Delinquent Employers and in-work benefits: Intended and Unintended Consequences

Many low paid and part-time workers are dependent on welfare benefits to bring their income to a level which meets their essential expenditure. This unfortunate fact goes against the prevailing narrative of work-shy, undeserving poor prevalent in the media and used by government to justify deep cuts to the welfare state. While it might be argued that the state ought not to top up low wages through in-work benefits and through tax credits in particular, it is unavoidable while wage stagnation continues and living costs inexorably rise, and no amount of pontificating about minimum wage levels will solve this problem.

Being in receipt of in-work benefits requires a great deal of application from the claimant, and the worker faces a great deal of pressure to immediately report any changes to their rate of pay and to provide supporting evidence of that. And this is where an obstructive, delinquent or simply disorganised employer can have a seriously deleterious effect on the lives of their workers.

This post describes some of the ways in which employers’ actions, whether motivated by a desire to maximise profit, avoid scrutiny from Her Majesty’s Revenue and Customs (HMRC) or to circumvent National Minimum Wage legislation, can result in a knock-on effect which reduces or stops the worker’s benefit income and puts their quality of life, home and health at risk.

Not supplying payslips

The right to a payslip is enshrined in the Employment Rights Act 1996 but is flouted by many delinquent employers. All in-work benefits require the claimant to provide evidence of their income, and if they cannot, their benefits may be stopped and they may be asked to pay back any benefit previously received. Additionally, while any investigation is being carried out, the claimant’s benefits will be suspended, causing additional hardship and often pushing people into rent arrears and other debts. For example, at Citizens Advice Barnet we recently advised a client who had worked part-time for two employers. One had offered her extra hours, so she accepted and gave up her other job. She reported the change of circumstances to the benefits authorities, as she was obliged to do, but when they requested evidence in the form of payslips, her employer refused to provide them, saying that he had never given anyone payslips and did not intend to start now. Her benefits were suspended and she fell into financial hardship – and the employer continued to refuse to provide evidence of the hours she was working. Latterly he produced hand-written payslips covering a short period, which he sat down and wrote in from of the client, each with a different pen. These contained inaccurate information so were useless as evidence of anything. The employee had to appeal the benefits decisions – and the benefits were ultimately reinstated – but her stress and hardship caused by the employer shirking his statutory duty were damaging and completely unnecessary.

Late payment of wages

Late payment, while it causes cashflow problems, does not usually affect in-work benefits. However, where it can cause real problems is when a person loses their job and makes a claim for Universal Credit (UC). UC is gradually being introduced across England and Wales as a replacement for almost all other benefits – paid as a single monthly payment. The problem that late payment causes arises in quite specific circumstances. If someone claims UC, they are subject to a 4-week ‘assessment period’ during which their income for that period is used to calculate their entitlement. If they leave work having received their final pay and them claim UC, there should be no problem – but when the final payment is wrong, as it often is, and the employer pays the difference later (which will usually include accrued holiday pay, notice pay etc), then that will be counted as income for the assessment period (even though it should have already been received) and the claimant will have to wait a further 4 weeks before they can receive any UC. This illustrates well the complexity of the benefits system and the unintended consequences late payment can have. In effect, this will mean an additional 4 weeks where the claimant is unable to pay their rent or feed their family.

Zero Hours contracts

For a person on a zero hours contract, reconciling that with an ongoing claim for in-work benefits creates enormous complexity and an administrative headache for the worker. In order to avoid potential overpayment of benefit and the resulting allegations of fraud, the employee has to report any change in earning to the benefits authority immediately. However, where there is a zero-hours contract, in some weeks the worker may have 40 hours of work, in other weeks 2 or 3. This means that their benefits payments will fluctuate along with their wages, but the benefits payments – particularly housing benefit which is paid in arrears – lag behind and make budgeting extremely difficult. Most people who are in low paid work will receive some housing benefit to enable them to top up their income to pay their rent, and where the housing benefit is paid directly to the landlord (as it often is), the claimant simply does not know how much to pay themselves to make up the difference. This all contributes to a feeling of helplessness and has the potential to lead to eviction if the landlord gets fed up with receiving fluctuating payments.

Deliberately avoiding liability for statutory payments

This happens most often in cases of female workers on zero hours contracts or contracts which state a low number of hours but where custom and practice means that the worker is actually working far in excess of the contractual position. Where these workers become pregnant, the employer has a duty to pay Statutory Maternity Pay (SMP). However, despite being able to reclaim this from the state, many employers, either because of a perceived administrative burden or from an ideological opposition to pregnant workers, will seek to avoid liability. The method is simple – gradually reduce the number of hours so that by the time the calculation for SMP is made, the earnings are below the qualifying level of £112 per week. This does take some application from the employer, as the calculation averages the gross pay for the 8 weeks before the 15th week before the date the baby is expected, so they really do need to think ahead in order to circumvent their employee’s rights.

These are only a few examples, but in combination with the zealous pursuit of benefits claimants by the Department for Work and Pensions and HMRC (which has been well documented) where any question over entitlement is treated as potential fraud – in alignment with the prevailing media and government narrative – it is yet another instance of low paid workers being exploited, both by their employer and by the administrators of the safety net which is supposed to be there to help them.

