Time to strengthen UK labour market enforcement

Whilst the UK Government has introduced some welcome reforms in area, such as Statutory Sick Pay, we need more fundamental reform to realise the ambition of Matthew Taylor’s report, the Taylor Review of Modern Working Practices, which emphasises the importance of enhanced enforcement in creating fair and decent work for all.

The CIPD’s new report Revamping labour market enforcement in the UK examines UK enforcement and makes recommendations to help achieve Taylor’s vision. If implemented, these reforms could also help to boost productivity – something that is greatly needed given the looming economic crisis. The report draws on a range of evidence, including the insights of experts and people professionals. It also looks further afield to the enforcement regimes in other countries to explore what approaches could inspire a more progressive enforcement framework in the UK.

The shortcoming of individual enforcement

The paper concludes that the ‘odds are stacked against people’ taking the individual route to enforce their employment rights through the employment tribunal system. For example, government-commissioned research found that in England and Wales, 34% of tribunal awards remained unpaid.

Whilst the Government has already announced several reforms to improve the situation, including the establishment of a naming scheme for employers who do not pay employment tribunal awards, these reforms don’t address all the fault lines in the system. Indeed, there is strong evidence that the vast majority of breaches of employment rights are never enforced via the individual route, and even when individuals do submit a claim to an employment tribunal, they are likely to face a significant delay before their case is heard. The latest employment tribunal statistics from the Ministry of Justice show that the average time it now takes for a single employment claim to be dealt with from point of claim is 38 weeks.

Some workers who have been treated unfairly by their employer now face waiting up to two years for legal redress due to the backlog of cases in the employment tribunal system – an issue that has become much worse during the pandemic, according to a June article in the Financial Times. Research by Citizens Advice raises similar concerns.

Stronger state enforcement needed

The evidence suggests that the state-based enforcement of employment rights also has considerable challenges and drawbacks, making it unable to compensate for the failings in the individual enforcement of employment rights.

A key issue is whether or not the enforcement bodies have sufficient inspectors and other resources to be proactive as well as deter employers from non-compliance. As an example, the Government’s Labour Market Enforcement Strategy 2018 to 2019 highlighted the fact that the average employer could expect an inspection on National Minimum Wage/National Living Wage enforcement around once every 500 years.

Growing recognition of the flaws in the current enforcement system has led to calls for a more integrated approach to state enforcement and significant structural change. To help improve state enforcement, the statutory role of the Director of Labour Market Enforcement was created in 2016 (a position now filled by Matthew Taylor), with the aim of producing an annual enforcement strategy to set the strategic direction of three key enforcement bodies: the GLAA, EAS and HMRC. This is a welcome step forward and in October 2020, the Government published its response to the Director’s Labour market enforcement strategy 2019 to 2020, which fully accepts the majority of recommendations and confirms it will proceed with the establishment of a Single Enforcement Body.

Setting up a Single Enforcement Body

Under its 2019 Good Work Plan, the Government launched a consultation on the creation of a single enforcement body (SEB), which would bring the three main enforcement bodies together as one organisation. Now that we know the Government intends to carry forward its plans, the question remains, what difference will a SEB make to enforcement?

In theory, A SEB would offer greater opportunities for a more holistic and joined-up enforcement approach. However, we query whether the lack of integration and coordination of the existing bodies is the major cause of the current problems with the UK’s dual enforcement framework. There are far more deep-seated issues at play, and the creation of a SEB poses potential risks, such as:

• the potential dilution of specialist expertise and knowledge in particular sectors and aspects of employment law
• the loss of focus on specific areas of enforcement
• the distraction of time and resources involved in the difficult task of forming the new body and loss of attention and resources on the core task of enforcing employment legislation
• increased rather than reduced bureaucracy and reduced overall enforcement budgets
• the risk of the enforcement body being drawn in too closely with the activities of the immigration authorities, which could dissuade individuals from raising breaches of employment rights if they were fearful of being at risk of deportation.

There are also opportunities in the creation of a SEB, such as:

• a more strategic, prioritised, efficient and focused approach to enforcement
• the strong message it would hopefully send to employers that compliance matters and that the risks of non-compliance for them are significant, including more focus on ‘bad’ employers across the entire spectrum of employment rights
• better coordination of good work and employment standards to help employers move above the minimum legal requirements
• the potential for greater prioritisation of compliance activity across Government, as well as across the economy
• the application of new enforcement powers, for example in supply chains
• improved information and support provision to employees and employers, raising awareness of employment rights, breaches to them and how these should be addressed by whom.

We support the aim, in establishing a SEB, to review enforcement across the full spectrum of non-compliance, from lack of good practice and minor breaches to very serious abuses. Its effectiveness would be dependent on a number of critical success factors such as:

• a clear purpose and strategy for the new body which should determine its structure
• sufficient resources including an increase in the number of inspectors to a minimum of one per 10,000 employees
• at least an equal emphasis on promoting awareness and good practice in employment as on detecting and punishing breaches of regulations
• addressing the lack of information and advice for employers and workers, particularly for SMEs and non-unionised and low paid employees
• strong political emphasis and influence to counter the possible reduced emphasis on employment rights and enforcement post-Brexit
• tailoring actions to suit stakeholder needs sector by sector
• a balance of strategic action at the centre in terms of political involvement and action on multinationals, international supply chains, migrant worker abuse etc; combined with local, on the ground, sharp end involvement with local employers SMEs etc;
• adequate funding for the new body for the long-term.

More far-reaching reform is needed

A key question is, will the creation of a SEB address all of the current problems with UK enforcement, or are other more fundamental changes required? Our report Revamping labour market enforcement in the UK considers whether a more progressive approach to enforcement, based on a much greater focus on supporting businesses, is needed. With this in mind, the report makes a number of other policy recommendations across a number of dimensions, including:

Strengthen state and individual enforcement

• Increase the number of labour market enforcement inspectors to one per 10,000 workers.
• The Government should take full responsibility for compensating employees and taking action against employers for non-payment of employment tribunal awards.
• The SEB should be adequately resourced and have the power to make decisions on a range of areas such as employment status where this is in dispute, with Acas tasked to mediate between parties where required.

Boost compliance and raise employment standards 

• Give Acas the resources to provide a free annual HR ‘MOT’ to small firms with fewer than 50 staff. This could potentially reduce their liability in any subsequent claim against them at an employment tribunal. However, this would need to be consulted on and developed.
• Invest £13m a year in England to provide high-quality HR support to small firms via the Local Enterprise Partnership/Growth Hub network to support efforts to improve compliance and boost job quality and workplace productivity at a local level.
• Amend the Employment Rights Act 1996 to enable CIPD qualified HR consultants to sign settlement agreements so as to increase the availability of professional advisers qualified to do this and to lower the cost for individuals.