It’s a shame about BIS (and its NMW naming & shaming policy)

“I’ve never been too good with names,” sang Evan Dando and The Lemonheads on the title track of their fifth album It’s a shame about Ray in 1992. The song (and the album) is an indie classic that has easily stood the test of time. Well, it has in my house. Which is more than can be said of the BIS policy, first introduced in January 2011, of naming & shaming employers found by HMRC to have flouted the national minimum wage (NMW).

It is now 14 months since the naming & shaming scheme was rebooted in October last year, the original scheme having managed to name & shame just one NMW-flouting employer (a hairdresser). Announcing the revamp, BIS minister Jo Swinson confidently asserted that the new scheme would “give a clear warning to rogue employers who ignore the rules, that they will face reputational consequences as well as a fine if they don’t pay the minimum wage”.

However, to date BIS has managed to name & shame only 30 such rogue employers: a tranche of five in late February 2014, and a second tranche of 25 in early June. And this despite HMRC issuing Notices of Underpayment (the trigger for naming & shaming by BIS) to some 7-900 employers each year, and despite business secretary Vince Cable telling MPs in January 2014 that they could expect to see “a significant number” of NMW underpayers being named & shamed by BIS under the revamped scheme “by the end of February” (i.e. the following month). Not surprisingly, there have been accusations that BIS is failing to deliver on its promise.

Unfortunately, what Jo Swinson failed to make clear in October last year – seemingly even to her boss – is that the revamped naming & shaming scheme applies only to cases in which the HMRC investigation commenced on or after 1 October 2013. Given that it can and often does take HMRC six months or more to complete an investigation, and that (according to Cable) the process of appealing against being named & shamed can then take “roughly 150 days”, it would have been more honest of the business secretary to tell MPs not to expect huge numbers of rogue employers to be named & shamed much before February 2015.

Then again, Ms Swindon has confirmed that, as of 31 July 2014, Notices of Underpayment (NoU) had been issued to 118 employers in cases where the HMRC investigation commenced on or after 1 October 2013. Given that BIS policy is that “the vast majority of employers issued with a NoU will be named & shamed once the time limits for appeals have expired,” it is somewhat surprising that only 25% of those 118 NMW underpayers have been named & shamed to date. Perhaps the next tranche – which, on 4 November, Ms Swinson said will be “coming into the public domain in the not-too-distant future” – will be a big one.

Ms Swinson has also failed to quash the suggestion – first made in June 2014 by fellow wonk and blogger Michael Reed of the Free Representation Unit – that two of the 25 rogue employers named & shamed by BIS that month were in fact dissolved several years ago. According to the online Companies House register, Master Distribution Ltd (Company Number: 06878211) was dissolved in November 2010, and Zoom Ltd (04906202) was dissolved in April 2010. And it’s not easy to see why HMRC would in late 2013 launch investigations against companies dissolved in 2010.

In response to a series of parliamentary written questions by MPs Caroline Lucas and Stephen Timms, Ms Swinson has confirmed that the investigations against all 25 employers named & shamed by BIS in June 2014 commenced on or after 1 October 2013, that all 25 companies were “still in existence” at the time of the HMRC investigation, and that all 25 companies “paid the arrears due to workers and also the financial penalty imposed.”

Which may well be true, but in that case why did Ms Swinson dodge a follow-up question by Stephen Timms asking BIS to confirm the company registration numbers of the Master Distribution Ltd and Zoom Ltd named & shamed by BIS in June? If the Master Distribution Ltd and Zoom Ltd named & shamed by BIS are different to the two companies listed by Companies House as having been dissolved, or if the Companies House register is simply wrong, why not just say so?

If the Minister or anyone else at BIS is reading this, and would like to clear the matter up, they’d be very welcome to do so by posting a comment.

[Evan Dando is playing the Union Chapel, Islington on 27 February 2015. I am going. Be there, or be square.]

Postscript (27 November, 2pm): BIS has just named & shamed another tranche of 25 NMW-flouting employers, including the Barber Institute of Fine Arts, Birmingham and Walsall FC Community Programme. As with the previous tranche, most of the 25 employers appear to be small businesses. This means that BIS has now named & shamed just 55 (47%) of the 118 employers who had been issued with a NoU as of 31 July, and a much smaller proportion of those issued with a NoU to date. And no doubt Michael Reed is matching the 25 new names against the Companies House register even as I type …

As with the previous two tranches, the most striking feature of the 25 new cases is the small number of workers involved, and the relatively small size of the NMW underpayments in question. In all but eight cases, only one or two workers were involved, and overall just 80 workers benefited. The highest underpayment to a worker was £5,054.89, the lowest was £36.32, and the median was £695.19. Of the 80 workers, 22 received arrears of less than £100.

