By Ben Willmott, Head of Public Policy at the CIPD.

A new approach to labour market enforcement is required which places as much emphasis on supporting firms to comply with employment regulation as it does on enforcement action and financial penalties.

This is one of the central findings from a new policy paper from the CIPD, Revamping labour market enforcement, which explores the challenges of the existing approach to labour market enforcement in the UK and how to improve the system.

The need to improve labour market enforcement was highlighted by the Taylor Review of Modern Working Practices, which emphasised the importance of enhanced enforcement in creating fair and decent work for all.

This was followed by the creation of the Director of Labour Market Enforcement role and office in 2017 and the consultation in autumn 2019 on the creation of a single enforcement body (SEB) in the UK.

In advance of the government response to the consultation, Revamping labour market enforcement, is designed to inform the public policy debate and thinking about how to improve the effectiveness of labour market enforcement to protect people’s employment rights and enhance their job quality.

Why the current system is failing

The paper highlighted the fundamental failings of the existing twin track approach in the form of the individual enforcement of employment rights through the employment tribunal system; and state-based enforcement through a number of key enforcement bodies. These are:

• HM Revenue and Customs (HMRC)
• Gangmasters and Labour Abuse Authority (GLAA)
• Employment Agency Standards Inspectorate (EAS)
• Health and Safety Executive (HSE)
• Equality and Human Rights Commission (EHRC)

The employment tribunal system has certainly not improved since the Taylor Review concluded in 2017 that ‘[f]rom the decision to initiate action to receiving any financial award, individuals can find themselves having to fight hard every step of the way, even when they have been treated unfairly.

If anything, the system has deteriorated further since then, with a significant increase in waiting times for tribunal hearings, meaning that even before COVID-19 and lockdown, claimants had to wait an average of 38 weeks from lodging a claim to resolution, according to Ministry of Justice figures for Jan-March 2020.

Some workers treated unfairly by their employer now face waiting up to two years for legal redress, because a backlog of cases in the employment tribunal system has become much worse during the coronavirus lockdown, according to an article in the Financial Times published in June this year.

Even where individuals do prevail and win a case against their employer, the non-payment of tribunal awards is extremely common and existing forms of redress are not sufficient for individuals nor penalties for offenders. There is also strong evidence to suggest that only a very small proportion of individuals whose employment rights are breached ever go on to make an employment tribunal claim and receive any form of redress.

Unfortunately, the state-based system of enforcement is also significantly flawed. This is partly because the different enforcement bodies are hugely under-resourced (with the notable exception of HMRC) and fail to work together as effectively as they should. This led the Labour Market Enforcement Strategy 2019 to 2020 to conclude that overall ‘the current system is complex and fragmented and is clearly sub-optimal for workers needing employment protection.’ The paper cites evidence showing that the UK’s enforcement bodies are significantly under-resourced compared with international norms, with too few inspectors to proactively enforce employment rights.

Reforming the system

It is against this context that the Government launched its consultation into the creation of a single enforcement body, which our research suggests could potentially help improve the state-based enforcement of employment rights.

However, this would depend on the establishment at the outset of a clear purpose and strategy for the new body, which should determine its structure, as well as sufficient resources to enable it to both reactively and proactively enforce employment rights. An effective, new, labour market SEB would also need to play a stronger role in supporting the individual system of employment rights enforcement through the employment tribunal system.

Crucially, it would require at least an equal emphasis on promoting awareness and good practice in employment as on detecting and punishing breaches of regulations. This could be achieved with the provision of additional resources to Acas and to support local approaches to providing enhanced business support on people management issues to small firms. This, besides supporting much wider understanding and compliance with employment rights, would also help efforts to boost job quality and workplace productivity and meet the Government’s aspiration set out in the December 2019 Queen’s Speech “to protect and enhance workers’ rights as the UK leaves the EU”.

CIPD recommendations to improve labour market enforcement set out in the report:

Strengthen state and individual enforcement

• Introduce a well-resourced single enforcement body (SEB) as proposed in the Government’s consultation.
• Increase the number of labour market enforcement inspectors to one per 10,000 workers.
• The inspectorate function should be set the objective of ensuring 60% of inspections are proactive and 40% reactive, based on an assessment of highest-risk workplaces.
• 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.
• Introduce joint responsibility measures to help enforce employment rights in a supply chain.
• Government, working with organisations such as Acas, Citizens Advice, trade unions and professional bodies, should run a high-profile ‘know your rights’ campaign which would raise awareness and highlight where to go if people have concerns or want to make a complaint.

Boost compliance and raise employment standards:  

• Double Acas’s budget to boost its ability to advise small employers and individuals on people management, workplace conflict and employment rights.
• 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.
• Reinstate the ability for employment tribunals to make wider recommendations to employers to improve their people management practices, but this should cover all aspects of employment rights, not just equality issues.
• Invest £13 million 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. Provide consequential funding to Scotland, Wales and Northern Ireland to improve the availability of accessible HR support for small firms across the UK.
• 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.