Brexit deal: seven major issues for workforce solutions and consultancy businesses
Published on 4th Jan 2021
The EU-UK Trade and Co-operation Agreement (TCA) sets out a lot of detail about how consultancies, recruiters, staffing companies, managed service providers, payroll companies, and training companies will be affected by Brexit. There are particularly important new rules about deploying UK contractors and consultants into EU countries, and other possible new restrictions on how UK workforce solutions companies can operate across the EU.
1. Will EU member states be able to impose new restrictions on the ability of UK staffing and other workforce solutions companies to trade in EU countries?
The TCA sets out commitments on market access, national treatment and local presence, with the general rule that neither the EU nor the UK can bar access to service providers. But that is all subject to manifold carve-outs by sector and to a multitude of national reservations and exceptions...including for "placement services". For example, it appears that UK recruiters will not be able to operate via a branch in Germany – they will need to operate via a local subsidiary.
Note that, regardless of Brexit, membership of the EU never completely removed barriers to UK workforce solutions companies operating across the EU – membership of the EU never delivered a single market for services. As such, UK recruitment and staffing companies have had to comply with local laws and licensing requirements across separate EU member states for years – for example, compliance with UK staffing regulations did not give an automatic right to trade in other member states.
The 2008 Agency Workers Directive did at least require, at the insistence of Gordon Brown's government that excessive local laws relating to agency workers be removed. However with Brexit it is now possible that the "UK parts" of the Agency Workers Directive will be repealed, allowing EU Member States again to ramp up protection of their local markets from any competition from UK (and other international) staffing companies and consultancies.
The application of the Payment Services Directive may also cause issues for managed service providers (MSPs) and others who act as payment agents across multiple jurisdictions within the EU. Will compliance with the UK regime be sufficient, in future, for payment services across the EU?
2. What about UK companies who 'parachute' contractors from the UK into EU countries?
Many UK staffing and consultancy companies supply contract workers into various EU countries on a "parachute" basis (such that the, often British, contractor or consultant is deployed to a local client in, say, Germany by a consultancy or staffing company in, say, London). This has gone on for years. Most of the larger international staffing companies headquartered in the UK started their international operations on this "go global lite" basis.
The TCA allows EU countries to prohibit remote recruitment operations, and it is not impossible that many countries will prohibit them in the way that Switzerland effectively has (the Swiss law requiring anyone who places a worker with a Swiss employer to have a local establishment and licence).
Perhaps more problematic for many UK staffing and consultancy companies in the short term is that the TCA prohibits use of the temporary stay provisions where the stay involves a contractor or consultant parachuted by a UK consultancy or staffing company. The provisions require the worker either to have been employed for 12 months before being parachuted or to be engaged on a bona fide self-employed basis (which will not include many time- and material-based engagements). In either case, the permission to be in country under the "contractual services" and "independent professional" rules will generally only last as long as the relevant client project with a 12-month time limit and the relevant worker needing a minimum amount of relevant specialist experience to qualify (six years seems to be the norm).
This will force many UK staffing and consultancy companies to rethink the basis on which they deploy UK contractors and consultants into EU member states. One option will be to move away from time- and materials-based engagement to genuine statement of work arrangements that involve agreeing with the client a fixed price for a defined deliverable and back to backing that arrangement to the worker. We are advising many companies who are moving to this model. Alternatively, the UK staffing and consultancy companies will need to establish themselves locally and employ/sponsor the relevant workers – which will take time and investment.
We would add that the remote deployment/parachute model can expose its users to taxation and regulatory problems, including in relation to permanent establishment rules relating to business licencing, corporation tax and VAT. Using in-country payroll companies or PEOs to engage and/or pay deployed contractors will not remove or reduce this risk.
Users of that remote deployment/parachute model should take legal advice as soon as possible – getting the contractual structure wrong could lead to serious liabilities.
3. Are temporary visits by managers permitted for business purposes?
Short-term, visa-free business trips are permitted for some specific, listed purposes. These include attending meetings. Trips are limited to a maximum of 90 days in any 180-day period. Consulting the TCA list will be necessary if doing more than attending meetings. National "reservations" or exceptions to the list – i.e. where a named Member State imposes requirements or limits access – are also set out in the TCA.
Work trips are also permitted for other purposes, including senior personnel setting up a business, intra-company transfers of managers and specialists, as well as (see question two above) trips that are made by "independent professionals" or under the "contractual services provision" rules.
National reservations and exceptions apply, so consulting the detail of the TCA will be essential. Generally speaking, the further east in the EU you go the more likely these restrictions will apply, but a number of closer countries such as Denmark look like they have special requirements as well.
4. Will transfers of personal data between the UK and EU be unlawful?
There is a four-month period from 1 January 2021 during which the UK will not be considered a "third country" for the transmission of personal data. That period can be extended for a further two months unless one of the EU or UK objects. (The detailed provision is at Article FINPROV.10A of the TCA).
This means that for the time being, there is no problem transferring candidate, employee and client personal data to and from the UK and the EU (provided current privacy laws are complied with). The TCA provides for the continued free flow of personal data from the EU and the European Economic Area (EEA) European Free Trade Association (EFTA) States to the UK until adequacy decisions are adopted – and for no longer than six months. The UK has, on a transitional basis, deemed the EU and EEA EFTA States to be adequate to allow for data flows from the UK.
In case no deal can be agreed, EU "model clauses" may be needed for personal data flows from the EU into your British business and (once here) for flow of that data from you to counterparties/subcontractors in the UK (the second bit of which is often overlooked), until such time that the UK data protection measures are granted "adequacy" by the European Commission.
