Unpaid Britain: wage default in the British labour market

Employers withholding billions of pounds from workers in Britain

At least 2 million workers in Britain are losing over £3 billion in unpaid holiday pay and wages a year say Middlesex University London researchers in the final Unpaid Britain report* released today (30/11) and funded by Trust for London.

The report, Unpaid Britain: wage default in the British labour market, will be launched at an event in Conway Hall, London from 9am to 1pm on Thursday, 30 November. Key speakers include representatives from Unite, the CBI and Trust for London.

According to the report not paying wages, withholding holiday pay or workers “losing” a couple of hours’ money a week are some of the methods employers are using in a deliberate strategy to boost their profits.

The research team, led by Nick Clark from Middlesex University, analysed employment tribunal judgement data, Labour Force and Family Resource surveys, case studies and interviews to reveal a Britain where millions of workers are systematically losing out on wages while employers rarely face penalties. Furthermore consequences for non-payment are so weak that they do not present a sufficient deterrent to employers with many continuing to reoffend.

Employers use a number of regular and systematic tactics to withhold money from workers, including:

  • Failing to pay accrued holiday pay on workers’ departure.
  • Workers regularly “losing” an hour or two per week in pay.
  • Employers disappearing while owing wages (known as “knocking” in the construction industry).
  • Employers dissolving a company which owes wages in order to start up afresh with a new company (“phoenixing”).
  • Dispute over the interpretation of contracts, for example the payment of travelling time for care workers.
  • Building up arrears in pay keeping workers in place when they might otherwise move on to other jobs, so the practice is effectively labour hoarding.
  • Charging workers for uniforms or other necessary items in order to be able to perform their duties.

Commenting on the report lead author, Nick Clark, said: “The Unpaid Britain project has taken over two years to complete and has revealed an ugly side to employee/employer relations in this country – a nation where the idea of a fair day’s wage for a fair day’s work is only an aspiration for so many workers.

“Well-known brands and employers routinely use underhand and unfair methods to withhold payment. One fashion retailer used to make staff repay the company for clothes they were obliged to wear at work. The fact that such practices are widespread can only mean that withholding wages in some form is a deliberate business model for many employers.  Interestingly employers who don’t pay national minimum wages often blame affordability and yet 90% of London employers on the list of national minimum wage offenders, far from resorting to insolvency, remain active.

“This final Unpaid Britain report provides evidence of wage default on an industrial scale. Current means of redress fail our key test in that workers often do not receive what they are owed, while employers can offend repeatedly. Both effective enforcement and stronger unions are needed to give confidence to workers that they do not have to accept this.”

Unpaid wages in the London labour market coincided with the increase of in-work poverty in the Capital. According to the latest London Poverty Profile, 58% of Londoners in poverty are actually in a working household, a proportion which is described as “an all-time high”. For workers in these circumstances, even small reductions in what is paid to them can have catastrophic consequences.

Commenting on Unpaid London, Bharat Mehta CBE, Chief Executive at the Trust for London, said:

“The fact that some employers are withholding wages is totally scandalous because quite simply, it is wrong, and because many of the employees who are missing out are low-paid and already struggling.

“The number of people who are in-work and in poverty is at an all-time high. Millions of people are working hard but still cannot make ends meet. An important part of the solution is making sure that workers are at least getting paid for the work that they do. That should be the minimum anyone in this country can expect. We need stronger action from HMRC and government on this issue.”

Key recommendations from the report include:

  • Making HMRC responsible for paying workers identified NMW arrears, and then collecting them from the employer.
  • Developing systems for informing student workers of their rights, and assisting them in their enforcement.
  • Requiring employers to deposit a financial bond or take out insurance to guarantee workers’ wages.
  • Introducing deterrent penalties for employers’ failure to provide paid holidays or payslips.
  • Stronger sanctions against directors considered to have deliberately failed to pay
  • Empower unions to take up cases on behalf of groups of workers (for example challenging sham self-employed contracts).

The Unpaid Britain project was established at Middlesex University Business School in September 2015 and is co-funded by the Trust for London.

-Ends-

Contacts:

Nick Clark: n.clark@mdx.ac.uk, 020 8411 4015, 07932 590282

Franca Tranza: Senior Media Officer (Research), f.tranza@mdx.ac.uk, 0208 411 4316 (out-of-hours diverted to mobile).

Navprit Rai: nrai@trustforlondon.org.uk or 07912 177 179

Notes to editors:

*Click here to access the full report and here to read the Executive Summary.

About Middlesex University London

For nearly 140 years Middlesex University (London) and its predecessor institutions have been home to innovators and change-makers. We are a progressive London university that puts our students first and provides expert teaching informed by inspiring research and practice.

We boast a diverse, multinational and multicultural community of 19,400 students and 1,900 staff from 140 different countries based at our modern north London campus. We also have campuses in Dubai, Mauritius and Malta, bringing our total number of students to 37,000. Middlesex University London generates more than £280 million a year for the Barnet economy, supporting some 3,800 local jobs.

We work with employers to make sure that what our students learn is what employers need, and we strive to transform the lives of our students so that they have an excellent experience while they are with us, and a solid foundation for inspiring careers when they leave us.

For more information go to www.mdx.ac.uk.

About Trust for London:

Trust for London is an independent charitable foundation. We aim to tackle poverty and inequality in London and we do this by: funding voluntary and charity groups – each year we make grants totalling around £7.5 million and at any one time we are supporting up to 400 organisations; funding independent research; and providing knowledge and expertise on London’s social issues to policymakers and journalists.

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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