Another Coalition miss from the penalty spot?

With the Department for Business, Innovation & Skills (BIS) having recently confirmed that it is set to commence section 150 of the Small Business, Enterprise and Employment Act 2015 – which provides for the imposition of financial penalties on respondent employers who fail to pay an employment tribunal award – from April this year, now seems a good time to take another look at how things are going with the not unrelated provisions in section 16 of the Enterprise & Regulatory Reform Act 2013. Since coming into force in April 2014, those provisions have empowered employment judges to impose a financial penalty of up to £5,000 on an employer found to have breached the claimant’s rights in a way that “has one or more aggravating features.”

Last summer, I noted on the Hard Labour blog that, as of 8 June 2015, just three such penalties had been imposed, of which only one had been paidAnd I reiterated my belief that the most likely explanation for this tiny number is that

the hefty, upfront tribunal fees introduced by the Ministry of Injustice in July 2013 have eradicated exactly the kind of tribunal claim that [former business secretary] Vince Cable [and former BIS employment relations ministers] Ed Davey and Norman Lamb evidently had in mind when they came up with the section 16 penalty regime: a relatively low value claim (because the claimant is or was low paid) against a deliberately exploitative employer. For why would a vulnerable, low-paid worker subjected to ‘wage theft’ of a few hundred pounds gamble up to £390 on trying to extract the unpaid wages or holiday pay from their rogue (former) employer?

At this point, it’s worth noting that in September last year, there were just 748 claims for unpaid wages, down from a monthly average of 4,940 in the year before the introduction of fees in July 2013 – a fall of 85 per cent.

Well, another eight months have passed, and BIS has now confirmed, in response to a written parliamentary question by Caroline Lucas MP, that a mere 11 penalties have been imposed to date, of which only four have actually been paid. In relation to the seven unpaid penalties, “enforcement action is currently being considered”. Well, woo hoo.

So, what does this tell us? Well, it suggests we shouldn’t always listen to vested interests when they spout dire warnings about the likely impact of draft legislation. Back in 2012, the British Chamber of Commerce attacked the section 16 provisions as “a fundamentally anti-growth measure” that could “result in a more risk-averse attitude to employing people, particularly amongst SMEs”, while the TUC thundered that the provisions would “generate extensive satellite litigation” and “prolong remedies hearings”. Oof.

It also suggests – as if we didn’t know already – that we should take what BIS and other government departments say in their regulatory impact assessments with a heaped tablespoon of salt. In late 2011, BIS suggested in its final impact assessment that the section 16 provisions would generate a nice little income of £2.8m a year. So, the provisions should by now have netted HM Treasury some £5.1m. Yet the actual income of just £20,000 at most (4 x the maximum penalty of £5,000) probably doesn’t even cover the cost to BIS of preparing that meaningless impact assessment in 2011, let alone the time and effort seemingly wasted by MPs and peers on scrutiny of the provisions in Parliament in 2012 and 2013.

As recently as March 2015, BIS predicted that the section 150 penalties now set to come into force in April will generate a more modest annual income for HM Treasury of £0.1m. But with ET fees having slashed the number of tribunal awards that can go unpaid, thereby generating a s150 penalty, even that little trickle of dosh must now be in doubt.

Well played, Vince, well played.

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About wonkypolicywonk

@wonkypolicywonk is a policy minion who has been lucky enough to work at Maternity Action, Working Families, Citizens Advice, the National Audit Office, the Law Society, and Amnesty International UK. He currently bangs his head on a desk in Parliament.
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