Only in one case did the total amount of arrears identified exceed £20,000, the current maximum financial penalty that can be imposed by HMRC (the penalty rate is 100% of the arrears owed; until March 2014, it was 50%). And, as there were 16 workers involved in that case, the average arrears per worker of £1,597.09 was well below the Government’s proposed new maximum penalty of £20,000 per worker.

So, by and large, the 25 employers named & shamed today are small fry, and it will be interesting to see whether the press and media maintain the high level of interest shown in relation to the first and second tranches. In February and June, BIS secured an impressive amount of coverage, on the BBC and ITV, and in the Financial Times, the Independent, and the Daily Mirror, as well as in local and regional press.

However, the headlines generated in June weren’t entirely positive. One of the companies named that month, HSS Hire Service Group Ltd, in Manchester, publicly demanded an apology from BIS on the basis that its underpayment of a total of just £149.00 to 15 workers was no more than an administrative error that had been quickly corrected. And the company was supported by its local MP, who raised the matter in the House of Commons during debate on the Queen’s Speech (scroll to column 628). This might well help explain why it has taken BIS five months to name & shame a third tranche of NMW underpayers.

Postscript (16 December): BIS has confirmed that, to date, only three employers have successfully appealed against being named & shamed, and a further eight have not been named & shamed as they owed arrears of £100 or less. Which only adds to my puzzlement that only 55 employers have been named & shamed to date.

Costs threats in employment tribunals: a proposal for reform

The Employment Tribunal Rules implemented in 2013 went wider than simply introducing fees.  As a package, I would argue that they have shifted too much of the risk of bringing a claim onto the claimant.  In particular, the increase in the maximum cost order from £10,000 to £20,000 has made it more attractive for employers to make unwarranted costs threats in an effort to force employees to drop their cases or settle on unfavourable terms.  My proposal seeks to remedy that by allowing tribunals to order an uplift in compensation where an employer makes an unreasonable costs threat and goes on to lose at tribunal.

Prior to July 2013, the main financial risk a claimant faced at tribunal was a costs order, which could be made if the tribunal found that the party or their representative had in conducting proceedings ‘acted vexatiously, abusively, disruptively or otherwise unreasonably’ or if their bringing or conducting of the proceedings had been misconceived.

The maximum costs order the tribunal could make was £10,000. The tribunal also had the power to order a party to pay a deposit of up to £500 if at a pre-hearing review it was held that their arguments had little prospect of success.

The Rules introduced in July 2013 widened the scope and potential scale of costs orders: the maximum costs order was increased to £20,000 and the tribunal gained the power to make a costs order where the party’s claim or response has no reasonable prospect of success. The maximum deposit order was increased to £1,000.

Whilst costs orders can be made either way, they tend to be made against a losing claimant and on the request of the winning respondent. Even when the maximum costs order was £10,000 there was evidence that costs warnings were being used to try to pressurise employees to withdraw their claims. This was acknowledged by the Government’s Resolving workplace disputes consultation in January 2011:

Anecdotal evidence suggests that in many cases, where the claimant is unrepresented, respondents or their representatives use the threat of cost sanctions as a means of putting undue pressure on their opponents to withdraw from the tribunal process. We would welcome views on this and any evidence of aggressive litigation.

In fact Citizens Advice published a paper in 2004 illustrating the extent of unjustified costs threats.  They reiterated these concerns in their response to the 2011 consultation.  They were not alone: Cloisters (whose members include three past chairs of the Employment Law Bar Association) noted that:

Regrettably, members of chambers have seen the oppressive use of costs threats by some respondents or their representatives.

Unite, the union, wrote:

The Union has no doubt that where the claimant is unrepresented the threat of costs sanctions is used by some respondents as a means of putting undue pressure on the claimant.

ACAS reported that:

…a few representatives make almost universal use of this tactic when faced with unrepresented claimants.

Organisations representing employers acknowledged the practice too.  EEF, the manufacturers’ organisation, stated that they were:

…aware that some respondent representatives use cost warnings as a standard tactic in defending claims.

They added that they did not support the practice.  Indeed they thought it counter-productive.

Given the widespread reporting of costs threats, and the concerns raised by organisations representing both employers and employees, it is unfortunate that the Government responded by doubling the maximum costs award – without including any protection for claimants.

£20,000 is a terrifying sum of money to most people and whilst a tribunal has to consider a party’s means when making a costs order, they are construed fairly widely.

