NMW enforcement: David Cameron ramps up the rhetoric (but not much else)

Late last month, prime minister David Cameron used an article in the Times – Parliament is just so yesterday, dahling – to announce that he is putting enforcement of the so-called national living wage (or increased national minimum wage rate for workers over the age of 25, if you prefer) from next April at the heart of his ‘One Nation’ agenda. According to the Guardian – for ideological as well as financial reasons, I am physically unable to read the Times – the prime minister wrote that the national living wage will only work if it is “properly enforced”. And, to that end, “a new labour market enforcement director will be appointed to ensure that firms comply” with the new rate of £7.20 an hour for the over 25s.

Somewhat surprisingly, none of the crack political correspondents reporting the prime ministerial ‘announcement’ spotted that this represents something of a policy climbdown by Cameron. As recently as May this year, he and other ministers were talking of creating “a new labour market enforcement agency” to “crack down on the worst cases of labour market exploitation”, including non-payment of the national minimum wage. Now, that “new agency” has shrunk to just one extra, director-level official. Woo hoo.

On the plus side, Cameron reportedly said his Government will “significantly increase” the budget for enforcement of the national minimum wage, which has already seen welcome increases under the Coalition, from a miserly £8.3m in 2013/14, to £9.2m in 2014/15, and £13.2m in 2015/16. At a time when departmental budgets are being slashed, such increases are not to be sniffed at. Unfortunately, the prime minister gave no indication of the size of the further “significant increase” he has in mind.

Furthermore, the rate at which financial penalties for non-compliance are calculated will be increased from 100% of the underpayment, to 200% (though the current maximum penalty of £20,000 per underpaid worker will remain). And there will be a new team in HMRC to “take forward criminal prosecutions of those who deliberately don’t comply” – in recent years, such (relatively expensive) prosecutions have been even rarer than they were under the last Labour government.

To “unscrupulous employers who think they can get Labour on the cheap”, wrote the prime minister, “the message is clear: underpay your staff, and you will pay the price.”

So it’s surprising that, since the general election in May, ministers have ‘named & shamed’ just one tranche of 75 unscrupulous employers found by HMRC to have breached the minimum wage. For some 50-60 such employers become eligible for ‘naming & shaming’ each month and, as recently confirmed by BIS in answer to a parliamentary question by Jo Stevens MP, the failure to ‘name & shame’ more than 75 since the last tranche of 48 in March means there is now a growing ‘backlog’ of more than 500 unscrupulous employers that BIS has yet to ‘name & shame’. Will it ever do so? We should be told.

Indeed, in late July, BIS announced an effective amnesty from both financial penalties and ‘naming & shaming’ for those NMW-breaching employers that self-report to HMRC. So much for ‘paying the price’ for underpaying your staff. Understandably perhaps, BIS ministers appear somewhat reluctant to say how many unscrupulous employers they have let off ‘paying the price’ since July.

All in all, the message is not quite as clear as the prime minister would have us believe. Underpay your staff, and you might pay the price. Or you might not.

Looking at the details of the tranche of 75 employers ‘named & shamed’ in July, it’s easy to see why Cameron’s announcement did not include any increase in the maximum penalty per worker, as not one of the 75 had to pay anywhere near £20,000 in penalties. The average total underpayment (and so penalty) was just £2052.86, and the average underpayment per worker just £1247.37. In 37 of the 75 cases, the total underpayment (and so penalty) was less than £1,000, and in all but ten it was less than £5,000. In 46 cases, just one worker was underpaid, and only in five cases were ten or more workers underpaid by the employer. One case involved 57 workers, and another 46 workers, but the underpayment per worker in those cases was just £71.41 and £6.61 respectively.

As with previous tranches of ‘naming & shaming’ then, we’re talking about relative small fry – the local hairdressers, beauty salons, pubs, cafes and second-hand car dealers. Indeed, looking at all 285 unscrupulous employers ‘named & shamed’ to date, it does seem that HMRC sees hairdressers and beauty salons as easy targets for keeping its ‘strike rate’ up. Then again, among the 14 hairdressers and beauty salons in this tranche were five of the ten employers found to owe more than £5,000.


