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Escaping Daddy’s Dance Hall? The Impact of Brexit on Employment Law

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About The Author

Anirudh Mandagere (Former Law and Social Policy Editor)

Anirudh is the judicial assistant to Lord Justice Jackson. Previously he studied History at St. Catherine’s College, University of Oxford and undertook the Graduate Diploma in Law and the Bar Professional Training Course at City University. Outside of the law, Anirudh enjoys running, badminton and watching the cult Netflix series, ‘Bojack Horseman’.

This article is part of the 'Brexit' series, edited by Matt Bogdan.

With the upcoming referendum on the UK's membership of the European Union, the Brexit series intends to explore key issues surrounding Brexit, particularly what effect EU law currently has on the UK, and what would be left with it gone.

Other articles from this series are listed at the end of this article.

It was not apparent in 1972 that the UK’s accession to the European Economic Community would have a fundamental impact on employment law. When the ECC was first formed, an agreement existed between Member States to liberalise trade and create a free market for goods and services. This agreement was called the Treaty of Rome (1957) and, while there were references within the Treaty to equal pay and free movement of workers, these were inserted based purely on an economic rationale.

Over the past few decades, the European Union has expanded its competence in labour law and, in doing so, has significantly affected the UK's own employment law. Indeed, even in 1972, there was an ever increasing view among Member States that the Community ought to pursue a more active social policy. In light of this, the Council of Ministers established the Social Action Programme in 1974 to further the role of social policy in the Community.    

The Social Action Programme produced a number of directives on equal play and redundancies, thus establishing the concept of EU labour law. The social dimension of the European Union is currently enshrined in Article 151 and 153 of the Treaty on the Functioning of the European Union (TFEU). These provisions bestow on the European Union the ability to enact directives by which Member States must abide. One example of the impact of the EU in the sphere of employment law is the Working Time Directive 2003/88/CC (transposed into UK law as the ‘Working Time Regulations’), which gave EU workers protection against excessive working time, including the right to paid holiday and rest breaks.

The Great Divide

Considering the Tories’ internal divisions on the question of Brexit and David Cameron’s pledge to offer the British public a referendum as to whether to remain in the EU, it is ironic that it was the Conservative Party which originally championed Britain’s entry into the Community. The transition of the Conservative Party from the ‘Party of Europe to ‘No, no, no' has its roots in the conflict with European labour law. The election of Margaret Thatcher in 1979 heralded the start of ‘Thatcherism’ which was defined by deregulation and economic liberalisation. A major aspect of this liberalisation was the creation of a more flexible labour market, free from constraints of legislation or trade union control. In light of this, the arrival of ‘Social Europe’ regulations posed a threat to Thatcherism, an issue to which she made reference in her ‘Bruges Speech:

We have not successfully rolled back the frontiers of the state in Britain, only to see them re-imposed at a European level.

Under Conservative rule, the UK blocked European expansion into social policy; in 1989, Britain was the only Member State to oppose the Charter of Fundamental Social Rights which would have enshrined a number of social and employment rights for all EC citizens, and opted-out out of it in 1992. However, after the Labour Party came to power in 1997, the Charter was quickly incorporated into UK law so as to protect worker rights. While Thatcher left office in 1990, a critical approach to European labour law still persisted in the Conservative Party. As part of the ‘renegotiation’, David Cameron attempted to negotiate an ‘opt-out’ from all EU employment and social protection laws. Now, leaving the European Union would provide the party with the opportunity to fully redress the intrusion of ‘Social Europe’ in employment law.

An example of the influence of ‘Social Europe’ is the ECJ decision in Foreningen AF Arbejdsledere I Danmark v Daddy’s Dance Hall [1989] (Daddy’s Dance Hall). The judgment has been criticised extensively by employers and it is, therefore, worth examining whether the UK could escape ‘Daddy’s Dance Hall’ if it left the EU. The facts of the case are as follows:

  1. Tellerup was employed as a restaurant manager by Irma Catering which had taken up a lease of bars and restaurants belonging to A/s Palads Teatret.
  2. On 25 February 1983, the lease was subsequently terminated and Irma Catering dismissed all the staff, included Mr. Tellerup.
  3. A new lease was negotiated between A/S Palads Teatret and ‘Daddy’s Dance Hall’, who then immediately re-employed all the employees of the former lease, include Mr. Tellerup on the same terms and conditions.
  4. A trial period of three months was agreed on for Mr. Tellerupt, during which either side could give 14 days’ notice. This was a shorter period of notice than that to which Mr. Tellerup was entitled if his employment with the transferor was taken into account.
  5. He was dismissed on 26 April with 14 days’ notice.

On public policy grounds, it was held by the Court of Justice that it was not possible to derogate from statutory rights in a manner unfavourable to employees. Employees were not entitled to waive the rights conferred on them by a directive and those rights could not be restricted, even with their consent. This has unnecessarily complicated employment law and proved frustrating for employers, particularly those who wished to vary the terms and conditions of employees transferring between businesses. Indeed, it may be inconvenient administratively to have different terms and conditions applying to different groups within the workforce. Moreover, transferring employees may be on terms and conditions which are more expensive than those enjoyed by existing employees.

