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Brexit - what effect will it have on the recruitment industry?

The key word in a possible UK exit from the EU after Britain goes to referendum on June 23, is not really the 'B' word itself but rather the 'U' word: 'uncertainty', which is what the government and businesses have been trying to drive home to voters, or scare them - depending on which side of the fence you're on.

The British public may very well vote for a Brexit, which could bring with it unprecedented long-term changes in the jobs and recruitment market. But the terms of an exit under EU law would take at the very least two years.

The government said on February 29 in its first official analysis, seen by the Guardian, that the country would be looking at as much as a decade of uncertainty as the negotiation for withdrawal would probably go well beyond that.

Cabinet Office minister Matt Hancock told the Press Association: "The risks to our economy are clear and would leave the jobs and prosperity of the British people dangerously exposed. There are real consequences of this for jobs and for livelihoods."

An indication of this uncertainty appears to be already evident with businesses drawing up contingency plans, and delaying new hirings even in the months leading up to the referendum itself.

A CitySprint report, which canvassed more than 1,000 small business owners said the threat of a Brexit was affecting long-term growth plans and was the biggest uncertainly facing businesses in 2016, even beating skills shortages.

According to jobs site Adzuna in a news release on February 29, advertised vacancies fell by more than 7% in January translating 165,000 fewer jobs on offer amid announcements of big cuts in manufacturing and finance.

Doug Monro, co-founder of Adzuna, said: "Hiring habits are changing in a sign of potential instability... a potential Brexit brings new unknowns into the jobs market. Politicians are at risk of fueling uncertainty fears and only increasing doubts," he added. Monro said this was creating a weaker jobs market. Business expansions and hiring sprees were being put on hold as a result.

If that kind of uncertainty is being created in the run up to the referendum, the impact from two years of EU withdrawal negotiations would be likely to exacerbate the situation, never mind the government's 'decade of uncertainty', though this prediction is no doubt fueled by its own agenda to remain in the bloc. One thing is certain, in any economy, bandying about the word 'uncertainty' ad lib only results in more of the same.

However despite the rumblings and indications of a minor slowdown in recruitment policies during the current period, these are not be likely to have a major or devastating impact over the coming months but if the June vote results in a Brexit, all bets will be off.

Though it would be almost impossible to predict the outcome of a resulting exit deal with the EU due to the complexities or how it could impact the jobs market in the short, medium or long-term, it is possible to outline what could come under the scope for fear-reaching changes.

The "stay" camp

In the 'stay' camp, the greatest concern for employers and recruiters is what changes would be made in terms of freedom of movement as over two million EU citizens live and work in Britain who alleviate many of the existing skills shortages, particularly in areas such as IT, construction and engineering. They also provide much of the lower-paid skilled work in the UK market.

Business opponents of a Brexit worry both about how they would fill skilled positions if EU workers are forced to leave, plus the cost of hiring and training an indigenous workforce. This would also cause a major shift in the jobs market and see businesses competing even more for critical talent, pushing up wages, a phenomenon that could filter down even to the lower-paid sectors in efforts to retain staff and attract more British workers.

In the event that a post-Brexit government would eventually put in place a system for hiring the foreign workers needed to close the skills gap, this would inevitably result in another hike in hiring costs and a plethora of red tape in terms of organising work visas, time taken to deal with immigration officials, and probably security and financial guarantees.

According to Recruitment Grapevine a new study by CV-Library shows 43.2% of UK recruiters believe a Brexit will cause further skill shortages.

Managing Director of CV-Library Lee Biggins said recent figures backed up the concerns. “It’s clear that recruitment professionals are concerned about the impact a Brexit would have on their access to skilled workers, and it’s unsurprising as the nation is already faced with skills shortages in key sectors,” he said.

Last week, the heads of one third of Britain's biggest companies, including BT, Marks & Spencer, Asda and BP warned that jobs would be hit by a Brexit.

Also as well fears that bigger foreign companies would move, there is the added worry that a Brexit could kick off a British brain-drain creating even more hiring problems.

The 'leave' camp

EU directives are the source of many of Britain's employment rights, which is part of the bone of contention for pro-Brexit businesses, who believe an exit from Europe would allow the UK to repeal or redesign its employment legislation.

These organisations in particular see EU laws as restrictive, particularly the Working Time Regulations (WTR) directive that sets the maximum 48-hour week, and the agency workers directive (AWD) which provides agency workers with the same rights as full-time workers after 12 weeks of employment.

Christopher Tutton, partner at employment law firm Irwin Mitchell, told Recruiter website: “I think the Working Time Regulations and the AWR are likely to be high on the list of legislation that will be repealed or amended to create a more pro-business labour market."

Both the WTR and the AWD are seen as stifling flexibility and an added cost to an organisation's recruitment bill. But whether these can be as easily ditched in the wake of a Brexit as proponents might believe remains to be seen.

As far as other employee rights are concerned such as maternity and paternity leave, UK law in some cases goes beyond what is demanded by EU law, and these are gains likely to be kept in place given that such benefits are seen as a recruitment and retention tool.

The bottom line however is that the 'leave' campaign has much more to do with politics, sovereignty and migration than it has to do with economics. So while the disadvantages can be clearly set out and are measurable, the advantages appear far off in the distance, and fuzzy in terms of predicting whether they could in fact outweigh the former.

What the experts say

In a recent article, legal experts Geoffrey Mead and Audrey Elliott, partners at Eversheds UK law firm, a Brexit could precipitate workplace change with the possibility of some EU employment laws being rolled back.

"However, in our view the likelihood of major employment law change in the event of a Brexit is small, at least in the short to medium term. Instead, delay and uncertainty followed by piecemeal change, which would depend on the terms of the UK’s relationship with the EU after it leaves, is more likely."

But a vote to leave would be unlikely to precipitate immediate and major employment law policy change in the UK and many EU laws would be retained, they said.

This was because of the length of the withdrawal process and also because the UK might have to retain some EU employment law as part of the new deal. "Alternatively the UK may come under retaliatory EU trade pressure to maintain employment rights if we were seen to be unfairly undercutting them for a competitive advantage"

Also many UK laws coming from EU directives "have become workplace norms". "An example would be in relation to part-time and fixed term workers’ rights, some equality laws and business transfers," Mead and Elliot said in their article.

Freedom of movement of persons would have to be a huge part of any Brexit deal given the sheer numbers of EU workers in Britain and the number of UK expats living in EU countries. Brussels would likely demand some form of free movement of people in return for the UK enjoying free movement of goods, the article said.

"A UK government will also be aware of the potential adverse impact on trade competitiveness and the availability of labour... however, it is possible that UK/EU negotiations might fail following a Brexit vote and the free movement of people might end," Mean and Elliot said.

They concluded that despite the difficulty of forecasting the impact of Brexit, some themes do emerge. "On the one hand, the complexity and lack of precedent bring significant legal, financial, commercial uncertainties. On the other, a vote to leave would not result in overnight change. Instead, a negotiation of the UK’s relationship outside the EU would commence, possibly lasting years. During that negotiation, the more the UK pushed for continuing access to the EU’s Single Market, the more the EU would require, in return, for the UK to abide by EU regulation, the free movement of people and so on."

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