Given the prevalence of respondents’ threats, one might think that tribunals regularly make costs orders.  But they are made less than 1% of the time. In 2013/14 the median costs order was £1000.  As the Citizens’ Advice Adviceguide website notes:

Your employer’s representative may say they will apply for you to pay costs but, usually, they are just trying to scare you into dropping the case or accepting a low offer of settlement.

So there is little to stop a respondent or their representative from making a cost threat, even where the claim has obvious merit.  The risk is that employees with legitimate claims are being put off getting justice because of cost threats that are not made in good faith.

Whilst tribunal awards are meant to be compensatory, there is a precedent for increasing awards where there is unreasonable behaviour: where a party unreasonably fails to comply with a relevant ACAS code of practice, the tribunal can order an uplift or downlift of up to 25% in compensation awarded.

So it would not be a huge departure from existing practice to allow the tribunal to order an uplift to compensation where a respondent has made an unreasonable costs threat.  The test should be a mirror of the test for making a costs order – that is to say the respondent’s costs threat must be found to be vexatious, abusive, disruptive or otherwise unreasonable or misconceived, or had no reasonable prospect of success.  This is a relatively high bar.  Just as a claimant who loses does not automatically have to pay the respondent’s costs, a respondent who loses should not have to pay an uplift simply because they have made a costs threat.  The respondent should have acted unreasonably before the uplift kicks in.

This modest reform is likely to have several effects, almost all of them beneficial.  There would likely be a reduction in the number of costs threats being made by respondents and their representatives.  All other things being equal, this might result in more cases going to a hearing as claimants would be less likely to drop otherwise meritorious cases in response to a costs threat.

However, adding an element of risk to costs threats may in fact encourage more early settlements.  Losing the opportunity of a ‘free hit’ on costs threats would likely focus the respondent’s mind on the hearing at an earlier stage and lead them to conclude that it is better to try to settle early.  Claimants may also be more receptive to settlement offers – as a number of responses to the Resolving workplace disputes consultation noted, costs threats can be counter-productive, antagonising claimants and making them more determined to see the case through to a hearing.

A reduction in the prevalence of costs threats might also mean that claimants would be better able to recognise and respond appropriately to genuine costs threats.  There would likely remain an element of bluff in the system, but it would no longer be a risk-free bluff.

The question of whether a costs threat is unreasonable should be a question of fact for the tribunal, as should whether a communication constitutes a costs threat.  A respondent who provides general information about costs should not be considered as making a costs threat, but the need for respondents to do this would be reduced if at the same time the ET1 form was amended to give claimants more information about the risks of costs.

If a communication is made and the claimant or their representative thinks it may be an unreasonable costs threat, they should be able to put the respondent on notice that should they win, they will ask the tribunal for an uplift. The respondent would then have an opportunity to withdraw the communication. If the respondent withdraws the communication they would be not be able to use it at a later stage as evidence that the claimant had acted unreasonably.

One potential pitfall of this approach is that claimants may start to disregard the risk of being ordered to pay costs because respondents and their representatives will become overly cautious about making warnings.

There are two answers to this.  First, the amended tribunal rules should be drafted in a way that makes clear that a costs threat is not automatically unreasonable just because the party who made it goes on to lose.  Second, an amended ET1 form would provide factual information about the circumstances in which a claimant might have to pay costs.

Whilst any law reform has potential risks, the benefits of this approach are potentially substantial – more cases settling early, more ethical behaviour, less mistrust between employers and employees, and increased confidence in the justice system for claimants.

It simply cannot be right that a claimant who is unfairly dismissed can be effectively compelled to drop their case because of an intimidatory costs threat.  These claimants are being doubly let down, by their employers and by the justice system.  That is why we need this reform.

The holes at the heart of Ed Miliband’s #ukemplaw speech

Yesterday, Labour leader Ed Miliband responded to recent media and internal criticism of his leadership by giving his #ukemplaw speech. This didn’t go quite so far as resolving the question of whether voluntary overtime should be included in holiday pay, but it did include a robust denunciation of inequality and the casualisation of so much of the UK’s labour force. There were repeated mentions of zero-hours contracts, low pay, and insecure work, and more than one shout-out for the Living Wage.

All fine and dandy, even if there wasn’t any new policy as such, and had the event concluded at the end of Miliband’s speech I would most likely have left Senate House feeling somewhat encouraged. But the speech was followed by a Q&A, and my positive mindset was inadvertently shattered when a Labour activist in the audience – picking up on her leader’s condemnation of zero-hours contracts and citing her own bitter experience – gamely urged Miliband to legislate for an outright ban.

