In this blog, we consider the legal implications for businesses that have signed legal agreements prior to Brexit taking place. On 23 June 2016, the UK voted to leave the EU and as we have seen Theresa May has confirmed that the UK will be moving forward with Brexit.
Much of the legislation in the UK is derived from EU law. This means that EU law is referred to in many contracts that will have been signed by UK businesses.
Issues to consider:
- Most contracts that are subject to EU law are e-commerce and online trading agreements, agency agreements, distribution agreements, advertising agreements and the supply of goods and services agreements.
- Many other contracts may contain legal clauses that have been derived from EU law even though the whole contract is not subject to EU law – examples of this include restrictive covenants, post-termination obligations, contract terms and so on.
- When Brexit takes place, it is very likely that it will take a few years to unravel any legislation that is contained in contracts signed by UK businesses. This means that businesses may be unsure of how Brexit will affect them for several years to come.
- Decisions will need to be taken by Government on whether they still want EU laws (or similar) to be retained in the UK. UK Government may decide to amend certain laws, replace laws or keep them.
- UK Government may decide to withdraw legislation that was due to come into force under EU law such as General Data Protection Regulations (GDPR)
Effect on contracts that you have signed:
- If UK Government decides that some or all of EU derived laws no longer apply, then contracts will be out of date. The references to EU law applying will be incorrect and some of the contracts may have clauses drafted to accord with EU law which are no longer relevant.
- Contracts may need to be redrafted or amended to take account of new legislation.
- Contracts may become loss making post Brexit, for example, if contracts have reference to exchange rates that are no longer profitable post-Brexit.
- If the UK does not have certain trade deals with the EU anymore then some of your contracts may no longer be required.
- Businesses may have set up contracts with other EU jurisdictions that may no longer be cost effective because there could be a change in employment rules, customs, tariffs and taxes post-Brexit.
What to do next:
- Review your contracts to see whether they are dependent on the UK being part of the EU.
- Check to see whether your contracts have references to EU law and the UK being part of the EU. Contracts that have such references will need to be amended pre-Brexit.
- Check to see whether you can terminate your contracts post-Brexit in the event that the contracts are no longer required or profitable. If there are no break or termination clauses then you should negotiate these contracts so that you have the ability to terminate.