House of Commons - Trade and Industry

Select Committee on Trade and Industry Written Evidence

APPENDIX 4

Memorandum by Citizens Advice

INTRODUCTION

1. This paper sets out the submission by Citizens Advice to the inquiry by the Trade and Industry Committee into UK Employment Regulation, as announced on 7 May 2004.

2. Citizens Advice is the co-ordinating body for the 530 Citizens Advice Bureaux (CABx) in England, Wales and Northern Ireland. [8]As well as setting and monitoring standards for advice, training, equal opportunities and accessibility, Citizens Advice co-ordinates national social policy, media and parliamentary work.

3. In 2002-03, these 530 CABx dealt with 560,153 employment-related advice enquiries. Whilst a significant number of these advice enquiries were made by employers, the vast majority were made by workers. And we estimate that in at least 60% of these cases the worker concerned was not receiving—or was being deliberately denied—one or more of his or her statutory workplace rights. Typically, he or she was low skilled and low paid, and working in a small, non-unionised workplace (or was previously so engaged, prior to the dismissal that led him or her to seek advice from the CAB).

4. Early in the life of the current Government, the then Secretary of State for Trade and Industry said: "in a modern economy, we need a flexible labour market. In return, employers have a responsibility to give their workers the flexibility they need. Flexibility to balance work, family and other commitments".[9] Citizens Advice has no remit to comment on the stated "need" for a flexible labour market. The focus of this submission is on how the Government's strategy for making a reality of the second part of this statement—that is, of ensuring "work-life" balance for all, through the establishment of "a framework of decent workplace standards"—is failing to benefit many of the hundreds of thousands of low paid, non-unionised workers in care homes, hairdressers, bars, restaurants and hotels, shops, food processing factories, cleaning companies, and other low-skilled or "service" jobs in which, according to many economic analysts, there is likely to be further significant growth in coming years. [10]

THE PROBLEM

5. As noted above, CABx deal with some 550,000 employment-related advice enquiries every year. Some of these enquiries—made by both workers and employers—relate to the company mergers and other business changes that are inevitable in a dynamic economy operating under the influences of "globalisation" and new technologies. Others reflect the fact that disagreements between workers and their employers will and do happen, just as they do in other areas of life. But an estimated 60% or more of the worker enquiries are made by a worker who is not receiving—or is being deliberately denied—one or more of his or her statutory workplace rights.

— Tens of thousands are not receiving their full legal entitlement to four weeks' paid holiday per year, and/or have been forced or cajoled into "opting out" of the 48-hour limit on weekly working time.

— Many have been engaged on successive short, fixed-term contracts as a means of denying them continuity of employment—and thus other basic rights, such as legal protection from unfair dismissal.

— Tens of thousands of pregnant women have been denied time off for ante-natal care, or are experiencing difficulty in obtaining their full legal entitlement to maternity leave and pay. And a depressingly large number have been unfairly dismissed simply on account of their condition.

— Many have been denied Statutory Sick Pay when forced to take time off due to illness.

— Most have not received a written statement of their terms and conditions, and/or regular, itemised pay slips. This simply increases the difficulty they face in ensuring that their pay, terms and conditions are in accordance with their statutory rights.

6. These workers tend to have a poor understanding of their statutory rights, and little if any awareness of how to assert or enforce them. Most are low skilled and low paid, and are employed in small, non-unionised workplaces. [11]As a result, they are extremely vulnerable both to deliberate and malevolent abuse by a "rogue" or criminally exploitative employer, and to inadvertent non-compliance by a well-intentioned but overstretched or inadequately informed employer.

7. Many small employers, especially those in low-profitability sectors of the economy, simply lack the means and resources—dedicated human resources staff, for example—to keep fully abreast of their legal obligations to their workforce. Research commissioned by the DTI confirms that most small employers are "not confident about their knowledge of individual employment rights", due both to the common lack of "an in-house personnel function" and to the fact that many such employers deal with employment rights on "a need-to-know basis" only. [12]In short, the demands of running a small business in an increasingly competitive economic environment all too often lead to inadvertent non-compliance with statutory employment rights.