Deregulation meets criminalisation: migrant women workers in the low-paid economy

There is endemic exploitation of low paid migrant women workers in some sectors of the economy. According to our experience at the Latin American Women’s Rights Service (LAWRS) this could vary from cases such as Maria who works in hospitality and is supposedly  “paid the national minimum wage per hour” but in reality is paid by the number of rooms she cleans. It being virtually impossible for an average person to clean her target number of rooms in one hour, in reality Maria gets paid well below the national minimum wage.

Amparo sometimes gets paid for extra hours cleaning offices in a posh building in the City but sometimes she doesn’t. However, it took her a long time to work this out.  Beatriz gets paid the London Living Wage in one of her cleaning contracts with an agency, while at the same time being forced to work for payment below the National Minimum Wage on another of her contracts with the same agency. If she refuses, she will lose both contracts.

Laura never gets paid for extra hours and Antonia forces herself to go to work even when she is very ill to ensure that she is paid and not to lose the hours that have been allocated to her.

There are many common experiences for Maria, Amparo, Beatriz, Laura and Antonia and many migrant women workers like them. They all work in low skilled, low paid jobs in cleaning and hospitality. They work though outsourced agencies doing several shifts per week for different contracts and working unsocial hours (from 4 am to 8 am and from 6 pm to midnight) finishing when mainstream workers start and starting when they go home. Some of them don’t know who their employer is (as there is a chain of contractors and sub contractors) and only know their immediate line manager who also speaks Spanish.  Another common trend is that they all live in “in work” poverty and struggle to make ends meet; and they feel they can’t complain because they simply can’t afford to lose their jobs and not be able to feed their children. Colleagues who have complained in the past have been dismissed or simply have not had additional hours of work allocated to them.

Maria, Amparo, Beatriz, Laura and Antonia are migrant women workers from Latin America which according to Towards Visibility is the second fastest growing non-EU migrant group in the UK.  Despite having education (often university degrees), they are working in exploitative, unregulated sectors and in precarious employment. According to the research, half of newly arrived Latin Americans work in contract cleaning, 45% experience labour exploitation and 1 in 5 are not paid for work done. They don’t speak English and have few opportunities to learn it, spending their time between their shift work and caring responsibilities. Day to day struggles, for them, are about survival.

The women at LAWRS reading about their labour rights

The women at LAWRS reading about their labour rights

At LAWRS we see cases like this on an ongoing basis. Some of them involving labour exploitation and others amounting to trafficking for labour exploitation. As our invisible women video portrays many women are placed in vulnerable situations and have few avenues for survival.

The industries where many low paid migrant women work are unregulated with employers able to exploit workers without much redress. Recent policy and legal changes have made things more complicated with the introduction of Employment Tribunal (ET) fees (that low paid migrant workers are completely unable to afford) and with the criminalisation of what the Government calls “illegal work”. In the past, employers were punished, but with an official Government “hostile policy on migration’ and the new Immigration Act 2016, workers with insecure migration status could face a prison sentence and the seizing of wages for working without appropriate documentation.

These new measures have opened new avenues for unscrupulous employers who are able to exploit migrant women workers with impunity.

We have seen cases of sexual abuse at work and other crimes that have gone unreported due to the absence of a “firewall” in between safe reporting and immigration control. Unfortunately immigration control continues to be well above survivor’s rights even in extreme cases of trafficking for sexual or labour exploitation.

Additionally for those workers that have the right to work in the UK, accessing justice is  burdensome and cumbersome. They struggle with language barriers, little knowledge about their rights and difficulties in navigating the system. There are also structural obstacles such as little regulation on outsourcing, prohibitive ET fees and the use of ACAS as a first port of call for workers (for most migrant workers in cleaning navigating the ACAS helpline is already a barrier for accessing justice).

What can be done about this? There is some hope in the extension of the remit of the Gangmasters and Labour Abuse Authority (GLAA) to all labour market sectors. However appropriate funding needs to be allocated to the GLAA (that will have increased powers with no additional funding) to be able to do their job properly. It is also essential to regulate outsourcing and for all contractors to have checks and balances in their cleaning and hospitality contracts. Labour exploitation could be present in your own building without you being aware of it.  ET fees also need to be abolished.

There is also a need for a strict firewall between immigration control and safe reporting of exploitation and crime. Information regarding migrant workers reporting exploitation should not be passed to the Home Office for immigration control purposes. Otherwise, survivors will continue choosing not to report. LAWRS will be launching a campaign called Step up! for Migrant Women to ensure strict firewalls for safe reporting and access to services for migrant women survivors of violence and crime.

It is also essential to document the extent and nature of the problem of unpaid wages and exploitation which is what Unpaid Britain is attempting to do.

For migrant women workers and the organisations supporting them, it is important to encourage unionisation and organising, and to provide proper advice in a language that the workers can understand. It is also essential to document the extent and nature of the problem of unpaid wages which is what Unpaid Britain is attempting to do. If we are serious about tackling non-payment and labour abuse, we need to ensure that migrant workers are not left behind and are able to assert their rights.

 

 

 

Ghosting, Phoenix companies and other grim tales of unpaid Britain

While people flock to see the latest supernatural creatures in JK Rowling’s Fantastic Beasts and Where to Find Them, real life shape-shifters and disappearing acts receive much less attention. People are being ‘ghosted’ by former employers who owe them wages or redundancy payments, and even more galling, some employers, rising phoenix like from the ashes of the previous companies, later reappear trading under a new name to avoid payment.

