Written submission from TUC (ERB0101)

TUC submission on labour market enforcement

Labour market enforcement – TUC submission

The Employment Rights Bill will create a new Fair Work Agency, in line with the commitment in the government’s Plan to Make Work Pay to “establish a Single Enforcement Body, with trade union and TUC representation, to ensure greater coordination in the face of complex enforcement challenges. This body will have the powers it needs to undertake targeted and proactive enforcement work and bring civil proceedings upholding employment rights.”

This submission sets out how the current fragmented labour market enforcement system is failing working people and highlights the benefits that a new Fair Work Agency could bring. We also detail important principles that should underpin the new enforcement system.

Widespread exploitation in the labour market

The deterioration of the current labour market enforcement system is evident and it is no longer fit for purpose. In addition, attempts to coordinate the enforcement bodies and to introduce a coherent enforcement strategy, with the introduction of a Director of Labour Market Enforcement in 2017, have failed. Longstanding exploitation of workers is not improving:

• Minimum wage is one area where there is strong evidence of non-compliance. Using the Annual Survey of Hours and Earnings and the Labour Force Survey, the Low Pay Commission estimates that one in five workers receiving the National Living Wage /National Minimum Wage (NMW) were not provided with the correct pay in 2022.[1]
• A recent report on enforcement by the Resolution Foundation pointed out that 1.8 million workers reported that they did not receive a payslip.[2]
• Labour market intermediaries, such as umbrella companies, which skim the wages of workers, are not regulated by any enforcement bodies and are left to flourish at the expense of workers.
• Workers are missing out on £3.1bn of paid leave each year and over a million workers are getting no paid leave at all.[3] Enforcement bodies do not recover unpaid statutory holiday pay for workers, even where they investigate the underpayment of NMW. Fundamental reforms are needed. The government’s proposal for a Single Enforcement Body represents an opportunity to make systemic changes to the labour market enforcement system and deal with some of the longstanding problems.

