In March 2017 Theresa May triggered Article 50 and formal negotiations on leaving the EU began… What can your business do now to prepare for the future? What are the threats and opportunities of Brexit? A guide to preparing for Brexit – the simple steps your business should take now.
On 1 February 2017, MPs voted in favour of the Prime Minister triggering Article 50. A “White Paper” has been published setting out the governments goals for Brexit. This includes 12 “principles” which include those around migration control and “taking control of our own laws”. Many of these issues have the potential to have a direct and significant impact on business, although the how and when is as yet unknown. There are, however, steps that businesses can take now as contingency planning, and these simple steps are set out below.
Assess your potential exposure
The most important initial step for businesses is to assess the risks and opportunities Brexit may bring to your business. Conducting such a due diligence exercise will help highlight matters which may become problematic, depending on the nature of the UK’s relationship with the EU going forward.
Existing commercial contracts
The UK leaving the EU may potentially affect the operation of your existing contracts, particularly those that are for fixed or longer terms. All business that directly trade within the EU will be affected and businesses should review their existing contracts to understand their risk exposure. Contracts that will be particularly affected are those that deal with:
- the ongoing operation of specific EU legislation
- harmonised regulatory or licensing regimes
- currency exchange fluctuation
- pricing that assumes tariff-free access
- EU funding
Even if your contracts are UK based, your customers or suppliers may be faced with significant challenges that will impact on your contract. This may result in contracts being terminated early via “illegality/ change in law” provisions, a “force majeure event”, a “material adverse change” or a “frustrated” contract. Consider whether any terms could be triggered against you because of Brexit circumstances.
Brexit may provide your business with new opportunities. Your contracts may include change control or renegotiation rights which could give you the opportunity to change the scope or price of your goods/services.
Procurement process
Businesses should include Brexit risk analysis and management into their internal procurement processes. In particular, businesses should:
review the pricing mechanisms they use to consider what would happen in the event that tariffs, quotas or other legal barriers and transaction costs were to apply.
Consider giving the parties termination rights for when the UK leaves the EU (depending potentially on the terms Brexit ultimately takes); and /or provide an alternative mechanism which will apply once the UK leaves the EU, such as transitional arrangements.
Those businesses that provide goods and/or services to the public sector should assume that the regulated procurement regime will continue for some time yet.
Employment and contractor arrangements
There is a great deal of uncertainty as to what the status will be of both UK nationals living and working in other EU countries and of the nationals of other EU member states living and working in the UK. Until this issue is resolved, businesses and their HR teams should audit their workforce to asses those who may be at risk from changes to free movement into and out of the UK. It may be that in due course, some employees may be entitled to apply for UK citizenship and may seek assistance and advice from their HR team. Note that employers in the UK are subject to the Equality Act 2010, which expressly provides that job applicants must not be discriminated against on a number of protected grounds, including nationality.
Additionally, a significant proportion of the UK’s employment law comes from the EU. Although it is expected that many elements will be enshrined directly into UK law on Brexit, there may be some areas where we will see some change. This may include making small changes to The Transfer or Undertakings (Protection of Employment) Regulations 2006 (TUPE) to make it more business friendly. Consider whether such provisions apply to your contracts.
EU Funding
Many UK based industries and sectors benefit from EU funding. In the event that the UK government does not commit to matching or replacing these funds, will these industries move away from the UK? If your business’ exposure to these industries is large, consider how will your business be affected. For example, will you be exposed to currency fluctuations, potential new taxes or costs, or will the industry move out of the UK? See our post “Spreading your assets” which discusses this point in more detail.
Now is a good opportunity for businesses to take a clear look at their commercial arrangements and legal contracts and understand how best they can prepare for the future and the challenges and opportunities that they present.
Article published: 11th April 2017
