Post-Brexit US–UK Trade Agreement: Employment and Labour Implications

In a recent interview with The Times, Donald Trump indicated that he will welcome discussions with the United Kingdom for the creation of a US–UK Trade Agreement. Following Trump’s inauguration as the 45th US President, dual-qualified UK employment solicitor and US attorney Malcolm Mason looks at how a trade deal will impact on the employment and labour market.

Trump’s press comments on post-Brexit US and UK relations, in which he promises a speedy and efficient trade deal, certainly struck a different chord to last year’s statements made by President Obama who suggested that leaving the EU would place the country at the “back of the line” for an agreement.

While the final outcome remains to be seen, this is potentially great news for both UK and US multinational businesses already trading across the pond. It is also positive for the thousands of UK small and medium-sized enterprises (SMEs) who have, until now, concentrated their cross-border activities within the EU.

Post-Brexit US–UK Trade Agreement Negotiation

With a US–UK Trade Agreement to be negotiated, UK SMEs will look to the US for new business opportunities while continuing to maintain trade with Europe, providing a combined mega east–west market of more than 800 million people.

As the UK exits the EU and the Single Market, it will need to secure new trade deals with those EU Member States desiring to continue trading with it. Many of those that currently conduct substantial trading with the UK (EU car manufacturers, for example) will wish to continue to do so and with the benefit of some form of trade agreement. The terms of the deal will need to be negotiated carefully and individually by the UK Government, with the Member States or groups of Member States, or even a new trade agreement (outside the Single Market) with the EU and its remaining 27 Member States.

However, no matter the format or direction in which these new and important intra-European trade deals develop, UK businesses will also need to consider the benefits of starting or expanding their existing trade relationships within the US with the benefit of a US–UK trade agreement.

When international trading relationships commence, businesses and their lawyers, accountants, bankers, advisers and others involved, ought to take into account the laws, codes and practices of the other countries or trading partners. For example, when the Single Market was launched on 1 January 1993, businesses, professionals and other advisers in the UK had to take into account the various laws and practices within all the EU Member States. Many areas, such as employment and labour, had already started on its EU trend of harmonising through a myriad of EU directives issued since the mid-1970s. However, there remained, as is still true today, significant differences in many areas of and practices throughout the 28 EU Member States.

Having practised employment and labour law with the UK, EU and the US for several decades, I can admit that, in most international commercial transactions with which I have been involved, the issue of taxation, corporate structure, finance and intellectual property rights usually trump (no pun intended) the pedestrian and domestic employment and labour laws. This is despite management leaders often stating that a business is only as good as its workforce. The reality is that, until the last decade or so, the fiscal penalties (and more recently the commercial-political reputational issues connected with employment and labour) usually pale when compared to taxation and finance issues and penalties.

Since the EU Single Market was launched, UK businesses have generally learned how to work with other partners and, over time and with much effort, now have a greater understanding of the differences and nuances in the respective employment and labour laws and practices. They are quite different and, if not taken into account, can have a real impact on the running of a business or collaboration with a trading partner – sometimes with disastrous results.

What Next?

Now that it seems that the UK has the opportunity to pursue trade and business deals with the US under a US–UK trade agreement, those same initial concerns – taxation, corporate structure, intellectual property, employment, and labour – will again need to be considered, particularly by those UK businesses not already trading with or within the US.

As with most Anglo–American relations, there is a tendency on both sides of the pond to presume that because the countries share a common language, the same goes for a commonality of laws and practices. This is most apparent when it comes to employment and labour laws and practices in that they both emanate (historically) from the English common law. This, however, is far from correct. Over the years, there have been countless examples of US businesses trading in the UK and vice versa making dreadful and extremely costly mistakes in this area based on this erroneous presumption. Aside from the potential embarrassment and expense, this sends a powerful message to the local workforce, not only of a lack of respect and understanding but a lack of regard – by their foreign owner, employer or partner – when it comes to their employment and labour laws and practices.

Only with the benefit of professional and practical experience in both countries can one expect to see and appreciate what is falling through the cracks and, ultimately, being missed by both sides.

US Employment and Labour Law vs UK Employment and Labour Law

Below is a list of key differences in employment and labour laws which US and UK business should take into account when trading in each other’s country.

UNITED STATES OF AMERICA:

• Separate employment and labour laws at: (i) federal, (ii) state, and (iii) municipal (City) levels.
• Comparatively few employment laws governing the employment relationship, but extensive federal, state and municipal anti-discrimination laws often require administrative agency investigation before court claims can be pursued.
• No legal requirement for a written document or contract evidencing the employment relationship. However, in practice a simple offer letter may be issued addressing fundamental terms such as salary, title, bonus (if any) and holidays.
• Different classification of employees particularly for overtime and labour issues such as exempt and non-exempt employees.
• Discrimination and some other employment claims have the benefit of a civil jury trial where jury awards are uncapped and sometimes lead to multi-million US dollar awards after several years of litigation and extensive discovery.
• The actions consume a great deal of management time let alone legal expenses and often raise serious reputational issues.
• The vast majority of US States follow the employment-at-will doctrine and employers typically issue an offer letter and have an HR handbook that make it very clear that the employment is at will and can be terminated at any time without notice and without any payment. Accordingly, many US employers would issue nothing more than a simple offer letter so as not to infringe the doctrine of employment at will.
• Unlike their UK counterparts, US businesses will rarely be thinking about an employment contract for all but a small number of their senior managers.
• Labour (union) law is complex and administered by separate courts and agencies.
• Restrictive (post-termination) covenants are not enforceable in all US States, although many State courts are now beginning to show a more employer-friendly approach to this area.

UNITED KINGDOM:

• One set of employment laws with some minor differences in Scotland and Northern Ireland.
• Compared with the US, a very high level of statutory employment laws dealing with such issues as: working time, holidays, holiday pay, overtime, minimum notice periods, family and pregnancy leave and pay, sickness leave and pay, protection of employees on sale of a business, works councils, redundancy procedures (RIFs), and anti-discrimination laws.
• Statutory requirement that all employees within 28 days of starting employment be provided with, as a minimum, a written document (Statement of Particulars) setting out the fundamental terms listed by statute. In practice the vast majority of employees are provided with a formal written employment contract.
• All employees (from the CEO to the mailroom assistant) have the same basic statutory employment rights, almost all of which cannot be surrendered.
• Employees with sufficient service (currently two years) have the statutory right not to be unfairly dismissed. For a dismissal to be fair the employer must show a statutory fair reason and (often with difficulty) that the employer went about the termination process in a fair and equitable manner. Normally there is a capped award of £78,962 or 52 weeks’ gross pay, whichever is the lower. The most recent median award for a successful unfair dismissal claim was £7,332.
• Discrimination awards are not capped but six-figure awards are very rare, with median awards over all forms of protected discrimination in the £7,000–£20,000 range.
• Statutory employment claims must be brought in the Employment Tribunal and not in the civil court and are usually heard by a single employment judge.
• Contractual and common-law employment claims (no statutory rights) are brought in the civil court where – following what the US Supreme Court historically described as the ‘English Rule’ – the losing party is normally required to pay part (60–70%) of the winning party‘s legal charges and expenses.
• NB: In the UK, civil juries were abolished for all but a few claims in 1933, and civil actions are heard by judges.
• Labour matters are dealt with by the Central Arbitration Committee (CAC) and the civil courts.
• Restrictive (post-termination) covenants, often in conjunction with long notice periods, are widely used to protect employers’ legitimate business interests at many levels. Restrictions for a period of more than 12 months are rarely enforced.