Brexit trade agreement and employment law – a “rebalance” of power?

Following the Christmas Eve agreement between the UK and EU signing the Trade and Co-Operation Agreement (“Trade Deal”), we consider what impact the Trade Deal may have on employment law.

The UK is free to modify or diverge from any future EU employment laws, however, if such changes have a material impact on trade or investment, the EU (subject to certain constraints and an arbitration process) may apply “rebalancing measures.”

The commitment not to reduce employment rights extends to fundamental rights at work, health and safety standards, fair working conditions, employment standards, information and consultation rights and restructuring of undertakings. Both sides are to continue to strive to increase their respective labour and social levels of protection. If a party has failed to comply with its obligations, then this can be referred to a panel of experts after 90 days.

In addition to not weakening employment standards, the UK and EU have committed to effectively enforcing those standards. This requires the UK to put in place and maintain a system for effective enforcement of these standards. This must include a system of labour inspections and administrative and judicial proceedings that allow public authorities and individuals to bring actions against violations of the standards. The UK has also committed to setting up a Single Enforcement Body to widen state enforcement of employment rights.

Rebalancing Provisions and The “Level Playing Field”

Whilst the UK is not required to align national laws with any future employment law implemented in the EU, any significant divergence which may have a material impact on the level playing field could result in tariffs and quotas being introduced (subject to the arbitration process) under the rebalancing mechanism. The purpose of these provisions is to ensure there is a “level-playing field” between UK-based and EU-based employers and to avoid lower, cheaper employment standards.

The ultimate question will be if any divergence results in a competitive advantage. Take the EU Whistleblowing Directive which is due to be implemented in 2021. Whilst the UK already has whistleblowing legislation in place, it would need adapting to align with the directive. If the UK chooses to ignore this directive in full which results in a significant divergence on employment rights the EU would need to establish proof that this materially impacts trade or investment in order for the rebalancing provisions to be triggered.

Such restrictions therefore appear to limit the UK’s ability to make significant changes to employment law. Any changes which could affect trade or investment will unlikely be allowed under the Trade Deal. Changes to removing working time or agency worker laws for example would likely affect trade giving the UK a competitive advantage and so are unlikely to be changed now the UK has left the EU.  However, amendments to specific holiday rules which have been problematic for UK businesses following various European Court of Justice (ECJ) decisions are unlikely to affect trade in the same way.  Arguably, these could be reviewed and amended by the UK courts. It is unclear what level of reduction of employment rights might be considered to affect trade and investment.

Existing EU derived employment law

Any EU-derived domestic legislation in effect immediately before 31 December 2020 will continue as part of the UK’s domestic law.  The impact of this is that TUPE and the Working Time Regulations will continue to remain in force and any UK domestic laws implementing EU rights must continue to be interpreted in accordance with relevant EU law. 

However, there are some changes following the Trade Deal.  The Supreme Court and Court of Appeal may depart from EU case law “when it appears right to do so.” At this time, it remains to be seen if the UK higher courts will be prepared to overturn ECJ decisions but this gives the courts an opportunity in the future to possibly challenge previously settled laws.

New EU laws

The courts and tribunals in the UK will no longer be bound to follow any new ECJ decisions which are issued from 2021 and beyond but they may have regard to them where relevant.  It seems unlikely a new ECJ decision will trigger the rebalancing measures as it will likely prove difficult to demonstrate this has a material impact on trade.  
Tribunals must also still read UK legislation in conformity with the EU law it was intended to implement.  It seems likely, given the lack of any clear guidance as to what Tribunals should consider when reviewing an ECJ decision, that tribunals will adopt a cautious approach and follow new ECJ rulings in most situations.

Possible future employment law changes

Whilst it is unlikely that there will be significant changes made to existing UK employment rights in the immediate future, there are some potential issues which could be clarified in the future, including:

  • Imposing a cap on compensation for discrimination claims (similar to unfair dismissal claims);
  • Changing the law to allow positive discrimination in favour of under-represented groups (this  is not currently permissible under EU law); and
  • Making changes so that TUPE is more business friendly, for example by implementing rules so that it is easier to harmonise terms following a TUPE transfer which is not currently  permitted under EU law.

Data Protection

Although the EU GDPR will no longer apply to the UK, the UK has retained the GDPR in domestic law; the relevant UK data protection legislation is now the UK GDPR and the Data Protection Act 2018 . The EU has agreed to a free flow of cross-border personal data between the EU and the UK temporarily for at least four months, which can be extended to six months. The UK is currently seeking adequacy decisions from the EU to enable continued free flow of data to and from the EU.

If adequacy decisions are not achieved, alternative safeguards relating to the transfer of data within the EEA and UK will be needed.


Whilst the agreement has meant changes to free movement and now allows the UK to diverge from EU employment law, the UK is not expected to make any changes quickly, especially where such changes could trigger the rebalancing measures if they result in a competitive advantage. Ultimately, whilst the UK has now formally left the EU with a Trade Deal; as to how far the UK will actually be able to diverge from future EU laws will very much depend on if this could materially impact trade or investment. Employers should not expect significant gaps to be opened very quickly between UK and EU laws.  However, employers should expect and prepare for the possibility that there will be a new scope to litigate and relitigate points that up until now were settled.

For the immediate future, it seems that significant changes to employment laws will not be made by the UK courts, with tribunals likely to adopt a more cautious approach when interpreting new ECJ decisions.


This information is for general information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Please contact us for specific advice on your circumstances. © Shoosmiths LLP 2024.



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