While clearly there must be some protection provided to employees to restrict employers varying employees’ contracts in bad faith, Daddy’s Dance Hall represents an absolutist position. It makes it clear that transferring employees cannot have their terms and conditions varied at all, even if it prejudices those already working at the company. So could the UK potentially escape its remit?

Separated, but not divorced…

In theory, if the government repealed the European Communities Act (1972), then secondary legislation passed under it such as the Transfer of Undertaking (Protection of Employment) Regulations (TUPE) would be erased. By contrast, acts of Parliament or statutory instruments which resulted from directives such as the Equality Act 2010 would remain in force unless they were repealed individually.

The two principal alternatives to the UK's remaining in the EU are entry into the European Economic Area (‘Norway’ option) or to independently negotiate bilateral treaties with the EU (the ‘Switzerland’ option). If either of these options were pursued by Britain after ‘Brexit’, the impact on UK employment law would be limited. Indeed, Norway participates in most EU social and employment policies. The Head of Employment at Lewis Silkin, James Davies explained that the EEA agreement incorporates a number of EU employment directives. Moreover, it has since been affirmed by the EFTA Court (European Free-Trade Association) that countries within the EEA are still obliged to follow the ECJ jurisprudence (Langeland v Norske Fabrikom). Langeland also confirmed that Daddy’s Dance Hall would still apply to countries such as Norway. Thus, the decision in Daddy’s Dance Hall would still continue to be upheld if Britain took the ‘Norway’ option.

The situation is similar in Switzerland. While in theory it can choose not to follow EU directives, in practice Switzerland follow all the major EU directives relating to employment law. In theory, if the UK follows the ‘Swiss’ option, it could negotiate opt-outs on employment law. However, this is likely to be a protracted and difficult procedure. The EU would be keen to avoid ‘social dumping, a process in which one member state undercuts the rest of the Union by deregulating heavily whilst still having access to the free market. This is of particular concern at a time when unemployment in the Eurozone is at 10.3%, while the UK’s unemployment rate is at 5.2%. It is highly doubtful that, under the Swiss model, the rest of the EU would allow Britain to undercut its rivals by introducing less restrictive regulations on transferred employees. 

Total Divorce

A more radical option would be for Britain to withdraw from any form of supranational entity and take its place at the World Trade Organisation (WTO). This would mean that UK would attain a relationship to the EU similar to that of the United States or Japan. In theory, the UK would regain full control of internal regulation and would not have to abide by Daddy’s Dance Hall or any other EU rules. It is true that, on leaving the EU, the Court of Justice would no longer have jurisdiction and its future decisions would not be binding on UK courts. Naturally, it is difficult to see the CJEU having substantial long-term influence on English courts in twenty years. In the seminal judgment of Factortame Ltd v Secretary of State for Transport (No. 2), Lord Bridge made clear that the principle of supremacy of the CJEU was rooted in the European Communities Act 1972. As Brexit would entail withdrawal from the ECA, future decisions cease to be binding on the domestic courts and UK judges would hold them in less regard than at present.

However, it is possible that the UK courts would still take account of CJEU decisions as ‘persuasive’, particularly if EU-rooted legislation was retained. It could bestow a similar status to decisions of the Privy Council; a superior court which, while not binding, provides persuasive authority for the domestic courts. An example of how influential ECJ decisions are in relevant UK legislation can be found in the jurisprudence on holiday pay. This is regulated by 13(9) of the Working Time Regulations which states that holiday leave can only be taken ‘in the leave year in respect of which it is due’. However in NHS v Larner [2012] EWCA Civ 1034, the Employment Appeal Tribunal construed the regulation in light of ECJ cases such as KHS v Schulte [2011] Case C-214/10 ECJ in which a worker could defer annual holiday pay in light of sickness. Thus, the tribunal broadened the remit of the Regulation and added the proviso ‘save where the worker was unable or unwilling to take it because he was on sick leave and as a consequence did not exercise his right to annual leave’ to the regulation in question. Much like in the Privy Council, CJEU decisions have been affirmed and integrated into UK jurisprudence. While in theory the UK courts could ignore the CJEU decisions such as Daddy’s Dance Hall after ‘Brexit’, it is possible that they would continue to at least refer to its jurisprudence so as to preserve legal certainty.

Conclusion

Returning control of employment law to the UK is ostensibly an attractive proposition. The Working Time Directive, for example, has been extensively criticised by the CBI for undermining the flexibility of the labour market. However, in reality, return of ‘control’ is a façade. Even in the event of ‘Brexit’, it is likely that the UK would retain some form of relationship with the EU and consequently would be subject to CJEU decisions and employment regulation. In theory, the UK could withdraw entirely from the EU and eradicate all EU-inspired legislation to avoid CJEU decisions taking precedence. However, this is unlikely to occur, purely by dint of the fact that commercial agreements have been drawn up and priced accordingly in light of regulations such as TUPE. If the UK wishes to make employment law more flexible and address the problems caused by Daddy’s Dance Hall, it should seek to play a central role in EU decision-making. The role of Britain in shaping the European Commission’s policies in state aid and competition policies demonstrates that it can play a full and active role in reforming EU labour law.

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Tagged: Commercial Law, Employment Law, European Union

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