Successive reforms of the Employment Tribunal (ET) system have made it increasingly difficult to take up complaints regarding underpayment and the abuse of employment rights, allowing much poor treatment of employees to go unpunished. The weakening of unfair dismissal protection in 2012, and the imposition for the first time of a substantial fee to bring claims in 2013 were justified as discouraging ‘vexatious claims’ said to be costly, time consuming, and creating a fear factor for employers. However, there is little evidence that this was ever a significant problem, and is likely to be particularly rare in underpayment cases which generally involve relatively straightforward decisions for tribunals. Even prior to the current fee structure, there were significant barriers to would-be claimants. A number of studies have found that only a small proportion of people experiencing problems at work do anything formal to resolve them, never mind take legal action.

New research by a team (including the author) at the Universities of Strathclyde and Bristol has given voice to those attempting to resolve work-related grievances via the increasingly complex, legalistic world of ETs. Researchers recruited 158 clients who presented with employment problems at Citizens’ Advice Bureaux (CAB) (access points to those who generally cannot easily afford a lawyer or access trade union services). Researchers followed participants across the course of their disputes, logging their thoughts, hopes, fears, struggles and successes, interviewing them at several points. The sample tended to be low-paid workers in elementary occupations; working in the private sector (with contract cleaning and agency work generally featuring heavily as offenders) and who had never been members of trade unions. The gathered data includes harrowing stories of peoples’ struggles to resolve their employment disputes.

Around a third of participants reported an underpayment issue as one of the problems for which they sought advice. Problems included quite straightforward disputes regarding owed wages or holidays involving hourly paid staff which may have been simple down to a mistake on behalf of the employers (e.g. disputes over how many hours had been worked).  More complex disputes included participants enquiring about owed wages or unpaid overtime and then finding themselves dismissed or no longer being provided with any hours of work. CAB advisers saw some underpayment problems so frequently, (sometimes from the same employers) that they looked likely to be deliberate strategies, such as agencies neglecting to pay holiday pay until challenged. Such employers would often pay up as soon as a tribunal claim was lodged, though not before the time and attention of the tribunal system was expended to bring them into line.

Working at the bottom end of the labour market was for some participants not only precarious (in temporary jobs) and lowly paid, but ended up being completely unpaid. Doug, was encouraged by the Job Centre to take a job in construction with a small firm. He worked for several weeks without pay before his employer disappeared. When he returned to the Job Centre to complain and seek advice “they didn’t want to know”. Telling him, “‘that’s between you and the employer it’s nothing to do with us’, basically… I felt they couldn’t care less. ” Doug had thought that “being through the Job Centre” the job “was above board, but obviously it wasn’t.” Doug found his way to the CAB, and submitted an ET claim with their help. Initially the employer denied that Doug had worked for them, before ceasing trading and finally disappearing. Doug gave up chasing the £1000 he was owed.

Doug was effectively ‘ghosted’, by his former employer. People take a job, work for a few weeks (sometimes months) in good faith that their pay will be forthcoming, until their employer (usually a micro firm of less than ten employees), disappears without paying them a penny. When the worker attempts to make enquires, phone calls and emails are no longer answered. The employer,  then appears in a new guise, a phenomenon Citizens’ Advice and other campaign groups are referring to as perpetrated by ‘phoenix’ companies, rising from the flames of supposedly insolvent, burned-out companies. In other cases employers claimed insolvency, often meaning that participants were able to make a claim to the government’s Insolvency Fund, although they were not always able to obtain the full amount they were owed.

Around half of participants with underpayment problems attempted to take legal action, and so are slightly more likely than others to take action (the overall figure was closer to a third). There could be several reasons for this:  firstly, individuals were usually reliant upon the money owed, 2) the claim, being more straightforward may seem easy to win, 3) claimants have a clearer sense of certainty regarding their ‘right’ to take the employer to tribunal. That said, participants often saw a symbolic quality in making claims for unpaid wages. Cheryl, a nursery assistant, wanted £400 of notice pay back on ‘principle’: “I’d worked it and earned it, so I should have it. Even if it was hundred pound or a thousand pound… I thought I’m not going to let this lie, ‘cause it’s money I deserve to get.’

While the certainty of being clearly ‘in the right’ may generally be stronger among those who feel they are owed wages than those claiming unfair dismissal or discrimination, the underpaid  are not necessarily immune from crises of confidence regarding taking legal action. Cheryl, was plagued by doubt and shame at taking legal action. She felt ‘actually quite embarrassed… the only people I told were really close friends and family… I think people often assume there’s something worse to the case when you say, “the tribunal court.” They think, your first employer, ‘that’s a bit much!’’ Problems that should be considered illegal may be conceived as ‘dumb luck’. ETs appear are a highly discouraging prospect to most lay-people. Any relish that might be taken in reaching them usually relates to placing employers who feel they are untouchable in front of ETs.

Of the twenty known outcomes for underpayment cases at ET in the study, ten were successful, seven settled (mostly favourably for participants), and 3 were withdrawn. However, only one of the ten successful awards was received without using formal enforcement procedures, and three of the successful participants never obtained the money owed. Some participants did not feel it was worth ‘throwing good money after bad.’

