Leaving the EU – legal scenarios for Retailers

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Pinsent Masons | Leaving the EU – legal scenarios for Retailers

Contents 1

Renegotiating the UK’s role in Europe

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Speed read

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The process for withdrawal

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Contingency planning

Contracts

Competition law



Intellectual property



Trade marks



Parallel trade

Tax

Data protection

17 Employment Law and Immigration 18 Concluding thoughts

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Renegotiating the UK’s role in Europe • The ongoing Balance of Competences Review is an opportunity for you to make the case for how the UK should interact with Europe to offer the most benefit • Complex matter to disentangle UK domestic legislation from EU law.

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Pinsent Masons | Leaving the EU – legal scenarios for Retailers

There is continuing uncertainty over the UK’s relationship with the European Union (EU). Business leaders are warning about the dangers of a full withdrawal but are supportive of the UK government’s push for reform. There are many alternative models for renegotiation open to the UK which include: negotiate to exit completely; retain membership of the European Economic Area (EEA) as a member of the European Free Trade Association (EFTA); return to EFTA and negotiate an arrangement similar to Switzerland’s; or, negotiate a bespoke arrangement using these agreements as a blueprint. Whatever route was chosen, the UK would no doubt seek to retain some of the benefits it enjoys as a member of the EEA. Whereas the possibility of a referendum may seem a long way off, 2017 at the earliest, this is a good time for businesses operating in the retail sector to consider the risks and opportunities a possible exit or renegotiation could create and take time to assess the benefits, or otherwise, that the UK’s membership of the EU offers the sector. The ongoing Balance of Competences Review1 – a wide ranging Government audit of the UK’s relationship with the EU and an assessment of the influence of the EU on the way the UK does its business – is an opportunity for retailers to express a view on how the UK should interact with Europe. Announced in July 2012, the review is being broken down into a number of individual reports and will be conducted between 2012 and the autumn of 2014. Calls for evidence are already open in a number of areas of relevance to the sector, including the internal market, the environment and trade and investment. Full details of the Review are at the footnoted web-link below.

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https://www.gov.uk/review-of-the-balance-of-competences

The retail sector is of crucial importance to the UK and therefore it is important that any debate about the UK’s future in Europe takes due account of the views of the sector. Retailers operating in the UK should consider contributing to the national and wider European debate about modernising, reforming and improving the EU. This paper explores, at a high level, the potential implications of any renegotiation of the UK’s membership of the EU on some key areas where EU law impacts the sector. Of course, where companies would still be operating within and trading with the EEA, there would need to be continuing compliance with EU law. The UK has many options for renegotiating its relationship with the EU and we take account of some of these possible scenarios. We have identified some areas that retailers should consider in their existing and future contracts so as to mitigate risks and potential future exposure. We also consider the impact of a withdrawal in a number of legal areas including: competition; intellectual property, including parallel trade; consumer product regulation; data protection; taxation; immigration; and employment.

Tom Leman Head of Retail

Helen Cline Editor

E: [email protected]

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Speed read Renegotiating the UK’s role in Europe There is continuing uncertainty over the UK’s relationship with the EU. There are many alternative models for renegotiation open to the UK which include: exit completely; rejoin the EFTA and the EEA; return to EFTA and negotiate an arrangement similar to Switzerland’s; or, negotiate a bespoke deal with the EU using the Swiss and EEA arrangements as a blueprint.

The process for withdrawal Due to the complexities of leaving the EU the withdrawal is likely to be a lengthy negotiated process. Unless the UK negotiates some model of integration, without membership, the Fundamental Freedoms – free movement of persons, goods, services or capital – will cease to apply.

Contingency planning Contracts Companies should assess their risk exposure should the UK redefine its relationship with the EU. The nature and extent of the UK disengagement with the EU will have an impact on the contingency planning required.

Competition The impact of the UK leaving the EU may be limited in terms of the substantive application of competition law. UK laws are already closely modelled on the EU law prohibitions and there is a great deal of similarity in terms of how competition law is applied and enforced. The domestic authorities, in particular the CMA, would have a greater responsibility and burden in this area, including merger control, and would need additional resources.

Intellectual property – parallel trade An exit from the European Union could have profound impact on parallel trade, which is based on the European principle of free movement of goods.

Intellectual property – trade marks If the UK left the EU and did not remain in the EEA, existing Community Trade Marks (CTMs) would no longer apply in the UK but could probably be re-registered as national trade marks while continuing to apply in the remaining EEA Member States. However, enforcement costs could increase.