8. It is also clear that, in the words of the General Secretary of the TUC, Brendan Barber, "there are still too many bad employers who exploit their workers and offer the worst pay and conditions they can get away with".[13] To many of these (mostly small) employers, the basic statutory rights of their workers are simply constraints on "flexibility". Such malevolent non-compliance may well be the exception rather than the rule, but the number of workers affected is substantial. And the power of the market place can all too easily lead to a rapid downward spiral of wages, conditions, and workplace safety. This is especially true when the workers concerned are migrants—as the tragic deaths of 21 Chinese cockle-pickers in Morecambe Bay in February 2004 so dramatically illustrated. [14]

9. But it is not only workers who are losing out from this situation. Good employers lose out if their competitiveness is undercut by the bad, and especially so if "rogue" competitors can exploit their workers with impunity. As the former Cabinet minister, Nick Brown MP, has noted, "there is nothing more galling for an honest employer than finding that they are being undercut by others who are not obeying the law and, worse, finding that the law is not being enforced".[15] Focus groups of small businesses convened by MORI for the Small Business Service have indicated that many small businesses feel particularly disadvantaged by having to compete with "rogue" or unscrupulous employers in the "informal economy", where many of those who seek employment-related advice from a CAB are working. [16]

10. Similarly, the Government loses out from the non-payment (by "rogue" employers) of tax and national insurance contributions, and from the frustration of its wider policy goal of a better work-life balance for all workers. And the increasingly widespread exploitation of migrant workers, associated as it so often is with the facilitation of illegal entry and employment, threatens to undermine the Government's "managed migration" strategy of opening new routes for the legal migration of labour whilst tacking illegal migration and illegal working.

CURRENT ENFORCEMENT OF WORKPLACE RIGHTS

11. CABx work hard to increase both workers' awareness of their statutory (and contractual) workplace rights, and employers' understanding of their legal obligations to their workforce—for example, by distributing copies of the DTI's authoritative booklets and leaflets on statutory employment rights. [17]And they can assist workers who are not receiving one or more of their statutory (or contractual) workplace rights to approach and—where necessary—negotiate with their employer, with a view to reaching an amicably agreed improvement in the worker's pay, terms or conditions.

12. However, where the employer proves to be uncaring or intransigent, the principal (and in most cases only) means of enforcement available is the making of a claim to an Employment Tribunal. Again, CABx can and do provide advice on and assistance with the making of such a claim, and in some cases can provide representation at the Tribunal hearing itself. [18]But the process is unduly legalistic and adversarial, and thus extremely daunting—especially to pregnant women, new parents, people with mental health problems, and other vulnerable individuals. Every year, about one-third of all ET claims are withdrawn by the claimant, with the most common reason given for such withdrawal being "stress".[19] And unpublished research by the Department for Constitutional Affairs indicates that, after relationship breakdown, the resolution of an employment problem is the "justiciable event" with the greatest personal (ie non-economic) impact on the individual concerned. [20]

13. For most low paid workers, the cost of legal representation at an Employment Tribunal hearing is prohibitive—there is no "legal aid", and the resources of CABx and other sources of free representation are extremely limited. Increasingly, claimants face intimidation from some employers' legal representatives, in the form of unjustified threats of a counter claim for "costs" of up to £10,000. [21]And, even where a claim is successfully pursued to its conclusion, a favourable ruling and the making of a monetary award by the Tribunal may prove to be a hollow victory. Some employers simply fail to pay awards—which Employment Tribunals themselves have no powers to enforce—and the legal, financial and other obstacles to enforcement through the civil courts are immense. [22]

14. Moreover, for many workers, the legal protection supposedly offered by this system is in any case rendered meaningless by their fear of being victimised or even dismissed just for making a claim to an Employment Tribunal. In particular, working parents, carers and those who—on account of their age, skills or disability—face the greatest challenge in finding alternative employment are often unwilling to put their job at risk by "going to law". As the former government minister, John Denham MP, has noted recently:

15. Citizens Advice has repeatedly suggested that, for such workers, there needs to be available, in addition to the Employment Tribunal system, a more accessible and pro-active system of enforcement that does not rely on individuals entering into such stressful, costly and damaging legal confrontation with their employer (or former employer). [24]

PRO-ACTIVE ENFORCEMENT—THE NATIONAL MINIMUM WAGE

16. In fact, in relation to just one statutory employment right—the right to the National Minimum Wage—such an accessible and pro-active enforcement mechanism already exists.