While the amounts of money owed were the difference between keeping them above the breadline or not, hourly-waged workers barely had the time to attend their own tribunal hearings because of new jobs or job-seeking efforts. For them dreaming-up far-fetched accusations against employers, who may be hard to track down and unwilling or unable to pay in any case would be absurd.

 

 

The disappearing payslip

I recently took part in an HMRC “webinar” on the National Minimum Wage, offering help and support to union reps wishing to assist members enforce their rights. During the course of this, participants were told of the importance of checking payslips to see if workers had been properly paid.

This confirms views expressed by some of the advisors interviewed in the early stages of Unpaid Britain, and my own experience assisting workers in the past. The payslip is an important piece of evidence in identifying errors, unpaid wages and unlawful deductions, and its absence is usually a sign that there is something seriously wrong with the employment relationship.

The general right to “written pay advice” dates back to the 1960 Payment of Wages Act, and the requirements have changed little since. Then, gross pay, net pay and any deductions had to be shown, and this remains the case now under Section 8 of the Employment Rights Act 1996. However there is no requirement in law to show how the gross figure has been calculated – by showing the number of hours worked and the hourly rate of pay for example. Unions have argued that this can leave workers with insufficient information to assess whether they have been paid enough. In the latest Low Pay Commission (LPC) report (para 66), the LPC have taken note of these points and recommended (not for the first time) that the government consider requiring that payslips of hourly-paid workers should include the number of hours for which they are being paid.

But the absence of details on a payslip is not the only problem. The absence of a payslip at all seems to be a growing problem – and in London the effect is particularly marked (see chart)[1]. Our analysis of data from the official Family Resource Survey, shows that one in four employees in London does not receive a physical payslip, 15% because it is now said to be provided in electronic form, and over 10% because workers report that their employer does not provide one at all.employees-with-no-payslips-correct-real

Unlawful

There are two troubling aspects to this. Firstly the failure to provide a payslip is unlawful, and could (if taken to an Employment Tribunal) result in the award of a penalty. This is explained by Unpaid Britain Advisory Group member Jo Seery of Thompsons Solicitors:

“Where a tribunal finds that un-notified deductions have been made in the 13 week period immediately preceding the… claim being lodged, [they] may order the employer to pay a sum not exceeding the aggregate of the un-notified deductions … So a tribunal could order the sum of tax and NI contributions be paid by the employer where these have been deducted but not notified to the employee.” 

As Jo also points out, for those workers whose earnings are below National Insurance or tax thresholds, there is no penalty for a failure to provide. And in my experience, employers will often “discover” the missing payslips and provide them before any ET hearing, thus avoiding any penalty. Where the employer has disappeared, or is insolvent, or resists recovery attempts, the penalty is neither here nor there because even if it is awarded, it will not be paid.

Without payslips, employers may deny that those claiming owed wages were ever employed by them, or were employed by other associated companies. Workers who suspect that NI or tax deductions were not paid to HMRC have little to support them when they attempt to ensure that their contributions record is correct. This may have serious consequences for pension and benefit entitlements, and for migrants seeking to establish residency rights (for which the paperwork requirements are ridiculously stringent).

Workers suspecting contributions are not being paid over by their employer can complain to the tax authorities (HMRC) via their “tax evasion hotline”, or online, or by post although “HMRC won’t reply to confirm they’ve received your letter”[2].  Workers using this method may never find out what steps have been taken to rectify matters, so as an enforcement method, this leaves something to be desired.

Employers are also required by law to maintain records to demonstrate that they are paying at least the National Minimum Wage (NMW), and although workers may have the right to inspect these, so too do NMW inspectors. Failure to maintain such records is a criminal offence, but there do not appear to have been any prosecutions for this.

Digital

The shift to electronic payslips presents separate problems. Most employment lawyers seem to agree that this probably fulfils the legal requirement, as long as the opportunity is afforded to workers to access a computer to see their payslips. However, in the real world of aggressive management, many workers will be reluctant to assert this right, even if it is notionally available. Secondly, while it is true that many workers now have smart phones or tablets and can easily access their employers’ system, or open the attachment to an e-mail, or the SMS message (this is apparently used by some employers), not all will be able to do so. And even if they do, does the system permit the worker to save a copy, so that if they leave the employer, they have a record of deductions?

Respondents in Chartered Institute of Payroll Professionals surveys are asked if e-distribution is under consideration by those not already using it, and in the latest survey available (2103/14), 23 out of 62 said it was. From this admittedly rather small sample, it seems likely that there is a continuing trend towards the use of digital payslips, with serious implications for workers who have problems with access to technology, and for the use of payslips as evidence.

Enforcement

There is clearly a case for making the required format of payslips more detailed – providing hours worked, and holidays outstanding, for example – and a case for unions to keep an eye on the design and administration of pay systems, ensuring that workers are aware of the need to check and retain payslips (and that they can easily do so).

But union coverage is partial, particularly in the private sector, so penalties for non-provision need to be dissuasive, and accessible. This means no Employment Tribunal fees! Providing reliable routes for workers to complain of non-provision of payslips, and a system of inspection of payslips could both help to identify other abuses of workers’ rights and be of benefit to the exchequer.