Tax If the UK left the EU (and did not remain in the EEA), it would in theory have greater freedom to adjust its tax system although in practice this is likely to be tempered by international agreements.

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Pinsent Masons | Leaving the EU – legal scenarios for Retailers

Data protection An EU exit could mean stricter requirements for UK companies in their dealings with personal data. Whichever exit route is followed, in dealing with international data transfers, companies would need to review and update their contracts involving cross border data sharing with the UK, such as online customer database arrangements, in light of the new legislative arrangements.

Consumer product regulation If the UK were to leave the EU and not remain in the EEA, although the UK legislation would not immediately change in many areas, the UK would have to negotiate mutual recognition agreements in a number of areas. If the UK remained in the EEA the regulatory framework for consumer products would not change substantially.

Employment Leaving the EU could present employers with a large administrative burden. European Law has a significant influence over UK employment law, with a great deal of employment law deriving from EU legislation and case law.

Immigration A withdrawal from both the EU and EEA could have long-term as well as immediate effects as movement of employees and their families between Europe and the UK would become more difficult.

Concluding thoughts There appear to be numerous scenarios for how the UK could renegotiate its relationship with the EU. The consequences will depend on the path that the UK eventually decides to take. This is likely to remain unclear for some time to come, implying considerable uncertainty over a long period.

Have your say In light of the continuing uncertainty, we encourage UK businesses in the retail sector to engage in this debate and submit evidence to the ongoing Balance of Competences review.

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The process for withdrawal “Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.” Article 50 Treaty on European Union

The United Kingdom joined the European Community on 1 January 1973, and confirmed that decision in a UK-wide referendum in 1975. A Member State that wishes to leave the European Union (EU) is required to notify the European Council of its intention to do so. Due to the complexities of leaving the EU any withdrawal is likely to involve lengthy negotiations. To date, no Member State has left the EU or its predecessor bodies. Greenland, an overseas territory of Denmark and not a Member State as such, did leave the EU in 1982. The withdrawal agreement Depending on the result of negotiations, and if the UK were to decide to split from the EU but still wished to retain the benefit of the Fundamental Freedoms – free movement of persons, goods, services or capital – of the internal market – it would have to choose a model of integration without membership such as that enjoyed by the European Free Trade Association (EFTA) countries. The European Economic Area (EEA) agreement and the Swiss bilateral agreements may serve as blueprints for future negotiations. Possible consequences of withdrawal The Treaties and all existing directly applicable EU law would cease to apply to the UK from the date the withdrawal arrangements entered into force or, failing that, within two years after notification unless the Member State and the UK unanimously agreed to extend this period. A new legal order/ regime would need to be agreed. Unless the UK were to negotiate some model of integration without membership, the Fundamental Freedoms will cease to apply. We explore some of these and other issues in the sections that follow.

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Pinsent Masons | Leaving the EU – legal scenarios for Retailers

The EU – what you need to know EEC, EC and EU The European Economic Community (EEC) was established in 1957. The Maastricht Treaty, ratified by the UK in 1993, established the European Union (EU). One of the pillars of this new Union, the EEC, was renamed the European Community (EC). The three pillar structure established by Maastricht became one, and the European Union replaced the EC, on the entry into force of the Lisbon Treaty in 2009. The Internal Market In 1986, the Single European Act was intended to provide new momentum for the establishment of the common market now called the ‘internal market’ or single market. The internal market, arguably the bedrock of the European Union, is an area without internal borders designed to ensure the free movement of goods, services, capital and persons: the so-called “Fundamental Freedoms”. The Member States of the EU The EU has gone through a period of expansion and currently comprises 28 Member States with Croatia, the latest to join in July of this year. The European Treaties The Lisbon Treaty amended the Treaty on European Union (‘TEU’, also known as the Maastricht Treaty), and the Treaty establishing the European Community (also called the Treaty of Rome), the Treaty on the Functioning of the European Union (‘TFEU’). EFTA The European Free Trade Association (EFTA) is an intergovernmental organisation set up for the promotion of free trade and economic integration to the benefit of its four remaining Member States – Norway, Iceland, Switzerland and Liechtenstein. A country joining EFTA is not automatically a member of the European Economic Area (EEA). The EEA The Internal Market is open to the 28 EU Member States and three of the four remaining Member States of EFTA (Norway, Iceland and Liechtenstein) creating together the EEA. Although the fourth EFTA Member State, Switzerland, is not a signatory to the EEA Agreement, it benefits from a number of bilateral cooperation agreements with the EU. Currently, membership of the EEA is only open to EU and EFTA Member States and a country joining the EU must apply to be a party to the EEA Agreement.The EEA Agreement provides for the inclusion of EU legislation concerning the Fundamental Freedoms throughout the EEA Member States, as well as competition and State aid rules. EU Law EU law is derived from primary legislation (the Treaties) and secondary legislation (such as Regulations and Directives). It is supplemented by the case law of the European Courts (the General Court and the Court of Justice) and general principles of EU law applied by the courts – such as proportionality, legal certainty and subsidiarity – as well as fundamental rights which are increasingly part of primary law. EU law confers either directly or upon implementation into national law rights and obligations in each Member State, as well as on individuals and businesses. The European Communities Act 1972, as amended, provides the mechanism whereby EU law is incorporated into the domestic law of the UK and enables the implementation of changes to UK law. In case of a conflict between EU law and national law, EU law has primacy.