5. Will EU employment and agency worker legislation continue to apply in the UK?
The TCA contains reciprocal commitments not to reduce the level of protection for workers or fail to enforce employment rights in a manner that has an effect on trade.
As such, UK measures implementing the Working Time Directive (which gives workers the right to paid holiday etc.), the Agency Workers Directive and the Acquired Rights Directive (i.e. TUPE) will be "retained EU law" in the UK.
Other employment protection law such as national minimum wage legislation, the right not to be discriminated against on the basis of protected characteristics, the right not to be unfairly dismissed, the right to statutory minimum notice of termination and the right to a redundancy payment are all measures which originated in Westminster and were never going to be directly affected by Brexit.
6. What about EU workers who are already here and UK workers who are already in the EU?
Transitional rules may allow contractors and workers who have some form of settled status and have the right paperwork in place to be used: any EU worker already resident in the UK or UK worker resident in the EU prior to midnight on the 31 January 2020 will be entitled to remain and continue to enjoy the benefits of residence (work, healthcare etc). Each country has its own method for obtaining proof of lawful residence, which in the UK is the EU Settlement Scheme (EUSS) done through an app, and individuals have until the 30 June 2021 to make an application for their proof of residence. If they have not applied by this date, they will become illegally resident on the 1 July 2021. In the UK, this will form either pre-settled status (valid for five years) or settled status (permanent), and it is issued electronically. There are similar schemes throughout the EU, only with variations on methods of application (in France for example its done via the local police station) rather than on requirements and outcomes.
Right to work is more of a grey area. The Home Office has confirmed that employers have no right to demand that individuals apply under the EUSS and share their outcome (due to conflicts around discrimination), and confirm that a copy of an EU passport remains perfectly acceptable. However, this contradicts the Prevention of Illegal Working Regulations which confirm that any copy taken after 1 Jan 2021 would not confirm a lawful right to work (as it doesn’t confirm arrival prior to this date). In addition, any EU national in the UK after 1 July 2021 without status under the EUSS would be here illegally, even if resident before 1 January, and thus an employer would face a penalty for employing an illegal worker.
We are therefore advising clients to gently "suggest" their workers obtain and share their status before the end of June, and have this "encouragement" become more forceful nearer the time – when we expect the guidance to be clearer. In the run up to the end of June companies may decide that they must have EUSS evidence on file, and terminate employment if this is not forthcoming.
7. Can UK staffing and consultancy companies use new workers and contractors from the EU going forward?
There are also new UK rules about contractual service suppliers and independent professionals. These provisions allow employees of an overseas service supplier ("contractual service suppliers") and self-employed people established outside the UK ("independent professionals") to come to the UK from 1 January 2021 if all of the following apply:
- the work is under a contract to supply services to you (the sponsor) in the UK by an overseas undertaking established in certain countries (some are excluded);
- that service falls within the scope of the commitments in the relevant trade agreement with that country, for example "computer related services", medical services and accounting services. The TCA is the relevant trade agreement with EU countries;
- the service supplier or independent professional has no commercial presence in the UK; and
- the service supplier or independent professional’s business is established in the country or territory that is a signatory to the relevant trade agreement.
The service supplied must be in line with a genuine contract for a period not exceeding 12 months which has been awarded through an open tendering or other procedure which guarantees that it is a bona fide contract and where you will be the final consumer of the service. You cannot sponsor a contractual service supplier or an independent professional if you will then supply them on (as labour, contractor or consultant)to another organisation.
If the worker is a contractual service supplier, they must have been employed by the sending business for at least the 12 months immediately before the date of their application for entry clearance or permission to stay.
Contractual service suppliers and independent professionals must meet specified qualifications and experience requirements.
Consultancies and staffing companies that have moved to a statement-of-work model, where they agree with their clients to deliver a defined deliverable rather than staff or consultants, may be able to use the rules about contractual service suppliers and independent professionals to engage workers from the EU. But they will need to take advice to make sure the way they engage the workers and structure their client arrangements are watertight – failure properly to comply with this legislation could be an immigration offence.
What about the broader impact?
Obviously, the biggest impact may well be economic. Some commentators predict great opportunities for the UK economy, particularly in relation to technology and science. Others predict:
- a severely adverse impact in the short and medium term for many parts of the UK economy;
- labour shortages in certain critical areas (we will be issuing separate guidance about UK immigration rules); and
- a weakening of the Union between the member countries of the UK and possible increasing divergence in the laws in each part of the UK as power is devolved from Westminster.
Perhaps the biggest indirect impact of "getting Brexit done" is that we will now see government focus on levelling up living standards and job prospects for groups left behind by globalisation, economic change and automation, with Covid-19 and 2020-2021 lockdowns likely to have exacerbated the already fast-growing gap between certain areas of the country in terms of opportunity and incomes. If this is not addressed, politicians will fear a much more violent voter backlash than the 2016 referendum vote against the EU.
Preventing that backlash may involve fundamental government interventions in terms of workplace law and redistributing wealth through new tax. Will there be reviews of how technology can be used to give workers more career opportunities and make everyone's lives richer (and not just make technology company shareholders richer)? Will Taylor Review recommendations relating to gig workers and others whose livelihoods are increasingly precarious be adopted? Workforce solutions companies are likely to be in the front line as these changes happen, helping their clients adjust and thrive with new workforce models.
Where can I read more?
The full text of the TCA is 1246 pages. It is full of stuff about goods, fish and enforcement, most of which will not be directly relevant to most workforce solutions companies.
There is a UK government summary explainer but it does not seem entirely helpful. If you want a more succinct summary of the TCA, what it does and its principal provisions, a good starting point is this set of Q&As produced by the European Commission.