[1] Of the UK regions, Wales is worst with 14.3% reporting no pay slip and a further 12.7% receiving an electronic version. London showed the second highest proportion. Nationally, 8.6% of workers report receiving no payslip, and 11.6% an electronic one (2014/15 figures).

[2]https://www.gov.uk/government/organisations/hm-revenue-customs/contact/reporting-tax-evasion, accessed 23 June 2016

Worker’s Status

A worker who has not been paid their wages has the right to bring a claim in an Employment Tribunal (ET) for an unlawful deduction from wages.

But who is a worker?

The law states a worker is someone who personally performs any work or services under a contract of employment or any other contract, provided that the worker is not in business on their own account (i.e is genuinely self-employed).

The legal definition of a worker is important because workers have some employment rights (see Box on Employment Rights) including a right to be paid the national minimum wage and the right to pursue a claim for unlawful deduction from wages in an Employment Tribunal if they have not been paid the wages they are owed including, for example, if they have not been paid holiday pay.

This compares with those who are genuinely self-employed (i.e. in business on their own account), who do not have those same employment rights.

Employers in the new ‘gig economy’ often categorise those working for them as self-employed.  For example, taxi drivers, couriers and cleaners are often given contracts or “written terms” stipulating that they are “independent contractors” or are “self-employed”.  In other cases, there may be nothing in writing at all other than the fact that the company classifies them as self-employed.

With reports of couriers having pay deducted because they have not made a delivery within the allotted hour or not being paid for the last shift because they did not accept a job in the last minute before their shift ended, those working in this sector are often unclear as to what action they can or cannot take to recover pay that is rightly due to them.

The correct categorisation of the working relationship is all-important in determining whether someone is a worker and therefore is able to take action to recover unpaid wages.

Case law has held that there are two key elements to determining whether someone is a worker.  The person must:

  • Provide personal service; and
  • There must be mutuality of obligations between the parties.

What is personal service?

At one level establishing that someone provides personal service seems relatively easy.  Surely, if you are asked to do the work and you do it there is no problem? However, some employers claim that those that work for them have the freedom to get others to do the work for them – during periods of sickness or holidays, for example.  This, the employers claim, means that the person can provide a substitute who can do the work for them, so they are not required to carry out personal service.  In Autoclenz Ltd v Belcher, the company provided car valeters with a written contract which stipulated that the car valeters were “entitled to engage one or more individuals to carry out the valeting” on their behalf.  However, in practice, it is difficult, if not nigh on impossible, to find anyone else to do the work or at least anyone whom the company is willing to accept.  If that is the reality then there is every chance they are in fact providing personal service and so satisfy the first step in establishing that they are a worker.

What is mutuality of obligation?

This is the obligation on the employer to provide work and a correlating obligation on the person to accept work when it is offered.

Many of those working in the new “gig economy” are  sold the idea of self-employment on the basis that they can decide when they want to work and that they can be their own boss.  However, when there is rent to pay, food and clothes to buy the ability to choose not to work is often no choice at all.

The reality is that if work is not accepted when it is offered not only will there be no pay but the person is unlikely to be offered any further work in the future.  So, in practice, people rarely refuse work when it is offered.

The profits companies stand to make from the self-employed similarly means that in most cases the company is obliged to offer work to stay in business.  An article in the Guardian dated 18 July 2016 on delivery firm, Hermes, revealed that pre-tax profits of £36 billion in the year February 2015 was the product of a workforce of couriers, 84% of whom were self-employed!

The question then is, can a company write into a contract terms which would prevent someone from claiming they are a worker?

Generally a written contract is seen as sacrosanct when determining the working relationship.

In Stevedoring and Haulage Services Limited v Fuller and Ors, (albeit a case which concerned employee status rather than worker status), the contractual terms expressly stated that work would be provided on an ad hoc basis with “no obligation on the part of the company to provide work nor for [you] to accept any work so offered”.  The Court said that there was no scope for implying a positive obligation on the parties to offer work and for work to be accepted where to do so would contradict the express terms.

But that was back in 2001.  Today the Courts take a dim view of employers relying on contractual terms to deny workers employment rights where the terms do not reflect the reality of the working relationship.

Contracts which do not represent the reality of the situation are now recognised to be sham contracts.  A sham contracts as expressed in the case of Consistent Group Limited v Kalwak is a contract where “the reality of the situation is that no one seriously expects that a worker will seek to provide a substitute or refuse the work offered, the fact that the contract expressly provides for these unrealistic possibilities will not alter the true nature of the relationship”.

In many cases for workers in the new “gig economy” the written terms or the written contract will not represent the reality. Anyone unsure of the status of their working relationship and associated employment rights should join and seek the advice of a trade union who can advise on this hugely important issue.

 Employment Rights Box

Statutory Rights Employee Worker Self Employment
Dismissal Y
Redundancy Y
Notice Y
Maternity Leave Y
Parental Leave Y
Fixed Term Employment Y
National Minimum Wage Y Y
Protected Disclosure Y Y
Working Time Y Y
Part time work Y Y
Right to be Accompanied Y Y
Unlawful deduction from wages Y Y
Protection from discrimination because of a protected characteristic Y Y Y

Impact of Employment Tribunal fees on selected employers

We have reported before on our trips to the Employment Tribunal (ET) judgement registry, hidden away in the heart of East Anglia (Bury St Edmunds). We are back there now, and as before concentrating on the cases which are key to our research namely those featuring “unauthorised deductions from wages” (generally known, for historical reasons, as Wages Act claims), and those relating to failure to provide holiday pay.