Problems with the current fragmented system

• There are multiple problems with the currently fragmented system. The remits of the enforcement bodies are too narrow and too many rights simply are not enforced:
• The Employment Agency Standards Inspectorate focuses solely on recruitment agencies compliance with the Conduct Regulations. However, it fails to address two key unlawful employment practices that affect agency workers. The EAS does not enforce the Agency Worker Regulations, which are in place to ensure agency workers receive the same core terms and conditions as the permanent workers they work alongside. It also fails to regulate umbrella companies that make unlawful deductions from agency worker’s wages.
• PCS members involved in labour market enforcement have repeatedly raised concerns that when HMRC NMW enforcement officers enforce the NMW they can’t address holiday pay underpayment at the same time.
• One of the consequences of having a fragmented system is that emerging trends of exploitation fall between the cracks, with enforcement bodies claiming the exploitation does not fall within their remit. Umbrella company exploitation is a prime example of this.[4] Fragmentation also causes confusion for workers.
• The Information Commissioner’s Office deals with GDPR breaches and misuse of worker data. The Equality and Human Rights Commission deals with discriminatory workplace practices. The Statutory Disputes Team in HMRC deals with unpaid sick pay. The HMRC National Minimum Wage enforcement unit is responsible for making sure workers receive at least the National Minimum Wage. The Employment Agency Standards Inspectorate ensures that recruitment agencies adhere to a very narrow set of conduct standards. The Gangmasters and Labour Abuse Authority (GLAA) deals with severe exploitation (modern slavery) and ensures that labour providers in a small number of exploitative sectors adhere to a set of licensing standards. The Health and Safety Executive deals with health and safety in the workplace. And local authorities also have a role in enforcing health and safety and accommodation standards for migrant workers. This is an unnecessarily complex system for a worker to navigate.
• Furthermore, these enforcement bodies are overseen by six government departments. This scuppers joint working: breaches uncovered by one enforcement body will not necessarily be passed onto other enforcement bodies. It also means that enforcement bodies are subject to different political priorities influencing the shape of their work. This can be seen by joint investigations carried out by immigration enforcement and the GLAA, both falling under the remit of the Home Office.
• Each enforcement body also has different enforcement approaches, with different powers and sanctions at their disposal. Many consider that EAS operates a lighter touch enforcement approach, whilst the GLAA has a more effective range of powers, having a right to enter premises in some circumstances. The result of this is that some workers can expect a more robust enforcement approach than others.
• With the exception of the HSE, trade union officials are not formally represented on the governance structures of the enforcement bodies. Meaningful consultation with trade unions is minimal. Instead of being able to formally shape the enforcement strategies that would protect workers, enforcement bodies view unions as a conduit for gathering information about non-compliance in the labour market.
• The Director of Labour Market Enforcement has a statutory duty to deliver an annual strategy that sets out how labour market enforcement functions should be exercised. However, this coordinating role has failed. Unions have begun to disengage from the annual consultation process because repeated submissions containing evidence of labour market exploitation have not been acted on. The Low Pay Commission has just announced that 371,000 workers are still being underpaid the NMW in April 2024.[5] Using available data and key benchmarks it’s clear that enforcement is not effective.
• Insufficient or reduced resource are also a significant problem for enforcement bodies. GLAA expects its funding to be reduced in 2024-25 by at least five per cent.[6] The TUC has long argued that EAS has insufficient resources to carry out its statutory functions, let alone tackle the substantive issues that agency workers face. EAS employs approximately 20 inspectors to regulate approximately 1 million agency workers. There is a shortfall of labour market inspectors in the labour market enforcement system, meaning the UK doesn’t meet international benchmarks set by the ILO.
• Vulnerable migrant workers are being failed by the enforcement system. A recent report[7] by the Independent Chief Inspector of Borders and Immigration highlighted the institutional indifference to worker exploitation, in their report into seasonal migrant worker exploitation: “Home Office compliance officers identified “significant [welfare] issues”:
• “Reports included summaries of interviews in which some workers told compliance officers that they were treated poorly, discriminated against on the basis of nationality, had received incorrect pay, were living in damp, poor-quality and unsafe accommodation, or had been obstructed from accessing healthcare. At best, reports were fed back to scheme operators months later. At worst, they were not fed back at all. The Home Office stated that no further action could be taken because it did not seek evidence to corroborate the allegations made, and that all allegations had to be investigated thoroughly before action could be taken. No allegations were investigated by the Home Office, by scheme operators, or by other government organisations. Often, by the time the scheme operators received the reports, the workers who had raised the allegations had already left the UK, meaning it was difficult for scheme operators to investigate, or give farms or growers the opportunity to respond.”

Key opportunities for a single enforcement body

A Fair Work Agency could bring significant benefits to the current enforcement system. These include:

• Better data sharing between different departments of the new single enforcement body. The existing barriers that prevent data being shared with external organisations would no longer exist.
• Tripartite governance structures, ensuring trade unions can help shape enforcement strategies.
• Scope for incremental expansion (in line with an increase in resources) in the single enforcement body’s remit so it could enforce wider workplace rights, such as holiday pay and regulating umbrella companies.
• A labour market inspector would be able to deal with multiple breaches of employment rights in the course of one investigation. Currently they can only deal with issues that fall within their remit and have to refer the other issues on.
• Potential for the remit of the body to be brought entirely under the direction of the Department for Business and Trade rather than the Home Office, which doesn’t prioritise dealing with labour rights abuses.
• The opportunity to reorientate state enforcement towards proactive investigations as well as reactive responses.
• Ensuring that state enforcement better meets the needs of marginalised groups, such as migrant workers.
• The introduction of more effective and robust penalties.
• The ability of third parties such as trade unions to bring complaints to the body and have them acted on.

