Commercial: legal implications of Brexit for your business


Written on 28 March 2017

For UK commercial law, the three main legal implications of Brexit for businesses are as follows:

  • The Consumer Rights Act 2015 is not derived from the EU and is therefore unlikely to change following Brexit. However, there will be uncertainty as to the position the UK will take with complementary legislation, such as the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 and the Consumer Protection from Unfair Trading Regulations 2008, as amended in 2014.
  • It is unlikely that many businesses would want to terminate a contract solely as a result of the UK’s exit from the EU, but the impact of Brexit on, for example, change in law or force majeure provisions will need to be thought through. This will likely be a particular concern where compliance with law is a key aspect of the contract (which is typically the case in regulated industries such as financial services).
  • For contracts governed by “English law”, it seems that the choice of law clause would remain valid but an issue then arises as to what constitutes “English law”.
  • Businesses which manage to operate under a “pan-European” set of Terms and Conditions are likely to find that differences emerge after Brexit, and that English law specific terms are required. 

These issues, and the wider consequences of Brexit for commercial law, are considered in more detail below.

EU-derived legislation

  • Outsourcing: The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) governs the transfer of employees on the same terms where a business activity transfers from one party to another, and is particularly relevant in outsourcing arrangements. On previous TUPE reform, the UK was unable to introduce more flexibility for post-transfer changes of terms to harmonise with the new business due to the requirement to follow existing CJEU case law. Following Brexit, even if the ‘automatic transfer’ principle is retained, there may be some relaxation of the terms on which it takes place and, consequently, the apportionment of costs in an outsourcing relationship may need to be re-visited. This is likely to be particularly pertinent to outsourcings, where significant numbers of staff may transfer, or where an unusual approach to risk allocation on exit has been adopted.
  • Agents: The Commercial Agents (Council Directive) Regulations 1993 provide protections to commercial agents across the EU. Following Brexit, we may see the removal of these protections – reducing the potential costs for principals, although agents may be exposed to greater risks. Consequently, agents may want to re-visit their contractual arrangements with principals to incorporate these statutory protections on a contractual level. In general, the UK’s position as an EU franchising hub could become less certain.
  • Consumer: Whilst the recently implemented Consumer Rights Act 2015 is not derived from the EU, it is unlikely to change following Brexit. However, there will be uncertainty as to the position the UK will take with complementary legislation, such as the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 and the Consumer Protection from Unfair Trading Regulations 2008. 
  • Digital Single Market: With the UK coming out of the EU, the perceived benefits of the European Commission’s Digital Single Market project for harmonisation in areas such as platforms, geo-blocking, AVMS reform and e-commerce may not be forthcoming in relation to the UK. Following Brexit, it is unlikely that harmonisation would occur to the same extent, although that will be determined by the format which Brexit takes. This makes the UK’s position around the various initiatives uncertain.
  • Audio Visual Media Services: Part of the Digital Single Market consultations concern the potential reform of the AVMS Directive. Ofcom has been largely supportive of the European Commission’s approach, so there may be little change in this area other than potential clarification of what constitutes ‘television-like’ programming and/or the ‘principal purpose’ test. 
  • Data: The transfer of personal data is fundamental to many commercial relationships, whether intra-group or arms-length; see here for the implications of Brexit to businesses in this area.

Drafting changes to contracts: including a Brexit clause?

  • It is unlikely that many businesses would want to terminate a contract solely as a result of the UK leaving the EU, but the impact of Brexit on, for example, change in law or force majeure provisions will need to be thought through. This will likely be a particular concern where compliance with law is a key aspect of the contract (which is typically the case in regulated industries such as financial services). In such cases, consideration would need to be given as to whether the allocation of responsibility for compliance and the costs of compliance remains correct, or whether a more nuanced approach needs to be agreed.
  • For contracts governed by “English law”, it seems that the choice of law clause would remain valid, but an issue then arises as to what constitutes “English law”:
    • the question of whether implemented EU law continues to be incorporated into English law will be fundamental; and
    • rights of termination may be desirable if a particular EU law principle or requirement is material to the relationship; this is something that could be catered for in the “Brexit clause”. 
  • Would fewer international businesses choose English law as the governing law of a contract? This seems unlikely, as many of the reasons for international businesses choosing English law do not stem from the UK’s membership of the EU. 

Terms and Conditions

  • Businesses which manage to operate under a “pan-European” set of terms and conditions are likely to find that differences emerge after Brexit, and that English law specific terms are required. 

Long term contracts

  • Costings of certain long-term contracts may no longer work if free movement of labour is restricted and employees do not automatically transfer under TUPE.
  • Ideally, changes in labour costs would be dealt with in the pricing clauses of long-term contracts, but this is something that should be addressed if this is not the case. 

Other issues

  • Commercial arrangements will need to take into account a number of different specific issues such as tax treaties and parallel trading for competition law purposes.
Our commercial experts can help you prepare for Brexit and understand the legal implications for your business.

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*This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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