'Brexit means Brexit' says Theresa May. But what exactly does Brexit mean? We take a look at what impact the UK's departure from the European Union will have on lawyers in the coming years.
“Brexit is the greatest political event of my professional career. The implications of it for us as lawyers are mind-boggling.” So said barrister John Cavanagh QC of 11 King's Bench Walk at a panel discussion on Brexit on 12 July 2016. Cavanagh left Bar School in 1985, so these comments certainly reflect the huge significance of the Leave vote on 23 June. But what exactly are the implications of Brexit for lawyers? We asked some trainees and partners for their views on Brexit in their sectors.
“Brexit is the greatest political event of my professional career.”
Why does this matter to you as aspiring lawyers? Well, many firms are likely to include a commercial awareness question on Brexit in trainee and vac scheme interviews in the coming years, so it's important to be clued up on what Brexit could mean for business and the law. Issues related to Brexit are likely to continue to remain salient for lawyers around the world for many years.
What's happening to the economy?
Institutions ranging from Goldman Sachs to the IMF have revised the UK's projected GDP growth rate for 2017 down to anywhere from 0.2% to 1.3%, a significant downgrading from the expected growth rate of 2% before the referendum. Research group Markit found that output from the services and manufacturing sectors dropped significantly in July, in line with a potential 0.4% contraction in the economy during the third quarter of 2016. But with no formal Brexit plan in place, it's still very early days and some forecasts are more upbeat, such as the view from Bank of England, which has said that businesses are taking Brexit into their stride with no huge changes planned to future investment or hiring.
The Bank's view chimes with what lawyers are telling us so far: “I would say things are considerably better than we'd expected,” a partner in the transactional department of a City firm told us. “There was a noticeable slowdown in work in the months leading up to the referendum as things were put on hold until after the vote. But things haven't fallen off a cliff since 23 June. They have picked up, though not to the extend they would have if there had been a Remain vote.” A partner at a smaller firm in London did admit they expected to see “fewer M&A transactions taking place in the short term,” although at the same time the low value of the pound is making investment in things like property a more attractive prospect to actors outside the UK.
“Things haven't fallen off a cliff since 23 June. They have picked up, though not to the extend they would have if there had been a Remain vote.”
One significant threat to the UK economy is that businesses in certain sectors – especially financial services – could decide to move abroad. Giles Williams, an accountant and financial services partner a KPMG, raised a worrying possibility during the 12 July discussion on Brexit mentioned above: “The big risk is that companies offering financial services to countries outside the EU will decamp to somewhere like New York and never come back. This would mean the cutting of jobs, as related activity moves to New York and other centres." Williams believes that such changes are most likely to come about because of uncertainty rather than any actual changes to the EU's trading relationship with the UK.
How is Brexit affecting lawyers now?
“While some of our departments may slow down, in others the work will pick up,” a partner at a London firm told us. Economic change suits diversified law firms best – those that can offer restructuring and litigation services in the absence of a booming transactional market. There are also huge opportunities for lawyers advising on the legal implications of Brexit.
“Some funds have suspended trading and have been selling assets to foreign investors to free up spare cash.”
In the short term different departments are certainly seeing different consequences. A trainee sitting in a transactional team at a City firm told us that “clients have had a few questions, but we haven't seen a major impact,” while another observed that “we have deals planned to work on far ahead, so we are avoiding any negative Brexit effects at the moment.” Meanwhile a trainee in real estate was having a somewhat different experience: “Post-referendum I have been working on a lot of commercial property deals, as some funds have suspended trading and have been selling assets to foreign investors to free up spare cash.” We also heard of one firm where everyone is apparently “genuinely excited by what Brexit means for lawyers.” The firm? Mishcon de Reya, which is currently representing a slew of businesses suing the government over the process for triggering Article 50.
Major firms already have advisory teams in place to counsel clients and their own lawyers on the effects of Brexit. Freshfields is one firm that's set up a Brexit unit, which was in place before the referendum. “It includes six leading partners at the firm, who we can ask any questions we want about Brexit and the plans for the firm,” a trainee told us. A trainee at another magic circle firm had been involved in such advice-giving themselves: “I helped compile articles people had written containing our advice on the effects that Brexit could have on the financial services sector.” At another firm we heard of various strategy meetings taking place in the run-up to the referendum, while another organised a “Brexit breakfast” debate.
How will Brexit affect lawyers in the future?
Looking at the long-term consequences of Brexit for the legal profession, Philip Kolvin QC of Cornerstone Barristers recently commented in Local Government Lawyer: “The consequences for our legal system have barely figured in [the debate on Brexit]. But EU-inspired or mandated legislation is part of the bedrock of societal protection. I speak of health and safety, town and country planning, ecological protection, freedom of information, data protection, competition, discrimination, public procurement, indeed the very concept of proportionality which governs much of our regulatory system. Are these protections to be thrown onto a bonfire of laws? If not, which are to survive and which are to be replaced, and if so by what?”