17. The introduction of the National Minimum Wage (NMW), in 1999, was accompanied by the establishment of a dedicated NMW enforcement agency within the Inland Revenue. The agency operates a national NMW Helpline, investigates complaints (including anonymous complaints) from both individual workers and third parties, and conducts unannounced, on-site inspections of carefully targeted employers about whom no complaints have been made to check that they are meeting their obligations in relation to the NMW.

18. The Government has stated that it established this accessible and pro-active enforcement regime for the NMW because it did not want workers "to have to rely on taking action against their employer themselves, as intimidation or fear of losing their job could prevent a worker from making a complaint [to an Employment Tribunal]". [25]And, despite its very limited brief and resources, there is broad support for the Government's view that the work of the Inland Revenue enforcement agency in enforcing the NMW has been "a great success".[26] Since 1999, the enforcement agency has dealt with more than 13,000 complaints, has revealed non-compliance with the NMW by more than 9,000 employers, and has identified more than £15 million in arrears of wages. [27]

19. A key feature of this approach to enforcement is that it tackles non-compliance by employers without individual workers having to put their job at risk by "going to law". Since 1999, about 60% of all the NMW enforcement agency's investigations have been instigated on the basis of "risk assessment" of tax credit information gathered by the Inland Revenue or other analysis, rather than as the result of a complaint from a worker or third party.

20. And, of course, a key benefit is that, acting at the level of the employer rather than the individual worker, it is capable of improving the lot of every worker in a workplace. In the experience of CABx, a worker who is not receiving his or her full legal entitlement to paid holiday, for example, is also likely not to have received a written statement of his or her terms and conditions. And it is likely that many if not all of his or her co-workers are being similarly treated.

21. But perhaps the most important lesson that can be drawn from the work of the NMW enforcement agency since 1999 is that, because much non-compliance by employers is inadvertent, rather than deliberately exploitative, the mere intervention of the agency is in most cases sufficient to achieve full and willing compliance. In other words, most "enforcement" is of a "soft touch" nature.

22. Citizens Advice has consistently argued that this accessible and pro-active approach to compliance should be extended to some of the other statutory workplace rights, including most of the basic "work-life balance" rights introduced or enhanced since 1997. [28]Equipped with equivalent powers of investigation and enforcement as the NMW enforcement agency, a "Fair Employment Commission"—whether it be a single, over-arching body or a number of separate bodies working together in a co-ordinated, joined-up way—could work to maximise employer compliance, eliminate the exploitation and intimidation of the most vulnerable workers, and thus ensure that all workers are both properly rewarded for their work and able to achieve an effective work-life balance. For, as Dr Howard Stoate MP has noted, "improving the quality of work experience of the working population of this country is a goal every bit as important as the goal of full employment".[29]

23. Much as with the NMW enforcement agency, the key functions of the "Fair Employment Commission" would be to:

— investigate complaints (including anonymous complaints) from both workers and third parties about non-compliance with certain basic, statutory employment rights;

— conduct on-site inspections of carefully selected employers, targeted on the basis of "risk assessment" analysis of tax, national insurance, tax credit or other information;

— provide guidance and, where necessary, practical assistance to non-compliant employers on how to change their practice to ensure compliance with their statutory obligations to their workforce; and

— where necessary, undertake effective enforcement action. This might include, as appropriate, the imposition of financial penalties, the referral of a case or cases to an Employment Tribunal, and/or the imposition of a "stop now" order preventing the employer from trading his or her business. Such enforcement, which would generally be necessary only in the case of "rogue" or criminally exploitative employers, might well be undertaken by separate teams of officials (the "back office") to those undertaking on-site inspections (the "front office").

24. As noted above, much non-compliance stems from a basic lack of awareness of the statutory employment provisions. The work of the "Fair Employment Commission" could therefore include the undertaking of publicity campaigns aimed at increasing both employers' awareness of their statutory duties and workers' awareness of their rights and entitlements. And it could include the provision of information, "good practice" guidance and advice to both workers and employers through written material, telephone helplines, and Internet websites.

