Alert / Employee Benefits
Brexit update: What US multinational employers need to know

Updated April 11, 2019

The United Kingdom's departure from the European Union that was initially set to happen on March 29, 2019, was delayed again. Prime Minister Theresa May was able to get another extension to Oct. 31, 2019. If the Brexit deal is still not ratified by May 22, 2019, as a member of the EU, the UK will have to hold the elections of the European Parliament. If the UK fails to do so, it will have to leave the EU with or without a Brexit deal on June 1, 2019.

Original Alert published on March 26, 2019

The United Kingdom's departure from the European Union was scheduled to take effect at the end of its two-year "Article 50" notice period, which was going to be March 29, 2019. Prime Minister Theresa May was able to get an extension to May 22, 2019, if the Brexit deal is accepted or April 12, 2019, if rejected by UK Parliament, which is more likely to happen.

The issue has proven to be hugely divisive. The “Leave” campaign won the referendum in 2016 with 52 percent of the vote in the largest voting turn out in the UK's history.

Since then, the UK Parliament has grappled with the form that Brexit should take: a close trading relationship with close regulatory and legal alignment, known as a soft Brexit, or a hard Brexit with no agreement over the future trade relationship, but allowing the UK to strike independent trade deals with other countries such as the US.

Terms of departure

The UK and EU governments reached an agreement over the terms of the UK's departure in November 2018, but these terms have repeatedly been rejected by UK Parliament, much to the frustration of the EU. The UK government is currently considering a third vote in Parliament to try to force its deal through. If passed, the agreement would, among other things, guarantee the rights of UK citizens in the EU and vice versa.

The agreement also includes provision for a "transition period" through Dec. 31, 2020, and potentially longer by agreement, during which the UK and EU will, for all intents and purposes, continue to trade unaltered.

What happens if there is no agreement?

In the absence of agreement, the UK will leave the EU on April 12, 2019, under the following conditions:

  • No deal on the terms of future trade.
  • World Trade Organization tariffs.
  • Delays as new border controls are introduced, affecting just-in-time manufacturing processes, the delivery of essential food and medicine, and many other aspects of life in the UK that are taken for granted.

The insurance industry has responded to the potential loss of the ability to pass services freely across borders within the EU by adapting their business models and ensuring with little exception that customers in both the UK and elsewhere in the EU can continue to be served. This has come at considerable cost, with some estimating more than USD 500 million has been spent on Brexit planning by the UK insurance industry.

How employers should prepare

With little time before the UK's exit and a lack of clarity, businesses are faced with having to prepare for the worst, while hoping for a better outcome. Lockton has engaged with regulators, trade bodies, politicians and insurers to prioritize continuity of client service and provide expert advice through unprecedented change in the European political environment. Lockton's own European platform has received regulatory approval and is ready to be implemented at short notice, should it be required.

From an employee benefits perspective, Lockton is advising its multinational clients with operations in the EU to consider the following issues as a priority:

1. Citizens' rights: EU citizens working in the UK may qualify for "Settled Status," enabling them to continue working in the UK. Human resources teams should be ensuring they provide support and assistance, as we have witnessed increased anxiety. The situation relating to UK citizens in the EU is less clear, and so ensuring any foreign nationals in a company’s workforce are identified and provided support should be high on the Brexit list of priorities.

2. Travel insurance: EU citizens are entitled to free medical treatment anywhere in the EU. The UK's departure from the EU without a deal will bring this to an end, potentially affecting travel insurance arrangements.

3. Insurance purchasing: Transacting insurance in the EU is highly regulated and, in many countries, it is illegal to transact insurance from a third country. Many insurance programs are delivered to European multinational companies on a "Freedom of Services" basis. A review of insurance contracts for any cross-border arrangements, where the policy is currently sited in the UK, should be undertaken and professional advice sought if in any doubt.

Should you have any concerns about the impact of Brexit on your employee benefits arrangements please contact your Lockton service team for assistance. Note, the situation with Brexit is fluid, and developments are occurring daily. We will update this Alert if the developments impact the three areas of advice we have provided here.

Ian Cooper
Partner, Lockton Companies, LLP

Selima Crum
Consultant, Lockton Benefits Group

Not legal advice: Nothing in this publication should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's Global Benefits practice are not privileged under the attorney-client privilege.

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