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Contingency planning • Audit and assess risk under existing contracts • Ensure new contracts are “future proofed”.

Contracts In view of the continuing debate about the UK’s relationship with the EU, we suggest that retailers would be wise to assess their risk exposure should the UK decide to withdraw from the EU. The nature and extent of the UK’s ongoing relationship will have an impact on the contingency planning required. This planning could include: (a) auditing and assessing risk under existing contracts; and (b) ensuring that new contracts are, insofar as possible, “future proofed” with appropriate safeguards. An audit of existing and new contracts, we suggest, should include a review of: • Force majeure – would an EU exit constitute a force majeure event as defined in the contract? If this is unclear, consider specifically listing this eventuality as an event outside a party’s control in order to allow a party to avoid a breach scenario caused by an exit. • Currency clauses – a UK exit from the EU could create uncertainty around currency and the contractual implications should be considered. • Hardship clause – a generally worded clause allowing either party to renegotiate terms if the agreement becomes unprofitable may be useful if an exit from the EU is likely to substantially affect the commercial deal. • Definition of EU – the territory definition of a contract may refer to Europe (in terms of geographical, rather than political region), the EU as it was when the contract was entered into, or be a moving definition which can expand or contract as countries enter or exit the EU. • IPRs – If a licence grant is tied to the moving definition of the EU territory, a UK exit could lead to the licence no longer covering the UK. Consider therefore incorporating an obligation in those circumstances to execute necessary additional licences to avoid infringement of IPRs.

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Pinsent Masons | Leaving the EU – legal scenarios for Retailers

• Competition law and parallel trade – competition law is largely harmonised across the EU and certain provisions are common in agreements based on the application of the EU block exemptions. Certain provisions that are currently prohibited while the UK is within the EU may be allowable in certain circumstances if we were outside it. Similarly, certain contractual restrictions on parallel imports are prohibited under EU law. Consider how agreements may be revised to accommodate this or whether there is value in retaining the existing effect of these contractual provisions. • Choice of law and dispute resolution – each Member State has a different legal and court system with different rules. However, the European Treaties provide for cooperation between Member States to simplify cross-border judicial processes in order to remove obstacles to the internal market. If the UK exits the EU, then this framework of EU legislative rules would cease to apply. It would be left to International Conventions such as the Hague Conventions, national law and bilateral agreements to manage the conflicts between the rules as applied by different countries.

• Termination – tied to the concept of a hardship clause above consider whether the UK redefining its role in the EU would have such a profound effect on the commercial deal that one or both parties should be entitled to walk away? • Duration – one straightforward way to anticipate change is to specifically allow for renegotiation or termination following the results of any referendum. • Insurance – do insurance policies cover non-EU exposure, and would insurance obligations remain achievable without significant increase in premiums? • Data protection – irrespective of the exit route that the UK might negotiate, in dealing with international data transfers, companies would need to review and update their contracts involving cross border data sharing with the UK, such as multi-country e-commerce arrangements.