The latest quarterly ET stats in three charts

Yesterday saw the publication by the Ministry of Injustice of the latest set of quarterly ET statistics, covering the period April to June 2015 (i.e. Q1 of FY 2015/16). This is no longer as exciting an event as it used to be, back in the first half of 2014, when each new set confirmed the dramatic and sustained impact on claim/case numbers of the hefty, upfront fees introduced on 29 July 2013. But for wonks like me the statistics are still of great interest, not least for what they tell us about the trend in claim outcomes, which in turn tells us quite a lot about the ‘rough justice’ effect of fees. So here are a few charts, covering what I see as the most interesting aspects of the statistics.

ET case numbers now appear to have stabilised

For obvious reasons, there was great variation in the monthly number of new ET cases in the summer of 2013, linked to the introduction of fees, and in the spring of 2014, linked to the introduction of ‘mandatory’ early conciliation by Acas. However, the figures for Q1 of 2015/16 suggest that case numbers have now stabilised, at about one-third of pre-fees levels.

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Some 50,000 single claims/cases have already been ‘lost’ to fees

In July, when dismissing Unison’s appeal against the High Court’s rejection of its two applications for judicial review of the fees regime, Lord Justice Underhill stated: “It is quite clear … that the introduction of fees has had the effect of deterring a very large number of potential claimants.” And we can easily quantify that “very large number”, by comparing the actual number of single claims/cases against the number we could have expected, had fees not been introduced in July 2013. To do so, we simply need to generate projections allowing for (a) the “historic downward trend” in case numbers that began in 2010/11, but which ministers either failed to spot or ignored in 2012, when deciding to introduce fees; and (b) the introduction of Acas early conciliation, which was intended to bring about a 17 per cent reduction in the number of claims, in April/May 2014.

Clearly, that “historic downward trend” may not have continued at a constant rate (or even at all) into recent quarters, and the actual impact of Acas early conciliation appears to have been more modest. So the following chart sets out two alternative projections (one low, one high) of single claim/case numbers. I won’t bore you now with the detailed assumptions behind each projection, but if you’re keen to know just get in touch.

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Based on these projections, and ignoring multiple claimants (the numbers of which are not so predictable), Underhill LJ’s “very large number of potential claimants” deterred by fees was somewhere between 47,350 and 52,200, as of 30 June 2015, and continues to rise by some 5-6,000 every quarter (so, at the time of writing, might well be approaching 60,000). Furthermore, based on historic case outcome trends, about 80 per cent of those 47-52,000 workers would have obtained a favourable judgment on or settlement of their claim, had fees not been introduced.

There is still no evidence to support the Grayling-Hancock theorem

According to the Grayling-Hancock theorem – which seems unlikely to win The Fields Medal for its authors – every single one of those 47-52,000 single claims/cases ‘lost’ to fees was a “vexatious”, “bogus” or otherwise unfounded claim that should never have been brought in the first place. Yep, every single one – for there has been absolutely no ‘rough justice’ as a result of the fees.

However, were it the case that all (or even just most) of the 47-52,000 single claims/cases ‘lost’ to fees  were “vexatious” or otherwise without merit, then we could expect the overall success rate of claims to have risen substantially in recent quarters (the average age of a concluded case is about nine months, so the vast majority of claims determined in recent quarters will have been issued after July 2013).

Yet, as the following chart shows, the overall success rate has fallen steadily in recent quarters, from 79% in 2013/14, to just 62% in the last quarter of 2014/15. Yesterday, I tweeted a hastily-constructed chart showing that, in Q1 of 2015/16, the overall success rate leapt to 75 per cent – how they must have cheered in the Ministry of Injustice!

However, on closer inspection of Tables 2.2 and 2.3 of the official stats, we can see that this figure was substantially inflated by unusually high proportions of equal pay claims being conciliated by Acas or withdrawn (80 per cent, compared to 40 per cent in Q1 of 2014/15), and of unfair dismissal claims being conciliated by Acas (69 per cent, compared to 32 per cent in Q1 of 2014/5). And, of course, outcome figures are given in terms of jurisdictional claims, not cases, so are easily skewed by one or two large multiple claimant cases. If we remove those two jurisdictions from the picture, then the overall success rate in Q1 of 2015/16 falls to 62 per cent – the same as in the previous quarter.

