Could stronger EU employment rights lead to a ‘level playing field’ dispute with the UK?

Probably not, but it can’t be ruled out.

As reported last week, the European Commission has brought forward new draft proposals to end the misclassification of workers as ‘self-employed’ to evade employment law. Under the proposals, employers would have a legal obligation to show that self-employed contractors on the books were genuinely self-employed, and not regular waged workers in all but name. 

The proposals have an obvious relevance to the UK where the ‘gig economy’ has been a byword for super-exploitative labour practices for years. Employees have successfully gone to the courts to have their employment status recognised – with consequent entitlements to sick and holiday pay then kicking in. The Conservative government has also not implemented the (more minimal proposals) of their own 2018 Taylor Review, which would have enforced sick and holiday pay entitlement and allowed workers to ‘demand’ payslips and a stable contract.

Until now, divergence between the UK and EU in workers’ rights has been primarily discussed in terms of the UK weakening its standards, not the EU improving them. In January, UK government ministers dropped their plans to water down employment rights – presumably mindful that many of their voters would strongly object.

If these proposals from the European Commission are passed, they would herald the start of a regulatory divergence between the UK and EU in the other direction: a strengthening of employment standards on the EU-side that would not be matched by the UK. So, given that the UK and EU have agreed to uphold a level playing field in employment and social standards under the term of the TCA, could this divergence produce a trade dispute?  

It’s unlikely, but not impossible.

Implications for the Trade and Cooperation Agreement (TCA), or not?  
The original EU negotiating position was to insist that the UK matched future changes in EU law which improved employment and social standards. Whereas conventional trade deals usually loosen regulations (seeing them as barriers to trade), the EU took a different – and more progressive – stance in their negotiations over the Brexit deal. This was referred to as a ‘ratchet clause’ and meant if either party raised their standards the other would be obliged to match them. They did not, however, get this included in the final agreement.

Nonetheless, overall the deal was a ‘win’ for the EU. The final agreement includes a number of ‘level-playing field commitments’. One of these areas concerned employment and social standards (for a longer explanation, see the Another Europe report). If the level-playing field was breached by either side, the other could introduce tariffs to offset the damage. The UK was opposed to these rules – and so their inclusion was a defeat for the government.

The level-playing field commitments in social and labour standards comprised three areas: (a) non-regression from existing standards (so, deregulatory moves on the part of the UK would breach this aspect) and proper enforcement; (b) upholding multilateral agreements, specifically the International Labor Organisation’s 8 Fundamental Conventions; and, (c) ‘rebalancing’, a weaker provision that substituted for the ‘ratchet clause’.   

What does rebalancing mean? Broadly, in the event that divergence in regulation between the two sides has ‘material impacts on trade and investment between the parties’, which unfairly advantage one side over the other, then they could introduce tariffs to offset, i.e., ‘rebalance’, the ‘impacts’ (see the HoC Library Briefing, May 2021).

It seems unlikely that one piece of legislation could reach this threshold (‘material impacts’), which would be more likely to occur if there were several instances of regulatory divergence that started to provide the UK with a clear advantage, as a country with much lower standards able to export tariff free to the European single market.

In this respect, the bigger issue may be the political one: the tension between the UK’s government stated aim (to ‘level-up’ the UK, tackling regional inequalities) and their policy to pursue divergence with the EU, i.e., deregulating in order to gain a competitive advantage in trade. This would not only accentuate inequalities in the UK, but also open them to the charge they are ‘levelling down the UK’ by refusing to meet these international standards.