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Competition law • Impact likely to be limited in terms of the substantive application of much of competition law • External advice by UK qualified lawyers in competition cases would not attract legal privilege • Significant resource implications for businesses and the CMA in relation to merger control. UK and EU competition law UK and EU competition law prohibit two main types of anticompetitive activity: • Anti-competitive agreements (under Chapter I Competition Act 1998 and Article 101 TFEU). Both UK and EU competition law prohibit agreements, arrangements and concerted practices that appreciably prevent, restrict or distort competition and that may affect trade in the UK or the EU respectively. • Abuse of a dominant market position (under Chapter II Competition Act 1998 and Article 102 TFEU). Both UK and EU competition law prohibit businesses with significant market power from unfairly exploiting their strong market positions or acting in a way that is exclusionary. UK and EU investigative tools Both the UK and EU regimes also have investigative tools to examine sectors of the economy to see if they are working well. In the UK, this can lead to a number of outcomes, including enforcement action under the prohibitions above or to a market investigation by the Competition Commission with a range of possible remedies at its disposal. The European Commission can also undertake so-called “Sector Inquiries” leading to enforcement action. The Retail Task Force was established in 2012 and since its creation the Task Force has been monitoring the food supply chain and investigating alleged anti-competitive practices at European level. In addition, the Task Force is looking into recurring allegations that unfair trading practices impair choice and innovation in the long term. In early 2013, no doubt influenced by the work of the Task Force the Commission published a European Retail Action Plan and Green Paper on unfair trading practices in the business-to-business food and non-food supply chain. The Paper identified two major challenges in the EU retail sector: • Restrictions on establishment; and more generally, • Lack of competitiveness in the retail sector, in particular in some Member States, and a need to reduce barriers and operational restrictions. The Commission continues to be actively targeting and monitoring the retail sector with a commitment to “continue to watch food and consumer-goods markets closely” (Ref 1).

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Pinsent Masons | Leaving the EU – legal scenarios for Retailers

If the UK were to remain in the European Economic Area (EEA) Agreement, it would remain bound by substantially similar provisions on competition as now. The impact of the UK leaving the EU is also likely to be limited in terms of the substantive application of much of competition law as it applies to businesses based in the UK. While the UK would have greater freedom to modify the UK competition law regime, retailers based in the UK would still be subject to the EU rules in relation to any activities that impacted on trade between EU and EEA Member States and would not escape ongoing scrutiny of the sector by the Commission. There are numerous decisions by the Commission which have prohibited activities of non-EU firms because those activities would affect trade between Member States. UK competition law is already closely modelled on the EU law prohibitions and there is a great deal of similarity in terms of how competition law is applied and enforced. However, the UK authorities would lose their ability to apply EU competition law and to look to a supra-national authority to take effective action against competition law infringements that have a much wider impact than the UK. Prosecuting such cases alone would require a substantial increase in the resources of the new Competition and Markets Authority (CMA). The CMA would also lose their “seat at the table” within the European Competition Network and would be likely to conclude a bilateral co-operation agreement with the European Commission instead.

There could be significant resource implications for businesses and the CMA in relation to merger control as transactions that are currently caught by the EU Merger Regulation would effectively be repatriated to the UK, increasing transaction costs for all concerned. A recent report (ref 2), on European competition authorities’ monitoring actions across the supply chain in the food retail sector alone, highlighted that competition authorities have carried out 103 market monitoring actions between 2004 – 2011, out of which 10 are currently on-going. The large number of monitoring actions related to the food sector shows that this sector is a high priority for competition authorities. There is no other sector which has been the subject of more monitoring investigations by competition authorities in recent years. Exit from the EU is unlikely to change the high degree of scrutiny that the retail sector would continue to face across Europe on a national basis. (Ref 1 – Speech by Joaquín Almunia, Vice President of the European Commission responsible for Competition Policy “Consumer-goods markets: A litmus test for competition policy.”) (Ref 2 – ECN report on competition law enforcement and market monitoring activities by European competition authorities in the food sector.)

A practical consideration for retailers involved in competition law cases is that, strictly speaking, external advice by UK qualified lawyers would not attract legal privilege in the context of EU competition investigations, although in practice the EU Commission may show some flexibility.

