Learn your Legals
Sean Ryan, a Partner in Eversheds Sutherland Corporate and Commercial Department in Dublin and Chair of its designated Brexit Unit, outlines key legal issues for companies to consider.
On 20 March 2017, it was confirmed that the UK will trigger Article 50 on 29 March 2017, thereby commencing the two year “Brexit Clock”. In advance of formal negotiations between the UK and the EU, which are expected in May / June 2017, both Theresa May and Enda Kenny have reiterated their desire to have a “seamless” and “frictionless” border between Ireland and the rest of the UK. However, with the European Commission’s chief negotiator Michel Barnier hinting that the 27 remaining EU Member States were preparing to impose customs controls, a “hard” border of some kind appears increasingly likely.
Despite this, it should not be overlooked that Ireland is well positioned to benefit from Brexit. The Minister for Finance, Michael Noonan, was recently reported to say that more than 120 overseas banks, insurers and other financial companies were looking into moving to Ireland post Brexit. The Irish market is also performing strongly and recorded a €5.75 billion trade surplus in January 2017 with GDP forecasted at 3.5% for 2017. Notwithstanding this, the uncertainty surrounding Brexit means that companies will need to consider the impact of Brexit (good or bad) on their business, including any specific potential impact on their current business model and strategy, bearing in mind that by March 2019, the UK may have exited the EU / single market.
While the future shape of the UK’s trading relationship with the EU is unclear, contingency planning involving contract reviews should start immediately, with a view to identifying and managing risk. Key issues to consider, within a general trading context, include reviewing strategic contracts in place where there is a dependence on UK trade, where pricing mechanisms are in place that assume no tariffs, quotas or other barriers and reviewing contractual terms that should perhaps be varied because of Brexit circumstances. The changed commercial landscape may also cause some contracting entities to look for ways to exit from contracts that are no longer profitable. Any right of termination depends on the wording of the contract and general provisions, such as force majeure clauses, are unlikely to be triggered by any stages of the Brexit process. The above points should also be considered for any future tender or evaluation process for new arrangements.
The British Government has made it clear that it intends to control immigration and impose UK controls over EU citizens wishing to come and work in the UK. While there is talk of amnesties for EU citizens currently working in the UK and UK citizens working in the EU, given its trading relationship and other links with the UK, any barriers to the free movement of people is likely to have a disproportionate effect on Ireland. Irish and EU citizens will no longer enjoy an automatic right to travel to and work in the UK and vice versa and are likely to face greater bureaucracy and visa applications in recruitment. It seems likely that a reciprocal deal will be negotiated to ensure existing migrants can remain in their current country of residence. However, there are no guarantees.
The impact Brexit will have on the common travel area (“CTA”) between the UK and Ireland is uncertain. There is a possibility that all EU Member States may have to consent to any agreement regarding the border between Northern Ireland and Ireland.
Employers should bear Brexit in mind when agreeing terms for recruitment or cross-border secondments of employees and should also audit the extent and immigration status of their migrant workforces when formulating a contingency plan post Brexit.
On exit, EU competition laws (which incorporate three main areas: merger control, anti-competitive agreements and State aid) will cease to be applicable in the UK. The UK will have its own competition laws which Irish companies carrying on business in the UK will need to comply with (independent of EU competition law). This could add a burden and cost for businesses and necessitate longer time frames for UK merger control clearance.
Probably of most significance, the law on State aid will no longer be applicable in the UK, which would increase the ability of the UK Government to support UK businesses financially to the detriment of competing Irish / EU businesses. Equally, however, the UK would have limited ability to challenge State aid granted to Irish / EU companies that affect the UK market. The UK-EU negotiations could result in some kind of ‘sui generis’ regime that could be in-between the full application of EU laws and the World Trade Organisation state aid regime, which is much narrower in scope.
A new European General Data Protection Regulation (GDPR) will be implemented in May 2018. As an EU Regulation, the GDPR will be directly effective on all EU Member States (including the UK while it remains a member of the EU), however, the GDPR will no longer apply to the UK on post Brexit.
On exit, personal data transfers to the UK, even intra-group transfers, will be subject to the same restrictions as any other non-EEA countries (e.g. US) and will need to meet the ‘adequate safeguard’ standard required for those data transfers to be lawful. Companies should identify: which systems and servers are located in the UK; which entities and operations transfer personal data to the UK; and where UK operations access personal data held elsewhere in the EEA. Many transfers outside the EEA currently rely on alternative mechanisms to implement the ‘adequate safeguard’ standard such as model contracts and binding corporate rules. However, these mechanisms may not be suitable in the long-term given the level of trade and data transfers that take place between the UK and Ireland. In this regard, the UK may seek to agree with the EU other alternatives (e.g. for the EU to recognise the UK’s data protection regime as providing an adequate level of data protection). In addition, the UK will be free to implement its own data protection legal framework going forward and may not be bound by the same rules imposed on EU Member States. Current UK Government announcements indicate a preference to retain a similar regime to the GDPR, however that remains to be seen. Given the importance of data in the global economy, the potential impact of Brexit cannot be underestimated.
In summary, Irish companies that have a dependence on UK trade should now begin a review of their operations with a view to identifying areas of their business most likely to be affected by the UK leaving the EU and managing risk accordingly.