Starting his response with a swipe at the Coalition’s plan to simply ban exclusivity clauses, which he (rightly) noted will do nothing to tackle the exploitative use of zero-hours contracts, Miliband went on to re-iterate Labour’s own plan to pass legislation giving zero-hours workers who are in fact working “regular hours” a legal right to demand a regular contract. “It is essential we do this”, said Miliband, “as the problem is affecting so many people.”

And then Miliband was off to the next question, without explaining how or why the “bad businesses” that cause so much misery to “so many people” will change their exploitative practices just because politicians in Westminster have passed yet more new employment law. Will tens of thousands of vulnerable, zero-hours workers suddenly discover the courage (and resources) to risk almost certain dismissal (or just a reduction in their hours to, well, zero) by issuing a tribunal claim against their exploitative employer for refusing to give them a regular contract?

No, they won’t. Which is why, if Miliband and his party are serious about tackling the ever greater casualisation of the labour market, and the associated zero-hours contracts, chronic low pay and insecure work, they have to start thinking about doing more than simply pass more laws creating more rights. For, as the October 2014 report of Labour’s own National Policy Forum acknowledges, “Employment rights have to be enforceable to mean anything.”

And what plans does Labour have to make employment rights – existing and new – more enforceable?

Well, somewhat belatedly, the party has started making the right sort of noises on tribunal fees, which have slashed the number of cases by 65% and left the average private sector employer facing a claim just once every 83 years. However, it’s pledge to replace the fees regime with one in which “affordability will not be a barrier to workplace justice” remains more a clumsy slogan than a credible policy solution to the not insignificant problem that outright abolition now comes with a price tag of some £40m in lost fee income (£4m) and increased operational costs (£35m).

However, as already noted, understandable fear of victimisation or summary dismissal means that, high fees, low fees or no fees, many abused workers will not even contemplate taking their employer on with a tribunal claim. And that means rogue employers can profit from exploitation with near impunity. It was for this reason that, in 1999, the then Labour government established the mechanism by which the national minimum wage is enforced, both in response to complaints and pro-actively, by a team of HMR inspectors. And similar reasoning lay behind the creation of the Gangmasters Licensing Authority (GLA) in 2005.

The National Policy Forum report includes a pledge to extend the narrow remit of the GLA to other sectors such as “construction, hospitality and social care” – but the CBI, REC and other employer bodies will never swallow such an extension of licensing (and see below). And the report states that “alongside increased fines and a new role for local authorities in enforcement [of the minimum wage], HMRC’s remit on enforcement should be expanded to include related non-payment of holiday pay” – these being recommendations from the May 2014 report for the Party on low pay and the future of the minimum wage by businessman Alan Buckle. But the fines have already been substantially increased, and it is hard to see many cash-strapped (and in many cases near bankrupt) local authorities taking an active role in such (limited scope) enforcement.

So, if Miliband’s #ukemplaw speech is to mean anything, he and shadow ministers need to take a leaf out of Vince Cable’s book. Last month, at his party’s conference in Glasgow, Cable quietly announced that the Liberal Democrat manifesto for May 2015 will promise a new Workers’ Rights Agency that would “revamp efforts to enforce employment law and tackle the exploitation of workers” by combining the remits and work of “the minimum wage enforcement section of HMRC, the working time directive section at the Health & Safety Executive, the BIS Employment Agency Standards Inspectorate, and the GLA.” According to Cable, this “joined-up enforcement approach” would “ensure the minority of unscrupulous employers who break the law do not get away with undercutting other employers who play by the rules.”

And, if it makes Miliband and colleagues feel better about lifting ideas from Cable, this wasn’t actually Cable’s idea – he simply lifted it from me. Over more than a decade at Citizens Advice, I repeatedly advocated a consolidation of the State enforcement bodies into a Fair Employment Agency, so as to shine a light into the murkiest corners of the labour market, provide better value to taxpayers, and secure a fairer competitive environment for business. And I’ve continued to do so in recent years. I really am that boring.

However, not long after I got home from Senate House, a tweet by shadow work & pensions secretary Rachel Reeves alerted me to another, equally depressing hole in Miliband’s purported determination to tackle the scourge of insecure and badly paid work. Reeves was tweeting a link to an interview she and shadow business secretary Chuka Umunna have given to the Financial Times, from which it is clear that, faced with protests from the CBI and others, Reeves and Umunna are now rowing back on Miliband’s eve of conference pledge to raise the minimum wage rate to at least £8.00 per hour from October 2019. And, later in the evening, on BBC Newsnight, Umunna confirmed that Labour would only “try to get the minimum wage to £8.00 per hour by 2020”.

So, while Miliband’s #ukemplaw speech has been rightly praised for its greatly improved oratory and highly commendable “focus on inequality and insecurity,” the content seems as sadly hole-ridden as ever.