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Intellectual Property • A trade mark owner may not be able to prevent goods being imported into the UK • Opportunity for patent owners to stem the flow of patented products in and out of the UK • Parallel trade has been lauded as decreasing the cost to consumers of branded goods. If the UK negotiates an exit from the EU, how will we negotiate to mitigate what many see as a foreseeable consequence in terms of writing off parallel trade? • The risk that existing Community Trade Marks would no longer have effect in the UK while continuing to have effect in the remaining EU Member States is probably remote • Risk for brand owners following an EU exit of increased costs of enforcement Enforcement of IP Enforcement of Intellectual Property Rights (IPRs) is normally through national courts for both civil remedies and criminal sanctions. The Enforcement Directive (Directive 2004/48/EC) ensures a minimum level of protection in the civil courts. In the case of EU harmonised rights (currently trade marks and designs and in the future also the Unitary Patent), certain national courts are designated community courts and rule for the whole EU in relation to civil procedures and remedies. Exhaustion of IPRs One of the rights the holder of an IPR has ordinarily is to prevent the movement of goods that would infringe those rights across borders. However within the European Economic Area (EEA) this is reconciled with the fundamental principle of free movement of goods by the doctrine of exhaustion of rights; if products are placed on the market in one Member State either by the IPR holder or with its consent, that IPR holder cannot use its IPRs to prevent those goods being bought and sold within the EEA. A rights holder may still prevent the movement of goods within the EEA which were first placed on the market in a non-EU country (the effect of which is often referred to as “fortress Europe”).

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Pinsent Masons | Leaving the EU – legal scenarios for Retailers

Trade marks If the UK left the EU and did not remain in the EEA, existing Community Trade Marks (CTM) would no longer have effect in the UK while continuing to have effect in the remaining EU Member States: they would need to be registered as UK national marks. Enforcement costs could also substantially increase. Under the current regime, trade mark owners can register their marks nationally or with effect across the EU through an EU body, the Office of Harmonization for the Internal Market (OHIM), which grants a Community Trade Mark (CTM). The CTM is a powerful tool against infringers and is very useful to retailers that operate globally. Should the UK leave the EU, retailers would have to ensure that their existing CTMs are separately protected in the UK and in the remaining EU Member States. Existing international treaties such as the Madrid Protocol could possibly be used to ensure that any existing CTMs are recognised by the UK Intellectual Property Office and come into effect as UK registrations. For new registrations, where EU wide protection is required, each new brand would have to be registered separately in the UK as well as in the EU as a CTM with consequential increases in registration costs, although these are not likely to be large. There would also be separate renewal fees going forward. The greater risk for brand owners following an EU exit is the likely increase in costs of enforcement; the EU wide injunction available under the Enforcement Directive would no longer be available to the UK courts. Further, as the UK and EU legal systems diverge over time there could be a degree of legal uncertainty as the UK courts are no longer bound by CJEU decisions. However, it is also arguable that the UK enforcement system for trade marks would become stronger and more defined without any of the discrepancies that sometimes occur as a result of the differing interpretation and implementation of EU trade mark legislation.

Parallel trade An exit from the European Union (EU) could have a profound impact on parallel trade which is based on the European principle of free movement of goods. An exit from the EU would mean that, in principle, IP rights in goods placed on the UK market would not be exhausted and so parallel trade into and out of the UK could decline. However, the reality depends on the IPRs concerned and national legislation. For trade marks, the exhaustion of trade marks rights has been transposed into UK legislation (section 12 Trade Marks Act 1994). Therefore, post a complete EU exit, and depending on the terms negotiated, without legislative amendment, a trade mark owner may not be able to prevent goods being imported into the UK. The UK trade mark owner’s rights would have been exhausted in the European Economic Area (EEA). This is not the case for patents where the principle of exhaustion is not enshrined in national statute (Section 60(4) Patents Act 1977 never making it into force and later being repealed) and is instead solely founded on EU Court of Justice (CJEU) case law. English courts, devoid of a legislative basis for applying the doctrine, would likely apply the law as is currently applied to goods from outside the EU that is the patentee would have to place the products on the UK market itself or consent to the same in order for the rights to be exhausted in the UK. Therefore a complete exit from the EU may give patent owners a real opportunity to stem the flow of patented products into and out of the UK. This would affect wholesalers and retailers of pharmaceutical, electronic and other “technical” goods.

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Tax • No more VAT? • Possible introduction of new regional and industrial tax incentives • Possibly no longer a requirement to change UK corporate tax laws following CJEU rulings. Interest and Royalties Directive The Interest and Royalties Directive enables royalty payments and interest payments to be paid to those in other Member States free of withholding tax. Leaving the EU would mean that UK companies would no longer get the benefit of this Directive.

International Agreements At the national or European level, taxation is affected by a broader international context beyond the EU. The UK has to abide by international agreements that it has entered into, such as the European Convention on Human Rights and the World Trade Organisation’s General Agreement on Tariffs and Trade (GATT).

