The Employment Rights Bill (‘ERB’) is making its way through the House of Lords and is set to deliver the most significant set of employment laws in a generation. A key part of the reform agenda includes changes to the labour market enforcement system, including the establishment of a Single Enforcement Body (to be called the Fair Work Agency) to enforce worker’s rights.
In this article, we set out what’s coming and consider whether the proposed changes to enforcement will lead to a fundamental shift in the way employment rights are enforced.
Background to reforms
Currently, most employment rights are enforced by individuals by bringing a claim against their employer in an employment tribunal. However, the parties are first required to explore early conciliation through the Advisory, Conciliation and Arbitration Service (‘ACAS’).
Only a handful of (mainly pay-related) rights can be enforced by the state on behalf of workers. These are concentrated in a few areas to provide additional support for more vulnerable workers in the workplace. There are enforcement bodies that regulate these rights, summarised below.
| Current Enforcement Body | Area of Enforcement |
| HM Revenue and Customs (‘HMRC’) | National minimum wage |
| Gangmasters and Labour Abuse Authority (‘GLAA’) | Labour exploitation and modern slavery, and the gangmasters licensing scheme |
| Employment Agency Standards Inspectorate (‘EAS’) | Employment agencies and employment businesses |
| HM Revenue Customs Statutory Payments Dispute Team | Statutory payments (including statutory sick pay and maternity pay) |
| Director of Labour Market Enforcement (‘DLME’) | This was stablished to set the strategic direction for the core employment rights enforcement bodies and provides a joined-up approach for HMRC National Minimum Wage enforcement, the EAS and GLAA above. |
Reviews over the past decade, such as the Taylor Review, and the previous Conservative Government’s proposals in its Good Work Plan consultation back in 2019, have argued that enforcement plays a “fundamental role” in ensuring workers receive their rights, but that enforcement “must be clear, fair and efficient for both workers and employers” and “deliver a level playing field”.
The current state enforcement framework has been criticised for being heavily fragmented and inefficient, and the previous Conservative Government committed to the creation of a new single labour market enforcement body, which never came to fruition.
Background to reforms
With this backdrop, it is no surprise that a key pillar of Labour’s Plan to Make Work Pay focusses on not only updating and extending rights at work but also reforming the labour market enforcement system. The Plan proposes reforms to “level the playing field” for employers “who do right by their workers and ensure that those who don’t no longer have the leeway to treat their workers poorly”.
Accordingly, the Plan to Make Work Pay commits to several key enforcement changes, including to:
- Establish a Single Enforcement Body, with trade union and TUC representation, to enforce workers’ rights
- Further digitise the employment tribunal process
- Increase the time limits for brining employment tribunal claims from three months to six months
- Make it easier for workers to raise workplace grievances to enable employees to “collectively raise grievances”
- Implement a Regulatory Enforcement Unit for equal pay
In this article, we examine in how the establishment of a new single labour market enforcement body will affect the enforcement landscape.
Establishing the single enforcement body
The ERB paves the way for the establishment of a single labour market enforcement body. It gives the Secretary of State certain new powers to enforce employment rights and the ability to delegate most of those functions to a public authority and to appoint enforcement officers. The Government has confirmed that the public authority will be known as the ‘Fair Work Agency’ (‘FWA’) and will be established as an executive agency of the Department for Business and Trade. This official fact sheet explains that as the FWA will not have its own distinct legal identity, the ERB works by giving the Secretary of State a series of functions, which will in practice be (mostly) discharged through the FWA once it has been established.
The FWA will bring together the existing enforcement functions set out in ‘background’ above, but significantly also introduces new enforcement powers and functions. The GLAA and the DLME will also be abolished.
In addition, the ERB requires the Secretary of State to establish an Advisory Board for the purposes of providing advice to the FWA on the enforcement of labour market legislation. The Advisory Board will be made up of people to represent the interests of trade unions and employers and independent experts.
We discuss in more detail below the intended remit of the FWA and the powers that will be conferred to it.
What laws will the FWA enforce?
