December 05 2023
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Penalty clause

Penalty clause

I have previously suggested on the JusticeGap that one way to improve the shockingly low rate of compliance with employment tribunal (ET) awards might be to rework clause 13 of the Enterprise & Regulatory Reform Bill, so as to refocus the proposed financial penalties on those rogue employers who fail to pay an award. In short, a financial penalty could be automatically applied where – and only where – an award is not paid within a specified, reasonable period (42 days, say).

That would surely be acceptable to the employers’ bodies, such as the CBI, Federation of Small Businesses (FSB) and British Chambers of Commerce, that have expressed strong opposition to clause 13 as it stands – it cannot be in the interest of their law-abiding members that rogue employers can get away with non-payment of an award. And, if ministers believe their own rhetoric about how financial penalties, as currently proposed, would improve compliance with employment law more generally, they must surely accept that targeting the penalties on those employers who fail to pay an award would also incentivise compliance.

Furthermore, the incentive provided by such an automatic financial penalty could be bolstered by the introduction of a ‘naming and shaming’ scheme, with the names of companies on which a penalty has been imposed being published on a governmental website.  As the BIS employment relations minister, Norman Lamb MP, acknowledged during the Bill’s Committee stage debates, “the public ought to be aware of any existing employer that [has chosen] not to pay an award properly made by the tribunal”.

However, the introduction of such penalties might also provide the key to solving one of the thorniest issues in this area: what to do in the case of unpaid awards (and Acas settlements) that simply cannot be enforced by the High Court Enforcement Officers (HCEOs) under the ET & Acas Fast Track enforcement regime (or through the County Court system) because the employer in question has become insolvent or otherwise ceased trading.

According to Ministry of Justice figures for the Fast Track regime, in 2011-12 the debtor employer had become insolvent in 34% of the cases in which the HCEOs were unable to enforce the unpaid award or settlement, and could not be contacted in another 34%.  As the chief executive of one firm of HCEOs has noted here ‘if the employer company owing the [award] has gone into liquidation, or has otherwise ceased to trade, [then] there is nothing that we can do that can change that situation and make the money suddenly appear’.

Citizens Advice has previously suggested that, in such cases, the unpaid award or settlement should be recoverable from the National Insurance (NI) Fund, in the same way as unpaid statutory redundancy pay. But that suggestion was rejected by the otherwise supportive CBI, on the grounds that this would create ‘moral hazard’ – rogue employers might choose not to pay an award, simply because the state would then pick up the tab.

That argument has already lost some force, with the creation of the ET & Acas Fast Track regime in 2010.  But, if the automatic financial penalties that we now propose were at least equal to the value of the unpaid award, then with the imposition of such a penalty a rogue employer could not avoid an enduring financial liability – so there would be no ‘moral hazard’.  And abused workers would receive the money – and the justice – to which they are entitled.

What’s not to like?