Parent Subsidiary Directive The Parent-Subsidiary Directive abolishes withholding taxes on payments of dividends between associated companies in different Member States and prevents double taxation of parent companies on the profits of their subsidiaries.

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Pinsent Masons | Leaving the EU – legal scenarios for Retailers

If the UK left the European Union (EU) completely (did not remain in the European Economic Area (EEA)), it could in theory do what it liked with its tax system although in practice this is likely to be tempered by international agreements and agreements with the various EU countries. For corporate tax this could initially seem to the Treasury like an attractive option, as it would be much cheaper to make reliefs and incentives only available to UK companies and not to have to keep changing UK law because it discriminates against non-resident companies. EU Directives designed to provide a more common system of taxation between EU Member States would cease to apply to the UK. The UK would not be such an attractive location for a European holding company if it could not receive royalties, interest and dividends without paying overseas tax. In addition, customs duties could be imposed on UK goods being exported to EU Member States.

As a member of the EU, the UK is currently required to have a system of value added tax, based on the Sixth Directive and governed by EU principles and law. Leaving the EU would mean that the UK would no longer be obliged to have a VAT system, even if it remained within EFTA. However, the Government raises a significant amount of revenue from VAT (£100 billion in 2011), and most countries outside the EU have some form of VAT-like tax, so abolition of VAT seems unlikely. It seems likely that the UK system would remain fairly close to the EU model, albeit with perhaps a drifting over time. HMRC may well be tempted to reverse some of the losses it has suffered at the Court of Justice of the EU (CJEU) in recent years – so there could be changes to some areas of VAT. Although EFTA Member States do not automatically benefit from EU Directives designed to provide a more common system of taxation across the EU, some EU Member States extend the benefit of these Directives to the EFTA countries and it is likely that there would be pressure for the UK to stay signed up to these Directives, where possible. The UK could either rejoin EFTA or as part of a bespoke arrangement negotiate its own agreements with each of the EU Member States (and would be under pressure to do so), but the time it would take to do this and the inevitable differing agreements between states could result in a significantly higher administrative burden for UK companies.

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Data protection • Stricter requirements on UK companies in their dealings with personal data • Review and update contracts involving cross border data sharing with the UK • Proposed new data protection regulation could give rise to additional complications if in force Data Protection and Retail Compliance with data protection legislation represents a significant challenge for retailers in their ability to collect, analyse and transfer personal data, including sensitive personal data used in profiling customers. International e-commerce often involves entities across the world and requires international transfers of personal data. Navigating restrictions on cross-border transfers and implementing appropriate solutions can prove complex. Data Protection Legislation Currently, the Data Protection Directive (Directive 95/46/EC) (the Directive) governs the handling of personal data in the EU Member States, and it applies also across the wider EEA, and it is implemented in the UK by the Data Protection Act 1998. Under this legislation, transfers of personal data from an EEA country to outside the EEA require certain safeguards to be in place, such as “model clauses” between the importing and exporting entities. This is the case unless the jurisdiction of the recipient has been deemed “adequate” by the EU Commission – for example, “white listed”, or in the case of the US, the recipient entity has subscribed to the “Safe Habor” scheme. The UK has come under fire from the Commission for failing to adequately implement the Directive. The Commission has requested the UK to strengthen the Information Commissioner’s Office powers as part of EU infringement proceedings, and it appears to have also criticised the UK’s implementation of around fifteen other Articles of the Directive, including the narrow definition given to personal data in the Durant case2.

Reported by a FOI request initiated by the authors of Hawktalk, http://amberhawk.typepad.com/amberhawk/

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Pinsent Masons | Leaving the EU – legal scenarios for Retailers

An EU exit could mean stricter requirements for UK companies in their dealings with personal data. If the UK left the EU and did not remain in the European Economic Area (EEA) the UK’s Data Protection Act would remain in force. However, unless otherwise agreed the UK would no longer be subject to the Data Protection Directive (Directive 95/46/EC) (the Directive), nor would it benefit from being an EU Member State under the Directive. Organisations transferring personal data (such as customer or HR data) from EEA Member States to the UK, including intra-group, could therefore be required to put additional safeguards in place, such as model clauses. It is likely the UK and the EU would reach a pragmatic solution – such as the UK being “white listed”, or another separate EU-UK specific agreement being entered into. However, recently the UK has come under fire from the Commission for failing to adequately implement the Directive. The Commission’s stance suggests that it could require the UK to tighten its data protection regime as a pre-requisite to any arrangement such as white listing. This could mean stricter requirements on UK companies in their dealings with personal data.

