Implementing Brexit – what happens next?

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I hoped I would not have to write this post, but here we go…

Summary

  1. The Brexit referendum does not automatically mean the UK’s departure from the EU, but it will very likely start the process.
  2. Legally, the UK would need to start both an EU exit process (known as ‘Article 50’) and begin its own internal legal arrangements for exit.
  3. This is likely to take some time: at least two years for the formal EU exit and almost certainly several years more in practice for the full process to complete.
  4. Brexit will have a substantial impact on UK laws from employment to business regulation to intellectual property. Some areas, such as contract and corporate law, may be comparatively less affected.
  5. It is very early days yet and there is much still to be established – many businesses will likely adopt a ‘watch and wait’ approach in the short term.

What has happened?

Citizens of the United Kingdom have voted in a public referendum for the country to end its membership of the European Union. The vote was narrow but clear (52% to leave, 48% to remain).

Does this mean that the UK has actually left the EU?

No. Legally, the referendum does not have any effect. Politically, it is significant: it seems very likely that (unless there are further material geopolitical developments) the UK government will respect the referendum’s decision and seek to implement it.

So how would the UK actually leave the EU?

From an EU perspective, the key requirement is that the UK submits a formal notification to leave under Article 50 of the Treaty of Lisbon, which requires that the EU’s Council of Ministers will negotiate the departure terms with the departing member state, these terms to be approved by the Council of Ministers (on a qualified majority basis) and then by the European Parliament. The departing member state would effectively then leave the EU either when the departure terms have been approved or two years after its original notification (whichever is earlier, unless the departing member state and the Council agree to extend it).

There is some uncertainty regarding when the UK would make its Article 50 notification, but in any event what seems clearer is that this notification (whenever it is made) would start a process of at least two years to depart the EU. Beyond that, we are in uncharted territory.

From a UK perspective, there would need to be a repeal of the European Communities Act 1972 (the legislation under which the UK joined the EU in the first place) as well as a review of much other legislation (see below).

How long would it take for the UK to leave the EU?

We do not know for sure. As stated above, the actual departure process from the EU would as a matter of law likely take at least two years, but in practice estimates of the total time needed for the UK to leave the EU and establish its own arrangements vary considerably, ranging from 2 to 10 years to even some suggestions that the UK could exit very rapidly.

The fact that these member state departure arrangements were only built into EU law in 2009 is a simple indication of how unprepared the UK and the EU are likely to be regarding the exit of any member state, let alone the second largest economy in Europe.

What will be the legal impact of Brexit?

It is no exaggeration to say that most of the UK’s laws and regulations are affected to some smaller or greater degree by the EU. Some UK laws are a direct or indirect implementation of EU directives. Some EU law applies directly in the UK without needing local implementation.

In addition, there are a number of international trade and other agreements where the UK is currently a member through the EU and would, following its exit from the EU, need to set up new arrangements.

In the short term the UK’s existing laws, regulations and legal structures continue to apply but in the medium-long term they will go through changes. All areas of business will be affected but it is likely that matters of employment, business regulation, financial services, consumer protection, data protection and intellectual property will be particularly affected. UK contract and corporate law, and other areas which were not harmonised or less harmonised with the EU, are likely to be comparatively less affected.

In addition, legal structures will need to change: above all, the European Court of Justice would no longer be the highest court of appeal in relation to matters over which the EU had competence. Consequently, the UK’s Supreme Court would likely default to becoming the highest court in the country regarding such matters.

As a result of all this, eventually we can expect there to be both amendments to existing laws and new laws which would need to be discussed, negotiated, drafted and implemented. All of this will take time, likely several years. Through all of this there is a high risk of uncertainty, as both the UK and EU attempt to operate as normal while also going through the separation process.

How will this affect digital entertainment and tech companies, legally?

It is too early to say with any detail at this very early stage, but we can say given the above that over time there are likely to be a wide number of legal changes affecting day to day business for digital entertainment and tech companies ranging from employment to intellectual property matters. This in turn is likely to mean changes to the business landscape. Over time we will be preparing more detailed updates and advice for clients.

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