25. In doing so, the "Fair Employment Commission" would "join up" the work of this nature currently undertaken by the Department of Trade and Industry, the Inland Revenue, the Advisory, Conciliation and Arbitration Service (ACAS), the Small Business Service, the Health and Safety Executive (HSE), the various equality commissions, and others. As noted above, the "Fair Employment Commission" need not be a single, overarching body. It could well be a partnership of new and existing bodies, working together in a co-ordinated, joined-up way.

26. In this context, Citizens Advice warmly welcomes the launch, in May 2004, of the one-stop Business Link website, providing a single point of access to government information and support for business. [30]As well as providing access to government grants, loans and consultancy support, the site provides easy-to-use guidance on the basic statutory employment regulations and how to comply with them, to the mutual benefit of the business and its workforce.

27. At the same time, the "Fair Employment Commission" could work to educate both workers and employers about those workplace practices for which enforcement—whether by an arm of the Commission itself or through the Employment Tribunal system—is not so appropriate. For example, changing attitudes to child-care responsibilities and "flexible" working arguably depends as much on increasing awareness of the productivity and other benefits to business of such "work-life balance" policies, and ultimately on changing workplace culture, as it does on actual enforcement of legal rights.

28. Such a "Fair Employment Commission" could not cover all statutory employment rights (let alone contractual rights), and so would sit alongside and complement the Employment Tribunal system, rather than replace it. For, whilst the accessible and pro-active approach to compliance of a "Fair Employment Commission" would obviate the need for many workers to take their case to an Employment Tribunal, and would provide an alternative remedy for those who are unwilling or afraid to "go to law", it would still be necessary and appropriate for many disputed cases—for example, those involving alleged breaches of contractual as well as statutory rights, or allegations of discrimination—to be resolved by an Employment Tribunal (or, in some cases, the civil courts). But with the basic, statutory "work-life balance" rights, at least, the Employment Tribunal system could become a genuine remedy of last resort, with the Commission providing the first line of (light touch) enforcement.

29. A "Fair Employment Commission" would in no way involve the imposition of more "red tape" on business. Fully compliant employers could expect to have no dealings with such a Commission. For the pro-active investigative work of such a Commission would be carefully targeted at those (mostly small) employers considered, on the basis of "risk assessment" analysis of tax, national insurance, tax credit and other information, likely to be breaching their statutory obligations to their workforce. And only those employers that are clearly in breach of their legal obligations, yet do not respond positively to the intervention of the Commission, would have any reason to fear enforcement action.

THE CHALLENGE, AND THE PRIZE

30. The creation of such a "Fair Employment Commission"—whether in the form of a single, over-arching body with a range of complementary functions, or as a network of new and existing bodies working together in a co-ordinated, joined-up way—would clearly be a significant and long-term undertaking. As a first step, therefore, we believe that the Government establish a Task Force on Fair Employment, led by a senior Minister with specific responsibility for both employment rights and business support. The Task Force could then oversee consultation on the precise role, remit, functions and structure of a "Fair Employment Commission".

31. We recognise that this represents a major challenge for Government. The necessary funding is unlikely to be found within one departmental budget—so, ultimately, the Government will need to commit new resources. But the potential prize—for workers, employers, trade unions and government alike—is great: making the current compliance and best practice of most employers the standard practice of all.

32. Workers—and especially low paid workers employed in small, non-unionised workplaces—would benefit from enhanced access to their statutory employment rights, and thus from a better "work-life balance". Employers—large and small—would benefit from the creation of a more level playing field, without risk of being unfairly undercut by an unscrupulous or criminally exploitative competitor, and from the availability of more practical, and better co-ordinated, business support services. The trade union movement would benefit from the extension of the culture of enforceable rights, in which trade union membership is more likely to flourish, to many of the currently non-unionised workplaces. [31]The Government would benefit from the resultant reduction in the potential burden on the Employment Tribunal system, and from increased tax and national insurance revenue. And society as a whole would benefit from the more likely success of the Government's strategies in respect of a flexible labour market, work-life balance, and managed migration.

June 2004