The UK’s relationship with Europe has emerged as a key political issue. Eurosceptics are arguing that, because of European employment law, UK employers are strangled in red tape. But do European Union laws really have such a damaging impact on UK businesses? This piece by Lewis Silkin cuts through some of the bluster to reveal a few facts about the EU's influence in the UK.
“Crazy things are going on in Europe that will affect businesses and jobs”, announced David Coburn, the newly elected UKIP MEP for Scotland. But when questioned further, he was unable to give a specific example. Other eurosceptics claim that EU employment laws cost the UK billions every year.
With European Union membership once again at the forefront of the political agenda, does closer scrutiny of EU employment laws support Mr Coburn’s view? Or is his inability to provide any detail indicative of them being the wrong target for those disillusioned with the EU?
A global economy and the impact of EU law
In an increasingly global economy, the UK government plays an important role in ensuring businesses can operate flexibly and compete across borders as effectively as possible. However, there is considerable evidence to undermine the sceptics’ view that EU employment laws undermine the UK’s global competitiveness.
First, despite the impact of EU law, the UK consistently ranks as one of the most deregulated employment law regimes in the developed world. Secondly, while there is evidence that some EU countries are handicapped by employment laws, this appears to be a feature of their own legal and industrial relations systems rather than EU law. Thirdly, a Department for Business Innovation & Skills survey of small businesses showed that they do not actually regard employment laws as a major obstacle to success. Finally, our own analysis shows little or no correlation between employment regulation and economic growth.
In fact, some of the UK’s employment laws which attract most criticism, such as unfair dismissal and minimum wage rules, have nothing to do with Europe and were introduced by our nationally-elected governments.
EU employment directives
The underlying purpose of most, if not all, EU employment laws are uncontroversial. Few would argue that employees should not be protected from discrimination. Indeed, in several respects the EU has played catch-up with the UK, which had these laws long before the EU forced fellow member states to follow suit.
There can also be little complaint in principle about other significant duties generated by EU employment directives. These include: consulting in advance of mass redundancies; ensuring employees do not work such excessive hours as to damage their health and safety; protecting employees if the business in which they work is sold; granting employees minimum maternity and parental rights; and affording part-time, fixed-term and agency workers minimum levels of protection. EU directives covering these areas are often brief and, on their face, relatively benign.
This is not to say that concerns about the impact on business of EU employment laws should simply be written off. However, closer consideration shows that it is not the laws themselves that are problematic but rather the way in which the courts - both domestic and European - have interpreted them. The courts have had to apply these laws to a whole range of situations, many of which could not have been contemplated by those drafting the original directives. This is the root of the problem.
Take the TUPE Regulations, which introduced into UK law the principles set out in the 1977 EU Acquired Rights Directive (ARD). The purpose of the ARD was to protect employees where the business in which they worked was transferred by way of an asset sale, in the same way as their rights would be preserved on a share sale. However, two significant (but possibly unintended) challenges subsequently arose for UK businesses.
In the late seventies, James Callaghan was the British prime minister and the practice of outsourcing was unheard of. It was the UK tribunals and courts which first had to grapple with applying TUPE to outsourcing situations, resulting in complications that have kept employment lawyers busy for the last thirty years. Those drafting the ARD can hardly be blamed for this.
One particularly frustrating aspect of TUPE is the inability for employers and employees to agree changes to employment terms after a transfer. The ARD says that employment terms transfer automatically in the case of a business sale, as they would in a share sale where the identity of the employer remains the same, and it is impermissible to contract out of the ARD’s application. Courts have interpreted this as meaning that employees cannot even freely agree to a change in their employment terms. Despite the strict wording of the ARD, it is highly unlikely that those drafting it would have intended to give employees greater protection on a TUPE transfer than in the case of a share sale.
The Working Time Directive
Another example is working time legislation. The Working Time Directive (WTD) is one of the two directives which generate most hostility among eurosceptics (the other being the Agency Workers Directive). When most people think of the WTD, it is the 48-hour limit on the working week that springs to mind. However, in our experience, this issue is not near the top of employers’ concerns - many make use of the opt-out or other available exceptions.
The much bigger problem with working time laws surrounds holiday pay. The WTD provides that employees should benefit from a minimum of four weeks’ paid holiday (including public holidays), which is not particularly controversial. Indeed, the UK has chosen to go further than required by EU law and extended the entitlement to 28 days.
The controversial implications of holiday rights arise from the courts’ interpretation of how much should be paid and in what circumstances. It has been decided that employees who are sick while on holiday should be entitled to extra compensatory leave, and employees on long-term sick or maternity leave should be entitled to store up holiday which accrues during their absence and take it when they return. Most recently the courts have been grappling with the extent to which holiday pay should take account of bonuses, commission and overtime. It is doubtful that those behind the WTD would have anticipated the approach taken by the courts in these cases.
Entrenched voting rights mean that unanimity or a large majority of the 28 EU member states is required to introduce new EU directives. This is a major impediment restricting the EU’s ability to adapt laws in light of court decisions. Tony Blair was recently quoted as saying the EU should stop doing irritating things. If the EU wants to stop annoying employers, it should find ways to be more flexible and responsive. EU-based laws need to be reviewed in light of the way courts are interpreting them, to ensure they continue to reflect the legislators’ original intentions.
By James Davies, Joint Head of Employment at Lewis Silkin
Do you think EU laws are stopping businesses making money? Or is this Euroscepticism just hot air? Share your thoughts about the impact of EU laws using the comments section below.
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