“EU-inspired or mandated legislation is part of the bedrock of societal protection.”
The answers to the questions which Kolvin poses are to be answered by politicians. To do this they will require lots of legal advice and reports have surfaced of efforts by the government to hire scores of lawyers, often on secondment from top City firms. At a junior level too, the Government Legal Service is recruiting extra trainees to start in 2016 and 2017 (though we were told this was not directly as a consequence of the Leave vote).
There are a number of options (described in more detail in our piece on The effect of Brexit on lawyers), but it's essentially possible that Britain will retain all EU laws and regulations post-Brexit, none of them, or some. When it comes to rules, regulations and red tape a lot less may change than you might expect. Many EU laws and directives – for instance the Working Time Directive affecting employment protections – have been directly incorporated into UK law. And even regulations not directly incorporated into English law are unlikely to change in practice. One trainee gave a low-level example: “We work on a lot of Regulation 261 claims – small claims related to flight delays for which you can get compensation under EU rules. Will Brexit mean we need to change that rule? I think it will still exist after Brexit, because most countries not in the EU mimic Regulation 261.”
“There is a growing realisation that a huge amount will depend on what sort of trade deal we end up having with the EU.”
There is a huge question mark over cross-border trade. A City firm partner told us: “There is a growing realisation that a huge amount will depend on what sort of trade deal we end up having with the EU, and the extent to which negotiating access to the single market is prioritised. In a scenario where we remain part of the single market with broadly the same trade rules we have at the moment, commerce as a whole is likely to see very little change. But if the government decides it is willing to accept limits to our access to the single market in order to do something about immigration, this will create an enormous amount of work for lawyers, as businesses reorganise, restructure or even relocate in order to adapt to the changes.”
Once it does start to become clear how much the laws and regulations affecting businesses will change, lawyerly advice will be in greater demand than ever. The training principal of a small US firm in London told us: “The amount of legal advisory work we take on is likely to increase, as foreign companies with operations in the UK attempt to navigate the new structures being put in place.” Miriam Gonzalez, international trade partner at US firm Dechert, said during the 12 July panel discussion on Brexit that if a new trading relationship with the EU does come about “we will need to rethink the regulatory rules of UK plc in almost every sector.” And doing that will require a hell of a lot of legal man hours.
For a detailed breakdown of the challenges facing UK trade negotiators looking to forge new trade deals with the EU and other actors take a look at this briefing note published by former deputy prime minister (and EU trade negotiator) Nick Clegg. Note that Clegg is now the LibDem parliamentary spokesperson on the EU, so the note has a heavy political tinge, but it's still highly informative.
“We will need to rethink the regulatory rules of UK plc in almost every sector.”
A source at the Bar was concerned about the long-term effect of Brexit on the position of London as a global hub for dispute resolution. “What Brexit will do to the world of general commercial litigation will be... interesting to see,” they said coyly, before continuing: “We are going to have to work very hard to keep London as a hub for international disputes. Changes to the visa system may need to be made to keep us attractive to businesses and businesspeople.” A trainee at a magic circle firm had this to say on the same topic: “I’m feeling positive, I think London will remain a hub due to the attractiveness of common law. I'm not sure about the future of the banking sector, but I think London will continue to be an attractive venue for banks and I do not think they will cut their London HQs. There is anxiety now, but I think things are going to be okay for us. But Brexit could put a squeeze on mid-sized and smaller law firms, which have already been squeezed for the last couple of years.”
And what about recruitment?
A grad recruitment source at a large national firm assured us their approach to hiring would be one of “business and usual” (the same phrase recently used by the Bank of England). Some of our recent interviewees brought up the subject of Brexit when we asked them about trainee retention this year – “it's changing everything...” one wide-eyed source said. At present our data indicates that 2016 retention rates across the firms featured in the Student Guide is not lower than in previous years (ie it's around 80%). 2017 and 2018 are more likely to fluctuate as the market responds to change. On another note: we know of at least two firms where a planned salary increase was put on hold because of the way the vote swung.
“It's changing everything...”
Changes in hiring will depend on the type of firm and how it responds to the Brexit climate. If the economy slows, some firms and departments may need to recruit fewer lawyers if businesses are doing fewer deals and making fewer investments. This is likely to affect areas such as corporate M&A, banking, capital markets and real estate. On the other hand, as demand for legal advice on what Brexit means hots up, some departments made need more lawyers. This applies especially to areas like competition, trade, financial regulation, employment and public procurement.
There is uncertainty for now, but what is certain is that lawyers' skills and knowledge will be in demand to advise on the fallout from Brexit. To be the candidate that appreciates a law firm's position and challenges will be to your credit. Follow us online in October as we break down the market by practice area to learn how Brexit will have an impact on it.
This feature was first published in September 2016.