As we plough through scanning hundreds of judgements, we see some respondent (that is to y, employer) names recurring. This makes us wonder if it would be easy to see how frequently these company names come up as respondents in cases involving claims of unpaid wages. So we chose a few of the larger outsourcing and facilities management companies, based on their tendency to have subsidiaries beginning with the parent’s name. I should say that this method is far from fool proof – not all of the subsidiary names will follow this model, and it of course leaves out parent companies which do not follow this model at all.

So our leaving out some large employers is not intended as a slight – we were simply using the rudimentary search strategy which is available on the database of ET judgements, namely putting the wildcard “*” after the first few characters of the company name. So the five parent companies selected almost but not quite at random, were Capita, ISS, Mitie, Serco & Sodexo. We looked to see how many cases which included “wages act” claims had reached a hearing, by the year in which the claims had been accepted. We looked at each year from 2010 to 2015. In the first year, these five companies accounted for 148 such cases, but by 2015, this had fallen to 41.

Perhaps this is good news for their collective workforces. Perhaps they are just much less disgruntled, and more confident that they have been paid correctly for their labour power. Or then again, perhaps the introduction of ET fees has been of great benefit to these companies, many of them delivering outsourced and privatised public services. Because there does seem to be a dramatic fall after 2013, the year fees were imposed. Have a look at the graph, and see what you think.

ET cases includin WA claims reaching hearing

Looking for unpaid wages, finding Delinquent Employers

Sometimes, when a researcher asks for comments on a piece of work, they are really asking for validation. I’m not saying I was when I proposed a typology for unpaid wages to a workshop that Unpaid Britain organised in May. But if I had been, I would have been disappointed.Group C picture

We brought together a pretty expert group of practitioners and academics. Then we asked them to try and categorise real life cases of unpaid wages by whether or not they were deliberate, and whether workers might have given some form of consent. The response could be summarised as “yes, very interesting, but you can’t make it work”. Instead, we were directed back to the specifics of employers’ strategies in different economic sectors. And if this did not endorse my proposed typology, it certainly validated the use of the participative workshop.

Jpeg

The research team have spent the intervening months considering how this might be achieved. The result is a method for identifying the sectors most likely to exhibit non-payment. To do this, we had to confront the lack of data specifically measuring non-payment. Key Informant interviews, workshop participants, our Project Advisory Group, and our examination of Employment Tribunal judgements all suggested that unpaid wages may present in several forms simultaneously, as well as being accompanied by other abuses of workers’ rights.

So, using two sets of official statistics we have tried to find data which might indicate the abuse of workers’ rights. From the Labour Force Survey (LFS) we chose reported unpaid overtime, which may reflect a general level of pressure in the workplace, but also breaches of at least some workers’ contractual entitlements. We also selected reporting of zero hours contracts (ZHCs). While these are not automatically unlawful, by not committing the employer to provide a certain minimum level of payment per pay period they blur other entitlements such as that to holiday pay, and the variability of hours renders under-recording (and therefore underpaying) of hours more feasible. The LFS may undercount this – overall, only 1.8% of those in employment reported having a ZHC, but this ranged from 0% in mining support services, up to 9.2% in security and investigation activities. Finally we looked at paid holidays – about 5% of respondents in employment report that they have no entitlement to paid holidays, and this is not evenly distributed across sectors (it goes from 0% in manufacture of electrical equipment up to 18.4% in sports, amusements and recreation). We can be certain that workers not receiving any paid holidays have had their rights breached.

A second survey, the Family Resources Survey (FRS), includes two sets of data which could be indicative of abusive practices. One relates to the provision of payslips, which is a legal requirement under the 1996 Employment Rights Act. 8% report that their employer does not provide a payslip, ranging from 0% in extraction of crude petroleum and natural gas up to 21.3% in domestic households. The other is self-employment. Operating on the assumption that work falsely classified as self-employment by employers wishing to reduce labour costs (as opposed to genuine self-employment) is likely to be low paid, the FRS permits the identification of the extent of low-paid self-employment by sector, indicating the likely presence of “bogus” self-employment.

These five indicators can shed some light onto the variety of practices which might be deployed to separate the worker from what they have rightfully earned. What they cannot do is give us a definite count of abuse, so we opted for a series of inter- sectoral comparisons, allowing us to identify those sectors most likely to display forms of abuse, and therefore the non-payment of wages.

Excluding sectors with too few cases, we scored each sector from 1-10 for each factor, with 10 representing the most abusive. Then we added them together to arrive at an overall “Index of Employer Delinquency”. The top (or perhaps bottom) ten for London[1] are shown below.