Trading Laws “In Trading Law terms, Europe has a broad reach. The EU has much to say in areas such as food safety, product safety and consumer protection and its rules often bind UK retailers. Key aspects of our compliance regime are shaped by the European agenda. How much of this could we realistically shake off in the event of a UK exit? Retailers continuing to trade with the remaining member states would have to go on meeting European requirements, so their scope to embrace change could be limited. In place of current UK regulations implementing or giving effect to EU rules there would have to emerge a new national regime. There might well be calls for that to amount to low key regulation so as to minimise the burden on business, but many of the existing tenets of trading law – a safe product, an accurate label, procedures for traceability and withdrawal, consumer rights – are now sufficiently embedded in our expectations to be likely to re-emerge in any new model.

For transfers to the US, if the UK left the EU completely, it would need to make its own arrangements with the US to replace the Safe Harbor scheme if the free transfer arrangements were to continue assuming that a more dramatic (and highly unlikely) legislative change, such as removing the requirement for overseas jurisdictions to provide adequate protection for personal data, is not made). One option may be that the UK could follow the Swiss route of having its own UK-US Safe Harbor arrangement. This raises the question of whether Safe Harbor registered US organisations would need to go through a process of reregistration – and potentially re-demonstrating compliance – to sign up to such a scheme. Whichever exit route (if any) is followed, in dealing with international data transfers, companies would need to review and update their contracts involving cross border data sharing with the UK, in light of the new legislative arrangements. Additional complications could also arise if the proposed General Data Protection Regulation (currently scheduled for enactment around 2014) is adopted prior to the UK leaving the EU. Upon UK departure from the EU the Regulation would no longer apply (and the Data Protection Act would likely have been already repealed to make way for the Regulation), leaving a gap in domestic legislation that would need to be filled. Leaving the EU could increase UK autonomy and provide an opportunity for retailers to have greater say in UK data protection legislation. However, this autonomy may be limited by requirements such as whitelisting (or another equivalent arrangement) encouraging the UK to retain similar data protection legislation to that of the EU in order to maintain an EU compliant status. A complete exit from the EU is very likely to impose additional burdens on international retailers including through e-commerce trying to deal with compliance across multiple jurisdictions.

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Employment Law and Immigration • Increased administrative burden for employers • Might see a reduction in employees’ rights and employers’ obligations in areas previously governed by EU law • Ability of retailers and their employees and families to move freely within the EU could be more limited, with potentially greater costs to business • Restrict the talent pool for companies UK employment law Key areas of UK employment law which derive from European law include: • The law relating to discrimination under the Equality Act 2010, which implements the Equal Treatment Framework Directive (Directive 2000/78/EC) • The law relating to collective redundancy consultation which is governed by the European Collective Redundancies Directive (Directive 98/59/EC), as implemented domestically by the Trade Union Labour Relations (Consolidation) Act 1992 (TULRCA) • The protection afforded to employees who are assigned to an undertaking, or part of an undertaking, which is being transferred under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), which implements the Acquired Rights Directive ( Directive 2001/23/EC) • Additional rights and protection for agency, temporary and part-time workers which have been introduced as a result of EU legislation • The law relating to minimum paid annual leave, rest breaks and working hours, as contained in the Working Time Regulations, which give effect to the Working Time Directive (Directive 2003/88/EC). Employment Law Leaving the European Union (EU) could present employers with a large administrative burden. European law has a significant influence over UK employment law; with a great deal of employment law deriving from EU legislation and case law. Workers have acquired numerous rights (and employers numerous obligations) as a result of the UK being an EU Member State.