Specific recommendations for the Fair Work Agency

1)      There should be a roadmap to significantly increased overall funding for the relevant enforcement bodies. It’s vital that the new Fair Work Agency has sufficient resources. The existing enforcement bodies are under resourced and do not have enough inspectors. The International Labour Organisation (ILO) benchmark for inspectors, which it recommends all countries meet, is one labour market inspector per 10,000 workers. Unique TUC analysis of labour market enforcement statistics shows that the UK would need an additional 1,797 labour market inspectors to meet the ILO benchmark.

2)      There should be a firewall between immigration enforcement and the labour market enforcement bodies. Without this, many migrant workers will be reticent about sharing information with state enforcement bodies. Currently, there are close working relationships between employment rights enforcement agencies and immigration enforcement. Intelligence sharing and joint investigations are commonplace. This is counterproductive as there is clear evidence[8] that workers are deterred from making complaints as they fear being referred to immigration enforcement. Joint working should cease and a firewall between immigration enforcement and employment rights enforcement agencies should be established. The TUC was alarmed to hear that the Citizens Advice Bureau is no longer willing to share information with the enforcement bodies because enforcement bodies are unable to give sufficient guarantees that the data won’t be shared with immigration enforcement.

3)      A statutory framework should be put in place to require information sharing and collaboration between the FWA and the EHRC and HSE. A common register should also be established for all employers inspected that is available to the FWA, EHRC and HSE.

4)      The TUC welcomes the creation of an advisory board to provide independent advice and guidance to the new Fair Work Agency. We believe that the Fair Work Agency should have a management board based on “model 2” of the relevant Cabinet Office guidance.[9] This would allow for “independent, expert advice and challenge to the Chief Executive on the performance and management of the agency”. It’s vital that trade unions have a meaningful voice in the new agency, so worker voice can help shape and direct enforcement strategies. This would allow unions to bring their experience of the workplace into discussions about the activities of the FWA.

5)      There should be a comprehensive statutory code of practice setting out how the new enforcement officers can use the powers and sanctions at their disposal. This would improve transparency and help stakeholders better understand operational parameters.

6)      Migrant workers have not been protected adequately by the existing enforcement bodies (please see joint SWIG submission to DLME). Labour market enforcement functions relating to migrant workers should be brought within the Fair Work Agency.

7)      Third party complaints should be facilitated. There should be greater sharing of information with trade union reps who handle complaints to an enforcement agency, on behalf of their members or workers. Unions have flagged up that reporting non-compliance could be made easier if there was greater scope to involve trade union reps. Union reps play a key role supporting exploited workers and give trade union members confidence and assistance in making sure their employment rights are upheld. Union officers and representatives suggest that when they make complaints on behalf of workers or support complaints, they only receive a short line by email stating that the matter will be passed to someone and investigated. Further attempts to get an update from the enforcement agencies are thwarted by their duty of confidentiality, meaning they are unable to share any further information with the officer or representative. Union officers and reps also report that they do not receive any basic report on the conclusion of any investigation. This is unsatisfactory as many workers/members will be relying on their union rep/officer to support them and their complaint. Lack of feedback on third-party complaints is discouraging union officers from bringing information forward, as they feel that it simply vanishes. It would be helpful if the agencies could at least give some basic information to union officers and representatives, like key steps taken, and certainly a brief report on the outcome when the investigation/case is concluded. Personal data could be protected by giving general information, especially to the union which has reported it, which may be in a position to help further or provide more information. Unions could play a big part in assisting these agencies, and they would be much more disposed to do so if they can see that their complaints lead to action and good outcomes. The TUC believes that the 2016 LPC recommendation for a third-party compliant protocol should be implemented at the earliest opportunity: “We recommend that the government establishes a formal public protocol for HMRC to handle third party whistleblowing and on breaches of the NMW, which should include arrangements from giving all possible feedback to relevant third parties and appropriate continuing involvement in any resulting casework.”

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