Lawyers may be winners in a Brexit divorce, at least at first

Vote to leave supporters hold placards in London, England.
Niklas Hallen'n | AFP | Getty Images

Much like a divorce, a United Kingdom split from the European Union could play out in many, unpredictable ways: There's a division of assets, renegotiation of contracts — and a decision on how forgiving the two sides want to be with each other.

And just like in a lot of divorces, those who stand to gain the most may be the lawyers. London law firms are likely to have a lot of work in the event of a Brexit.

"This will be a payday for British lawyers for a while," said Jonathan Macey, professor of corporate law at Yale University. "In the short term, there are going to be contracts that are renegotiated, and there's going to be an uptick in the demand for lawyers."

If the U.K. votes to leave the EU on Thursday, it won't likely be resolved Friday, or a year from Friday. The details of an exit will take years to work out, Macey said.

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Instead of there being one, great tie between the European Union and United Kingdom, he said a more accurate way to think of the situation is 100,000 pieces of rope that link the two. Lawyers have the onerous task of working out which of those pieces need to stay in place.

"It's going to take a long time, and they may not be severed entirely, they may just be rearranged," Macey said. "I don't think anyone knows which ones, or how many."

The process of cutting ties would take at least two years, said Anu Bradford, law and international organization professor at Columbia University. Article 50 of the Treaty of Lisbon, she said, defines how a member nation exits the EU and allows two years to do so. A main task for lawyers in the interim would be examining current employment contracts, Bradford said.

"A lot of the contracts that would no longer happen under U.K. law — that would be a big part of what needs to be renegotiated," Bradford said. "Lawyers would be very involved in the transition stage."

...but the good times won't last forever

The two-year transition stage would also include British Parliament negotiating what a new trade deal between the United Kingdom and the European Union would look like. She outlined two possibilities: a close relationship, like Norway's or Switzerland's with the bloc, or a more distant one like that of Ukraine. Some commentators have pointed out that EU powers such as Germany may feel that the U.K. has to be seen to pay consequences for a Brexit, or else other EU countries may decide there's no reason not to leave themselves. A diminished trade relationship would serve as a very visible negative consequence for the United Kingdom.

As for the lawyers, the short-term benefits they might see by navigating the transition won't last, Bradford said, as many companies would eventually relocate when formerly loose trade restrictions tighten. As firms depart, so will jobs in the law.

"There's a negative consequence for the economic activity in the U.K. if there are companies moving away," she said. "If the financial activity is moving, I expect the legal business to follow that move."

Long term, she said, legal advisory work might not need to take place within London. If there's less economic activity, lawyers that currently benefit from that economic activity stand to lose eventually, Bradford said. Law firms play a critical role in mergers.

Economic activity has already dampened this year ahead of the vote. The volume of U.K. merger and acquisition deals was down 65 percent in the first half of 2016 from the same period a year earlier, according to a report from Dealogic. That compares with a global merger and acquisition decline of 27 percent.

Bradford's colleague, Columbia Law professor John Coffee, said a vote to leave is likely to further depress the number of cross-border mergers and initial public offerings of stock.

"Investment banks that depend on transactions are likely to see less mergers done in the U.K. and less IPOs done in the U.K.," Coffee said, adding that lawyers make a living off of such transactions. "If people find it easier to do an IPO on the Deutsche Boerse, then lawyers and investment bankers will go there."

The planned $30 billion merger between the London Stock Exchange and Deutsche Boerse is one notable deal that could be affected, Coffee said, as shareholders vote to approve it next month.

Colin Scagell, partner at international law firm Mayer Brown, acknowledged a likely slowdown in capital markets but said London offices have plenty on their plates, forming back-up plans for large companies.

"I expect that on Friday morning, if it is a vote to leave, our clients will say to us corporate lawyers, 'OK, let's make contingency plan,'" said Scagell, partner in the corporate finance and securities practice. "One of the first things we'd be doing is asking clients if they needed help to determine if they rely heavily on the free movement of goods and services throughout the EU."

Scagell said a leave vote is just step one in figuring out what an exit would mean for London-based corporations.

"If there is a Brexit vote, then there is a long period of transition for companies," he said. "Until the exit terms are settled down, we're still in a period of uncertainty."

The uncertainty would last throughout the massive transitional period, he said, when big businesses and banks would watch how the U.K. actually extricates itself. Until the conditions are hashed out in Parliament, he said, lawyers are limited in what they can do.

"We'll be swamped with questions. I don't think we'll have all the answers straight away, but we'll certainly be ramping up the contingency plans," Scagell said.

Hello, Dublin?

One strategy is pivoting to Ireland. Some insurance companies Scagell advises are considering adding Irish-registered carriers to handle business in continental Europe while London is sorting out the Brexit terms.

Irish lawyers, meanwhile, have been phoning Mayer Brown to offer their services, Scagell said, advocating for Dublin to be the next hub for the European Union in the event of a Brexit,

"I've had a lot of Irish lawyers on the phone to me saying 'We're your guy,'" Scagell said. "When your client wants to make contingency plans on how they continue to do business in the EU, come to Dublin."