Top Sectors in London Index of Employer Delinquency
1 Creative, arts and entertainment activities
2 Food and beverage service activities
3 Other personal service activities
4 Sports activities and amusement and recreation activities
5 Libraries, archives, museums and other cultural activities
6 Other professional, scientific and technical activities
7 Education
8 Advertising and market research
9 Repair of computers and personal and household goods
10 Security and investigation activities

 

In one sense the overall outcome is probably unsurprising for those who are familiar with employment practices in Britain today. The Index shows service sectors predominating amongst those showing the highest tendency to abuse employment rights.

Pride of place, if that term can be applied in this context went to “Creative, arts and entertainment activities”, where substantial low paid self-employment exists alongside frequent failure to provide paid holidays (these two categories are unlikely to occur in the same individual cases, since the holiday question is posed only to those identifying themselves as employees).

Next, and perhaps most significantly in numerical terms, is “Food and beverage service activities” – restaurants, cafes and bars in other words. Here we see the use of ZHCs assume greater significance than low paid self-employment. Then we have “other personal services” (such as hairdressing and nail salon) and another cultural area – sports and entertainments, followed closely by museums and libraries, which has been the scene of several long-running industrial disputes over attacks on conditions and cuts in services (for example at the National Gallery and Barnet libraries).

The case studies for our next phase of research will be selected from this list, and we will be looking for a balance between large and small employers, and for types of worker (by gender, migration status and age). Suggestions are always welcome.

A more detailed description of and justification for our index can be found on the full paper here: Unpaid Britain project – developing a selection grid for case studies.

 

 

 

[1] Agriculture and mining and quarrying, which both score relatively highly in national data are not significant in the London labour market, and have been left off the list for the purposes of this project.

Unpaid wages to unpaid benefits

When does a job count as ‘work’? This question is pressing across the EU (which at time of writing includes the UK and will do so whatever the result on Thursday 23rd for some time to come)[1]. While free movement across EU member states is the right of most EU citizens, the right of residence for longer than three months is for self-sufficient (i.e. wealthy) people and for workers and their family members. The EU citizen is paradigmatically a worker citizen. According to the EU a person must be in ‘genuine and effective’ work, but the question of what constitutes genuine and effective work is largely settled at a national level. In the UK from 1 March 2014 one of the tests for work being genuine and effective was that earnings exceed the national insurance threshold for 3 months, or £153 a week. Notably this was, at the time, considerably more than the wages of apprentices, raising the question of whether their work is considered ‘genuine and effective’. Given European Economic Area  (EEA) nationals’ concentration in low-waged jobs in sectors such as hotel and catering, cleaning, agriculture and social and childcare, where zero-hours contracts, agency and temporary working are rife, this kind of threshold is likely to prove challenging. It also means that unpaid wages become unpaid benefits. EEA migrants who lose their jobs can claim Job Seekers Allowance (JSA) as a worker only if they have been in ‘genuine and effective’ work for the three months before making their claim. If they have not been paid enough money to count as workers then they will not be eligible.

The welfare consequences of this definition are perverse even following the government’s logic.  An EEA national who passes the test to count as a worker for the purposes of claiming JSA can claim for a maximum of 6 months before being required to pass a Genuine Prospect of Work Test. To pass this, they must provide ‘compelling evidence’ that that they will receive an offer ‘imminently’ for work of a type that is considered ‘genuine and effective’. To be eligible for benefit an EEA national must have a genuine chance of finding genuine and effective work in the labour market sector that is relevant to their previous experiences. In contrast, as the guidance for JSA decision makers on sanctions makes clear, resident UK nationals must be prepared to do any work, irrespective of whether it is genuine and effective, or whether it is in a sector that is of interest to them. Indeed citizens are finding welfare rights they took for granted increasingly circumscribed. There has been an increase in the use of sanctions for failure to comply with work-related conditions. In written evidence submitted to the House of Commons Work and Pensions committee inquiry into benefit sanctions policy, David Webster found that the total number of sanctions issued to people claiming JSA and Employment Support Allowance (ESA) before reconsiderations/appeals in the year to June 2014 was an estimated 1,030,000. That is not a typo. In the summary of his evidence, Webster described the system as ‘a huge secret penal system, rivalling in its severity the mainstream judicial system but without the latter’s safeguards’. For someone who works on immigration this is eerily familiar territory.

Prime Minister Cameron has often referred to immigration and welfare benefits as ‘two sides of the same coin. It is difficult to see both sides of a coin at the same time, but as the EU referendum has demonstrated, we badly need to connect exclusions from formal citizenship (migration) with exclusions within formal citizenship (unemployment, exploitation, and other forms of marginalisation).  The urgency of this political project is palpable.

 

 

 

 

[1] This article was written on the 21/06/2016 this was before the EU referendum vote took place.

The delinquent employers’ dilemma: settle or dissolve?

Employment rights in the news

Last week two very interesting (from Unpaid Britain’s perspective) stories hit the headlines. In the first, Mike Ashley, owner of Sports Direct, admitted that 15 minutes of pay was deducted from workers who arrived at work even a minute late. This is a high-profile example of the low-level “gaming” of employment contracts which Unpaid Britain is studying.  The second story saw former Chelsea FC doctor Eva Carneiro  accept a settlement from Chelsea shortly before she was due to testify to an Employment Tribunal (ET). The latter story illustrates a particular phenomenon which we have been examining, as this blog will attempt to explain.