Immigration A withdrawal from both the EU and EEA could have long-term as well as immediate effects as movement of employees and their families between Europe and the UK could become more difficult. EU legislation provides citizens of a Member State of the European Economic Area (EEA) with the right, subject to certain limitations, to move freely to other EEA Member States in order to take up employment. If the UK were to exit the EU and the EEA, it would no longer be bound by, or benefit from, the free movement legislation. Depending on the terms of the exit treaty this could make working between the UK and the other EEA Member States more difficult. Free movement of persons is now probably the most complex area of the internal market and has developed significantly in recent years through secondary legislation and evolving case law of the European Court of Justice (CJEU) and national courts. A company which wishes to send a British worker to one of its European offices, located in an EEA Member State, to work can currently do so with relative ease under the free movement regime. If the free movement regime no longer applied to British workers this would not be as easy to achieve and companies would instead face the more complex immigration legislation of the relevant EEA Member State. What about EEA citizens who are living and working in the UK? What about their spouses and families who are also entitled to move and reside with them under European law (even if they are not themselves European citizens)? Would they have to go back to their home state? This would no longer be governed by European law and would be up to the UK to decide. The worker would potentially have to go home. Alternatively, some sort of amnesty could be granted to allow them to remain in the UK or, more likely, they would have to switch into the current, more complex, UK immigration system. Would the existing UK tier based immigration system apply to EEA citizens? How would the UK compensate for the increased difficulty that EEA citizens would face in moving to the UK? Whilst the UK could potentially overhaul the current system and distinguish European workers, any preferential treatment would be unfair to non-EEA citizens.

If the UK leaves Europe, or renegotiates the terms of its membership, we could see a number of areas of employment law which are derived from EU law reformed. The UK has resisted and attempted to “water down” a number of European employment laws, particularly the Working Time Directive. This could suggest that if the UK left the EU we might see a reduction in employees’ rights and employers obligations in areas previously governed by EU law.

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Pinsent Masons | Leaving the EU – legal scenarios for Retailers

Concluding thoughts There are numerous scenarios for how the UK could renegotiate its relationship with the European Union (EU). The consequences will depend on which path the UK decides to take or which are left open to them by remaining Member States. This is a novel situation: nobody currently knows the answer and it is likely to remain like that for some time to come. Would a non-EU UK keep all or some of the rules and procedures of EU legislation? Many believe that existing UK legislation is likely to be unpicked and changed – however this is not necessarily the case. The UK has been a member of the EU for just over 40 years. It would be a complex matter to disentangle UK domestic legislation from EU law. EU legislation can take significant time to negotiate given the need for the agreement of a qualified majority of Member States in most cases. Once legislation has been adopted it can be difficult and time-consuming to subsequently amend or repeal. This, it has been claimed, can lock the EU and Member States into a particular policy approach or technological solution that does not easily allow the impact of subsequent policy innovation, new scientific evidence or developments in technology to be reflected. Equally, longer-term credible EU approaches to regulation and legislation are seen as important for sending long-term signals for industry to innovate. Possible arguments for the UK renegotiating its relationship with the EU include complaints about ever-tightening regulation. However companies would have to comply with EU regulations to continue selling into the EU trading bloc just as the EFTA countries do. Whilst the UK is part of the EU it has a say in setting the rules. It is not only restrictions that come from Europe but freedoms – the right to work and travel anywhere in the EU. Would these rights survive a renegotiation? Unless the UK negotiates some model of integration without membership the Fundamental Freedoms – free movement of persons, goods, services or capital – would cease to apply.

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The EU is a leading actor in pushing forward trade and investment liberalisation. Although both the EU and Member States are members of WTO in their own right in practice within the WTO the EU speaks on behalf of both the EU and the Member States. The EU has successfully negotiated a free trade treaty with South Korea and there are ongoing negotiations for a landmark agreement to abolish all business tariffs between the EU and US. If the UK were to renegotiate its relationship with the EU it could lose the benefits of these agreements. • Numerous scenarios for how the UK could renegotiate its relationship with the EU • Treaties and all existing directly applicable EU law would cease to apply • Longer-term credible EU approaches to regulation and legislation are seen as important for sending long-term signals for industry to innovate and invest • Need to comply with EU regulations to continue selling into the EU trading bloc • Some of the adverse impacts of leaving the EU such as loss of the Fundamental Freedoms could be countered by entering into customs agreements with the EU or bilateral agreements with particular Member States, but this inevitably carries additional complexity and cost • Engage in this ongoing debate and submit evidence to the ongoing Balance of Competences Review. Being established in the EU gives companies access to a single market of some 500 million people, with a combined GDP of £11 trillion, in which companies can freely trade.

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Contributors Contract

Competition

Data protection

Stuart Richards

Caroline Janssens

Marc Dautlich

Jenny Block

Ros McCabe

Employment and immigration

EU Law

Consumer Products

Maria Passmard

Caroline Janssens

Sarah Taylor

Patents

Trade Marks

Parallel Imports

Adrian Murray

Leila Panaser

Adrian Chew

Iain Connor

Tom Cahill

Sue Gilchrist Tax Catherine Robins

Intellectual property

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