlandse Administratie der Belastingen,[4] often described as the European equivalent of Marbury v. Madison,[5] the European Court of Justice (ECJ) ruled that EU treaties are directly effective in their application against member states. Britain has been a member of the EU for 42 years. That is 42 years of implementing EU regulation and legislation, including regulation relating to employment, trade, antitrust, tax and social welfare. While freestanding acts of parliament influenced by EU regulation would remain in force, laws such as the European Communities Act would likely fall away, resulting in confusion for businesses and an incomplete set of laws.[6] There is also a question of the European Court of Justice’s influence on UK case law. Currently, UK courts have to rule in accordance with ECJ case law. If the UK does decide to leave the EU, then the issue arises of what to do with previous case law, which is heavily influenced by ECJ rulings. For example, “ECJ decisions on what amounts to a TUPE transfer, that sex discrimination includes gender reassignment and that pregnancy discrimination is unlawful without the need for a comparator have been written into the law.”[7] Furthermore, in order to comply with EU laws, UK courts have incorporated ECJ reasoning into their own jurisprudence. This is the case with holiday pay, where courts have “read additional wording into the relevant UK legislation to give effect to ECJ decisions.”[8] Such uncertainty in the legal environment inevitably leads to uncertainty for businesses, employers, and employees. In the first phases of the exit there could well be differing lower court decisions, leaving these issues in limbo until the Court of Appeals or the Supreme Court resolves them. Untangling two intertwined legal systems will therefore prove to be a great challenge. While Mr. Cameron is pushing for a deal with the EU and avoiding a Brexit, the Paris attacks and the current refugee issue are all dominating EU news and the Brexit debate. The EU summit in February 2016 will offer more clarity with the Commission President Jean-Claude Juncker being “quite sure” of a deal with London.[9]

[1] A background guide to ‘Brexit’ from the European Union, The Economist (Jan. 15, 2016), http://www.economist.com/blogs/graphicdetail/2016/01/graphics-britain-s-referendum-eu-membership. [2] Christian Oliver, Juncker confident of deal to keep Britain in Europe, The Financial Times (Jan. 15, 2016), http://www.ft.com/intl/cms/s/0/f39307f4-bb7a-11e5-b151-8e15c9a029fb.html#axzz3yIqyzzSV. [3] Lindsay Fortado, Law firms prepare for Brexit bonanza, The Financial Times (Jan. 20, 2016), http://www.ft.com/intl/cms/s/0/7f12a510-bf62-11e5-9fdb-87b8d15baec2.html#axzz3xuWeKAlv. [4] Case C-26/62, Van Gend en Loos v. Nederlandse Administratie der Belastingen, 1963 E.C.R. 1. [5] Marbury v. Madison, 5 U.S. 137 (1803). [6] What are the legal implications of the UK leaving the EU?, Strategic Risk (March 24, 2015), http://www.strategic-risk-global.com/what-are-the-legal-implications-of-the-uk-leaving-the-eu/1413269.article. [7] Id. [8] Id. [9] Matthew Tempest, Juncker “quite sure” Brexit deal will be done at February summit, EurActiv.com (Jan. 15, 2016), http://www.euractiv.com/sections/uk-europe/juncker-quite-sure-brexit-deal-will-be-done-february-summit-321016.