The Employment Tribunal

Since March 2016 we have been analysing Employment Tribunal cases brought before London and Watford tribunal offices for unauthorised deductions from wages. This has so far involved a two week stint at the Bury St Edmunds employment tribunal registry. Even though employment tribunal judgements are public records they can only be accessed via terminals located in the basement of Bury St Edmunds county court. There, surrounded by disintegrating boxes containing paper copies of ET judgements, we went about selecting a random sample of judgments from London for the years 2012 and 2014 (before and after the introduction of fees). Details (parties, jurisdictions, general outcome) of the judgements had to be copied from an old computer screen onto our laptops (no digital downloads!). Then we had to find and scan the paper copies of the judgements. This was a lengthy task; many copies of the judgement are mis-filed and some are absent.

ET computers  ET roling Stacks

Companies House

Back at Middlesex, we reviewed the Companies House databases for the respondent companies named in the judgements. We sought to identify the company’s status, sector and identity of their directors. Companies House has two database systems, of which Beta is the more detailed. However many of the companies don’t appear on it especially if they had been dissolved a few years previously, so a constant transition between Beta and the second (WebCheck) is required.

Half way through this process we decided to examine our findings so far, and they suggest something very interesting about employers who settle.

Preliminary Findings[1]

What is interesting is the marked difference between the status of companies for the different outcomes of claims. Where the case has been “dismissed on withdrawal”, dismissed on settlement (as in the Carneiro case) or fails at a hearing the company is most likely to be still active. Where there is a default judgement (usually occurring when the respondent i.e. the company doesn’t respond to the claim or appear at the Tribunal) or the workers’ claim was successful the company is most likely to be dissolved through insolvency or other means.  What does this reveal regarding these companies intention, or the prospects of workers recovering their wages?

Dismissal on Withdrawal

21% of outcomes out of our preliminary sample were “dismissed on withdrawal”, meaning the “claimant informs the Tribunal through writing or in the course of a hearing that the claim or part of the claim is withdrawn”, following which the Tribunal issues a judgement ruling that the claim is dismissed. This leaves the actual outcome in terms of whether the worker was successful in getting their money unknown.  A case might be settled informally, or in cases such as that of Eva Carneiro a settlement was reached during proceedings and be classified as dismissed on withdrawal. Members from the Unpaid Britain project’s Advisory group call this type of settlement “napkin cases”, when a settlement is agreed and in some cases scribbled onto a napkin just before or during a hearing. However a dismissal on withdrawal could also occur where the claimant no longer wanted to pursue the case, (for reasons such as stress or feeling that the claim might not succeed).

Settlement

Where settlements take place, it may be assumed that the worker received  at least some of their money, but judgements stating that a settlement has occurred are the smallest group amongst our sample. We had many more cases classified as “dismissed on withdrawal”, and  wanted to investigate the likelihood that these had  been withdrawn due to a settlement occurring (this had been suggested to us by legal advisors). To do this we chose to compare the status of respondent companies where we know a settlement has occurred with that of those in cases withdrawn on dismissal. We found the Companies House status of respondents in cases dismissed on settlement to be very similar to those dismissed on withdrawal, with around 80% of companies still being active.  This is in contrast to the profile of other groups of respondents.

Default Judgements and successes

Looking at cases that were Default Judgements the majority of companies appear to have been dissolved, with only a small minority still active. This may not be that surprising: if they are about to be or are already insolvent, employers may be unable or reluctant to defend the case. However where the claim was heard and succeeded (the most common outcome) the majority of respondent companies are now either dissolved or insolvent – only around 30% are still active. Research done by the Department for Business Innovation and Skills  in 2013 found that only 32% of claimants whose unpaid wage claims were successful were paid in full. Larger companies were more likely than small ones to pay awards, and this may be explained by widespread use of insolvency and limited liability to evade payment.

Failed claims

In cases which were heard, but the claim failed, our preliminary findings show that 94% of respondent companies are still active.

What the findings suggest

These findings suggest to us that the majority of cases that are “dismissed on withdrawal” are actually settled before or during the hearing.

One further hypothesis is that if an employer expects to pay the money to their workers they are likely to settle before the hearing, only going ahead with a hearing where they are confident of winning. Settling reduces litigation costs for employers, especially if the unpaid wages claim is linked to other claims such unfair dismissal or discrimination.  Cases classified as being dismissed on withdrawal leave no evidence of guilt of non-payment. This enables the employer to maintain their image both in terms of brand as well as to other employees. Thus systematic non-payment of wages can carry on unnoticed/unchallenged.

Where employers have no intention of paying, however, they may simply fail to defend, leading to a default judgement, or go to a hearing and use insolvency and limited liability to protect directors from any personal cost. It could also be that losing the ET case pushes the company into insolvency, but given that most unpaid wages claims are for few hundred pounds, this could only apply in a minority of cases.

Although we still have a lot of work to do to understand the phenomenon of non-payment and employment tribunal claims, these preliminary findings are consistent with there being a group of employers who “game” the system with apparent impunity.

For the time being we will keep you all updated. Any comments on this blog or our research are as always greatly appreciated.

 

 

 

 

[1] The preliminary findings are based on 205 cases including unpaid wage claims, predominantly made in 2012, and for which the respondent company’s identity has been located at  Companies House. The most common outcome in these cases is that the case has been “dismissed upon withdrawal”.