Brexit: The Human Resource Implications

Flags of the United Kingdom and the European Union DividedFew people seemed as surprised by the results of last week’s vote for the United Kingdom to leave the European Union than the British themselves. Meanwhile, other countries in Europe are witnessing similar “exit” movements of their own — in Spain (“Spexit”), France (“Frexit”) and even Germany (“Gexit”), although the consensus seems to be that those campaigns are unlikely to result in more countries leaving the 28-nation bloc. The reverberations are even echoing here in the U.S., where some Texas secessionists are calling for the Lone Star State to have a “Texit” referendum.

The process of formally unwinding the U.K. from the E.U. will be long and complex, and won’t begin until the country’s leadership formally invokes “Article 50,” perhaps in the fall. As such, experts say most multinational companies with operations in the U.K. are taking a “wait and see” approach in terms of how the changes in employment law, benefits and immigration may affect them.

“There’s still a significant amount of uncertainty as to how companies are going to proceed,” says William Sheridan, vice president for international human resources services at the National Foreign Trade Council in New York. “Brexit is going to have a range of implications — it’s a real mess.”

One of the biggest uncertainties is whether companies with U.K. operations will continue to enjoy unfettered access to the E.U. market once the separation is complete. Another big worry is over the “free movement” of people throughout E.U. member countries that is one of the pillars of E.U. membership — once that’s gone, it may be much harder for U.K. companies to hire and transfer foreign nationals. Indeed, some U.S.-based companies — most notably JP Morgan Chase — have indicated they may shift major portions of their employee base out of the U.K. This means the U.K. may become a less-attractive destination post-Brexit because it will no longer offer easy access to talented people from throughout the E.U.

“Many companies have established in the U.K. because … they access a large pool of qualified employees from other E.U. countries,” writes Ashley Craig, a partner at international law firm Venable. “If the U.K. leaves the E.U., that will likely no longer be the case.” Further complicating matters, Craig writes, many E.U. professionals — such as lawyers — may no longer  have their credentials recognized in the U.K., as they currently are under E.U. rules.

The E.U. has indicated that it will not be inclined to let the British retain the trade advantages that come with E.U. membership, probably as a way to discourage other countries from exiting. Manufacturers with a heavy presence in the U.K., such as Ford and Caterpillar, may end up having to move some plants, offices and staff to countries that remain in the E.U. in order to maintain their ready access to that crucial market, says Terry Gallagher, president of international executive-search firm Battalia Winston.

“The biggest challenge will be to engage and retain talent in this environment of more global uncertainty and more possible exits from the E.U. … ” he says. “Those companies that are nimble and proactive will do better than those waiting to see the impact and putting everything on hold.

HR leaders at multinational companies will want to pay especially close attention to developments once the U.K. invokes Article 50, which will begin the two-year separation process from the E.U., says Sheridan.  “Major law firms have been cranking out webinars and presentations on how Brexit may affect all sorts of regulations … it’s important for HR to stay attuned to what’s going on.”

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