Leave: how will Brexit change the law for franchises?

The dust is finally beginning to settle after the historic Leave vote on June 23 and many franchises are starting to figure out what the implications are for their franchise agreements. A research paper from the House of Commons titled How much legislation comes from Europe? estimates that 10% of UK regulation started life in the EU. So to unpick exactly how the leave vote will impact British law, it’s helpful to understand the legislation process – not to mention bust some myths while we’re at it.

Understanding directives

Broadly speaking, there are two ways that EU missives get absorbed into UK law. The first is through directives, which tell member states what the objective is but allow them to pass their own national laws to implement the directive.

The UK has often been its own worst enemy when it comes to interpreting directives. While most EU members largely copy and paste the original directive when they come to implement legislation, the UK has a habit of embellishing them, adding to the regulatory burden. This means that in many cases what started as an EU seed has blossomed into a UK forest. In fact, the 2003 How much regulation is gold plate? report calculates that, on average, Britain elaborated on the original directive by 330% and used 2.8 documents to implement each one. That is compared to just one document in Germany and 0.8 in Portugal.

Once a directive has been implemented by a UK act of parliament, the implementing legislation becomes part of our national law. Brexit or no Brexit, it will remain in force – unless it’s repealed. But it’s unlikely that we’ll see a raft of EU legislation being repealed any time soon.

As a general rule, we hold on to our old laws like confirmed hoarders – which is evident when you look at the volume of repeals. There are around 30-40 additions to the UK statute book each year but in the past five years, only around 25 have been repealed in their entirety. That’s because repealing legislation is complicated and time-consuming. Different pieces of legislation often relate to each other, so repealing one piece may mean amending another. And with the length of new acts passed in 2009 averaging at 98 pages – according to a House of Lords library note – just reading it to decide whether it’s worth keeping is a task in itself.

However, there is a general consensus that there will be a reduction in regulation when it comes to some of the more onerous employment laws, such as the law relating to the extent of workers’ rights on the sale of a business under Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE). But, on the whole, not much is likely to change – apart from the fact that legislation implementing new directives won’t be needed.

EU regulations: here to stay?

The second way EU law becomes UK legislation is through European regulations. Unlike directives, regulations apply automatically without the need for the government to pass any additional legislation. This means that when the UK leaves the EU, the regulations will, technically speaking, no longer apply. But this depends on the terms of any new trade deals that are negotiated. Since many of the regulations were introduced to ensure a level playing field between member states and promote free trade, many commentators believe that continued compliance with at least some regulations will be required as a condition of future trade agreements with the EU.

Brexit and your franchise agreement

Most domestic franchise agreements are governed by the laws of England and Wales or Scotland. There is currently nothing to suggest that any of the laws governing franchise agreements are likely to change significantly, if at all, post-Brexit.

An exception to this is when an agreement defines a territory in relation to the EU – for example, a master franchise that grants the master franchisee rights to operate across the EU. If that’s the case, it would be sensible to revisit the agreement and clarify the definition by specifying each country that is included in the territory.

Another area of interest is franchise brands that have successfully registered an EU trade mark granting them legal protection for their product or brand. The system provides for protection to be automatically extended as new members join the union but it’s not clear what happens to that protection when members leave. This will no doubt be one of the many items on the agenda for Britain’s exit negotiations.

Business as usual?

Post-Brexit, most of our existing legislation is likely to remain the same and the majority of UK franchise agreements will be unaffected. The reality is that Britain won’t have to introduce any new EU-related legislation and we’re unlikely to see a rush to repeal existing legislation. At our recent annual conference, the message from the bfa was that it’s very much a case of business as usual for Britain’s franchise industry.