The ERB sets out that the FWA will enforce certain relevant labour market legislation listed in a Schedule to the ERB. Notably for employers, this includes:
- Current enforcement areas carried out by different agencies, including: national minimum wage and statutory sick pay; employment agencies and employment businesses; the unpaid employment tribunal award penalty scheme; labour exploitation (gang masters) and modern slavery.
- New areas of enforcement, including: the enforcement of holiday pay and annual leave, the new obligation to keep records for annual leave, and certain offences of fraud under the Fraud Act 2006 when committed in relation to a worker or work-seeker.
It also gives powers for the current scheduled list of relevant labour market legislation to be expanded in the future to include other relevant labour market legislation not currently within scope of the FWA’s powers. This fact sheet indicates that the FWA is intended to take on enforcement of a wider range of rights over time.
What powers will the FWA have?
The ERB will give the FWA broad enforcement powers, which include the powers of existing enforcement bodies and significant new powers introduced during the ERB’s passage through Parliament.
Key powers include:
- General powers: The FWA will be able to require any individual to attend meetings and answer questions or provide documents or information if it believes that the person is able to provide information necessary for any enforcement purpose. In addition, enforcement officers will have the power to enter premises (including dwellings subject to a warrant) to exercise certain powers including to inspect or examine documents, to require the production of documents, and to have access to any computer for any enforcement purpose.
- Issue enforcement undertakings and apply for orders: If the FWA believes a person has committed, or is committing a labour market enforcement offence, the FWA may request a labour market enforcement (‘LME’) undertaking from a person to comply with any measures (i.e. prohibition, restriction or requirement) if the FWA considers that the measure is just and reasonable and one of certain specified conditions are satisfied. The FWA can also apply to the court for an LME order to ensure compliance with any such measures set out in an LME undertaking. Non-compliance by a person (or by corporate bodies, partnerships, etc) with an LME order, providing false information or intentionally obstructing a person exercising an enforcement function is a criminal offence (which can on lead to imprisonment, a fine or both).
- Issue notices of underpayment: In a recent amendment to the ERB, the FWA will also have the power to issue notices of underpayment (in a similar way to the existing enforcement regime for the National Minimum Wage). The FWA will be able to issue an underpayment notice to remedy a failure to pay certain payments under relevant labour market enforcement legislation (which we explain above) which includes National Minimum Wage, statutory sick pay and, most notably, holiday pay. The notice will specify the amount payable by the liable employer to the individual(s) within 28 days of the notice. The notice can cover underpayments going back six years from the date the notice is given, but a notice cannot include any underpayment from before the date the ERB is passed into law. In addition to the sums due, the notice of underpayment must also impose a penalty, to go into the Government’s Consolidated Fund, of 200% of the sum payable in the notice (up to a maximum of £20,000 per individual and a minimum of £100 – though these amounts can be increased or decreased by regulations). Early payment is incentivised as the penalty can be reduced where payment is made within 14 days of the notice.
- Bring proceedings on a worker’s behalf: Where a worker has the right to bring employment tribunal proceedings in England and Wales, or Scotland, and it appears to the FWA that a worker is not going to bring those proceedings, then the FWA may bring proceedings in place of the worker. Notably, it seems that this power extends to any employment tribunal proceedings and not just proceedings in respect of the more limited relevant labour market legislation set out above.
- Provide or arrange for legal advice, legal representation, or assistance: Although the ERB as currently drafted indicates that this will not be an enforcement function to be given or delegated to the FWA, the ERB also introduces powers for the Secretary of State to provide or arrange for legal advice, legal representation, or other form of assistance to someone party to any civil proceedings that are related to “employment or trade union law or the law of labour relations”. Where such assistance has been provided and that person becomes entitled to costs (such as via a cost award in the relevant tribunal or court or by agreement), then the Secretary of State’s expenditure in providing assistance can be recouped by the Secretary of State from the party liable to pay those costs (such as the employer).
- Recover the costs incurred by the FWA: The ERB provides that regulations can be made requiring a person to pay a charge as a means of recovering enforcement costs incurred in connection with the exercise of any enforcement function in relation to the person.
How will this change the enforcement landscape for employers?
The Government considers that the FWA will drive positive changes to the labour market in the UK – addressing both improving compliance and increasing enforcement.