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Clearly, we’ll have to see (when the statistics are published in December) what happens in Q2 of 2015/16, but I think it’s fair to say that, at the time of writing, there remains no evidence whatsoever for the Grayling-Hancock theorem.

Empty justice: the big hole at the heart of the ET system

On Monday, the Law Society published its long-awaited discussion document on reform of the ET system, Making employment tribunals work for all. It’s a considered and thought-provoking document that focusses on the idea, previously floated by former ET President David Latham, of creating a single jurisdiction – an Employment and Equality Court, perhaps – within which “all employment law cases could be heard”.

The document suggests that within this single tribunal or court there could be four levels, to which “cases could be allotted according to their value and complexity, with proportionate rules and procedures applying to the different levels of claims”. Under this model, Levels 1 and 2 would provide “an informal, swifter and therefore less expensive way to resolve disputes that involve simple facts and no new issues of law”, such as claims for unpaid wages. Levels 3 and 4 would be “more formal and legalistic”, with Level 3 operating in a similar way to the current ET system, and Level 4 operating “like a civil court for those cases that are currently heard in the courts”.

It’s hard to disagree with the document’s starting point, namely that “employment-related claims need to be dealt with flexibly, depending on their complexity and the financial stakes. It is not acceptable that individuals should be discouraged from bringing legitimate claims or from opposing them because of the cost or complexity associated with the process”. And I’ve long been an advocate of using a document-based and – where appropriate – inquisitorial decision-making process to determine the most straightforward (and usually low-value) claims quickly and at low cost. So I’m attracted to the idea that the document’s proposed Levels 1 and 2 might “ensure that all workers, including those on low pay, could enforce their statutory rights”. As the discussion document notes, “since the introduction of ET fees [in July 2013] many of these types of cases are no longer pursued in the ET, because the claimant could not afford the financial risk”. Indeed.

However, leaving aside the fact that in 2013 the Coalition government went as far as introducing an enabling power to create a “rapid resolution” process for straightforward ET cases (s11 of the ERR Act 2013), but gave up in the face of legalistic objections from employment law practitioners and the TUC, it’s disappointing that the 25-page document devotes just three short sentences to the long-standing and systemic problem of non-payment of ET awards. Because, from a public policy perspective, there would be little point in re-opening the ET system to thousands of low-paid claimants only for a large proportion of them to end up – however “quickly” and at minimal cost to the taxpayer – with an ‘award’ that’s not worth the paper it’s printed on, because the employer will simply fail to pay up.

By coincidence, on Monday the Herald in Scotland reported the case of Christopher Hillis, who has just ‘won’ an ET award of just over £15,000 against Glasgow restaurant Cail Bruich, in relation to his summary dismissal by (abusive) text in September last year, just days after complaining to the restaurant’s joint owner/chef about being paid (well) below the national minimum wage. Cail Bruich is no rogue chippie – it’s twice won an award as Scotland’s best restaurant – but nevertheless Mr Hillis stands to receive not a penny of his award, as the restaurant’s owners have dissolved the company that (technically) employed him, even though the restaurant where he worked continues to trade (heaven knows how – it’s fancy “modern style” dishes look disgusting to me).

crap food

During the later years of the Coalition government, then BIS minister Jo Swinson did try to do something about the systemic non-payment of awards, but by then it was already too late. As I’ve noted previously on this blog, while Ms Swinson deserves “credit for trying to close the stable door, most of the horses have been galloping around the fields since July 2013, and will continue to do so until such time as the fees regime is substantially reformed”.

Which brings us back to the other great problem with the current ET system: fees. Again, on this issue the Law Society’s discussion document is strangely muted, rightly condemning the impact of fees on access to justice but failing to set out any detailed alternative to outright abolition. But that’s for another blog post.