This week’s European Funds Comment features a guest article by Nicolas Rollason, a partner at Kingsley Napley LLP. Nicolas will be speaking on the immigration impacts of Brexit at our seminar in London on 14 November. For more details, click here.

Whatever the odds of the UK securing a deal with the EU in the coming months, it is important for private equity firms, and their portfolio companies, to understand how a no-deal scenario could affect their ability to attract and retain people, and the ability of those people to work freely across borders.

First, the good news. As part of its negotiations with the EU, the UK has already agreed that EU nationals and their family members (both already in the UK and seeking to come to the UK) will continue to have free movement rights until the end of the proposed transitional period on 31 December 2020. Of course, in principle that arrangement is contingent on the UK and the EU doing a deal along the lines currently envisaged. But it is highly likely that, even if no-deal is reached, these provisions will remain and continued free movement for EU citizens will be applied unilaterally by the UK to preserve the status quo for a limited period. Failure to do so would be unworkable and hugely disruptive.

This would mean that recruitment of EU nationals, and EU staff based outside the UK, coming to the UK temporarily should be unaffected until the UK has designed and implemented a new immigration system (most likely the end of 2020). The recent (rather confused) statements of the Immigration Minister, Caroline Nokes MP, to Parliament appear to confirm that, in a no-deal situation, a realistic adjustment period would be needed but that the UK would “facilitate mobility for EU citizens” after exit under UK immigration rules that would allow for “controlled movement”.

The less good news is that, in the longer term, the UK will tighten its rules. The British government has indicated, in line with the Migration Advisory Committee recommendations, that EU nationals will no longer have preferential treatment in the UK. They will be subject to whatever new rules the UK puts in place. This means that firms and their portfolio companies will need to use the existing Tier 2 system, or its replacement, to sponsor EU nationals, with the added cost and compliance burden associated with sponsorship. Although it should not be hard for most private equity professionals and members of management teams to meet the skills and salary thresholds, the roles could be subject to a resident labour market test – as non-EU new hires currently are. And unskilled workers at portfolio companies will be in a very different position.

Now the bad news: unfortunately, the position for UK (and UK-based) staff wishing to work in the EU is extremely unclear, even in the short term. Without a deal, there will be no EU-wide approach to UK citizens. Further, current EU Treaty provisions on temporary service provision – which provide rights to UK companies to deploy non-EU staff within the EU (the so-called “Vander Elst” visa) – would cease to apply. While there may be some hope that the UK and EU will pass matching legislation, so that the approach of the two sides is symmetrical, it is not clear how this could be achieved in EU law. What is certain is that under the principle of EU “solidarity”, no single EU 27 member state will break ranks and unilaterally offer the UK full free movement rights for its citizens, even for a limited period.

After a no-deal outcome, it would be for each EU Member State’s national immigration rules to determine what business activities British and non-British employees can undertake in each country when visiting temporarily, and up to each Member State’s national visa rules to determine who is eligible for a work permit. In addition, without any transitional period, British citizens would be subject to the normal Schengen rules on entry, which limit stays within the Schengen areas to 90 out of 180 days.

In this scenario, will private equity professionals be able to spend extended periods working in the EU? Or would they need work permits and formal permission to work, even for short-term, temporary activities?

It depends. Each EU country has slightly different visitor rules. In general, business visitors are allowed to attend meetings, attend conferences and negotiate contracts but cannot do “productive work”. For example, France currently applies a short-term work permit exemption scheme for employees seconded or posted to France for up to 90 days as “experts”. On the other hand, Germany specifically prohibits hands-on “productive” work, defined as any activity normally undertaken as part of their daily duties. It does, however, allow “executives and managers” to undertake management activities, such as sitting on boards. These national rules will have to be carefully navigated.

Assuming that, at some point, the UK and the EU do conclude a long term Free Trade Agreement (FTA), it is still highly unlikely that each EU country will provide preferential access for UK citizens. Any FTA will most likely contain a Chapter on “temporary entry and stay” for business purposes, which typically provides only very limited rights for key personnel (managers and experts) to transfer under intra-company transfer rules, as well as limited provisions on contractual service suppliers and business visitors. For example, the recent Canada-EU FTA (CETA) did not provide any greater access for Canadian nationals to the EU. Any future EU-UK FTA with significantly more in terms of “preferential” access would be a major departure from the EU’s previous approach.

This all assumes, of course, that there is no change of heart in the UK. If the UK opted for a Norway-style relationship, free movement would be preserved. But firms who are thinking about their contingency planning at the moment will certainly not be banking on that.

So how should UK firms prepare for a no-deal Brexit? Ensuring key staff can continue to carry out their current activities across the EU is the key. This means reviewing where any portfolio companies and investors are, what activities staff undertake in those countries, and taking advice on whether these would be permitted in each jurisdiction in a no-deal scenario. If there are ongoing deals that require significant physical presence in an EU country for deal professionals, firms may also wish to ensure that UK nationals working on these deals will be able to stay within the days permitted by the Schengen rules.

We are grateful to Nicolas Rollason for this special edition of European Funds Comment. Please note that any views expressed are those of the author and are not necessarily the views of Debevoise & Plimpton or Kingsley Napley.