The published impact assessment for this reform argues that creating the FWA will:
- Increase accessibility as a single point of contact for both employers and employees
- Provide a strong recognisable brand so people know where to go for help
- Better support businesses
- Pool intelligence and effective use of resources
- Take coordinated action with new powers and sanctions
In addition, the Government has argued that these changes will improve compliance. It suggests it will level the playing field for compliant businesses, and that the FWA will be a ‘one stop shop’ for help and resource for employers to help provide clarity on employment rights. A ‘one stop shop’ for employment guidance and support could help employers who currently have difficulty navigating a fragmented and complicated system and could help improve overall compliance with key employment laws.
However, the ERB extends enforcement powers to new areas of law that have not been enforced at a state level before and gives new ways for employment law to be enforced. Accordingly, there is an emphasis on addressing non-compliance further and punishing those who fail to follow the law.
An example is the inclusion of holiday pay within the enforcement remit of the FWA. The FWA will be able to issue notices of underpayment in respect of holiday pay to employers who have miscalculated holiday pay or have misclassified workers/employees as self-employed contractors and so have failed to pay holiday pay at all. The FWA could exercise these new powers to require employers to put right underpayments of holiday pay for groups of workers, in addition to imposing hefty penalties on those employers. A penalty is mandatory if a notice of underpayment is given and there is no discretion to change the level of the penalty – it will be 200% every time (with a minimum of £100 and maximum of £20,000 per individual – unless those figures are amended by regulations in the future).
This is significant because holiday pay is so difficult to get right – even where employers are genuinely trying to do the right thing, given how complex holiday pay rules have becomes due to changes over time from both legislation and case law. Unpaid holiday pay is also one of the biggest risks associated with worker misclassification (which is also a very complex area of the law). Any existing non-compliance risks on both holiday pay and misclassification are therefore likely to be magnified once the new powers enter into force and are exercised by the FWA, as it could proactively investigate and enforce rights to holiday pay without the need for an individual worker to bring a claim – and if those liabilities aren’t paid, they could issue a notice of underpayment with a mandatory penalty.
Across the reforms contained in the ERB, the Government appears to be pushing for an increased focus on collective action to monitor and resolve employment disputes, moving the onus of enforcing employment rights from the individual.
For example, new state powers to step into the position of the worker to bring employment tribunal proceedings on a worker’s behalf in respect of any employment tribunal proceedings coupled with the powers to provide legal assistance is a significant shift to the current system of the enforcement of individual rights and remedies. This could see the FWA become involved in bringing test cases or group litigation to remedy what it sees as widespread abuses of employment rights. However, it seems likely that these powers would be utilised only for the most significant cases that have strategic importance beyond their individual facts – in a similar way that the Equality and Human Rights Commission intervenes in certain cases currently. This is particularly so given the resourcing, costs and potential counterchallenges against the exercise of this power. It would be far more likely that the power to issue notices of underpayment would be utilised more often, where possible to do so.
It is also important to look at the reforms to enforcement together and not in isolation. For example, the increase in the time limits for bringing employment tribunal claims from three months to six months (which we previously wrote about here) and the potential future reforms to make it possible for workers to “collectively raise grievances” (which were mentioned in the Plan to Make Work Pay but have not formed part of the ERB). Collective bargaining is also threaded throughout many of the reforms in the ERB, including on fire and rehire and zero hours contracts – not to mention the reforms to union rights and collective action. Taken in the round, these reforms suggest the Government wants to encourage a transformation of the labour landscape from an emphasis on the individual enforcement of workers’ rights to proactive state enforcement of certain fundamental rights on behalf of workers and collective enforcement routes. Essentially a shift from a system of market freedom and de-regulation to collective industrial relations and regulation.
Clearly, the FWA and new state powers could have a big impact on how employers will need to navigate their employment law risks. However, one big unknown is how well-resourced the FWA will be – especially as it is generally understood that the current enforcement bodies are under-resourced. So, without investment, these expansive new powers may have limited practical impact for most employers. Although, the recent additions enabling the FWA to recoup its costs in taking enforcement action from liable parties may provide a useful source of ongoing funding (and may even encourage the FWA to take more enforcement action).
We will continue to monitor the reforms to employment law via our Reform Hub.
