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Labour market exploitation: crime and punishment


United Kingdom

This article examines the trend towards state enforcement of employment law rights, including the proposals to tackle abuse of vulnerable workers.

This article was previously published in the Employment Law Journal – November 2015.

The criminal law can encroach into employment territory in a number of ways. Obvious examples might include breaches of health and safety, national minimum wage (NMW) and anti-bribery legislation. But there are less obvious examples too. Hands up all those who knew that s165(2) of the Employment Rights Act 1996 criminalises an employer who fails, without reasonable excuse, to provide written particulars of a redundancy payment calculation? It is not enough for the employer merely to type the employee’s termination date, age, service and weekly pay into to calculate the statutory redundancy pay due. If the employer then provides only the answer and not the calculation to the employee, it could be liable on summary conviction to a fine not exceeding level 1 on the standard scale. And if the employee then requests a written statement under s165(3) and the employer fails to respond within the set notice period, it could face a fine under s165(4) not exceeding level 3 on the standard scale. For all those with your hands up, well done. Now leave them up if you know of any employer that has actually been prosecuted under these provisions. What, no hands?

Prosecutions under redundancy rules

There are probably numerous examples of unlikely offences for the uninformed that sit quietly overlooked on the statute book. Which is why it was somewhat surprising to hear recently that the Department for Business, Innovation and Skills (BIS) was bringing prosecutions under s194 of the Trade Union and Labour Relations (Consolidation) Act 1992 against City Link for alleged failures to comply with the obligation to notify the Secretary of State of proposed collective redundancies. It was even more surprising to hear that the prosecutions were being brought not only against the employer under s194(1) but also personally against the firm’s former managing director, finance director and a non-executive director under s194(3). This applies where an offence by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to neglect on the part of, any director, manager, secretary or other similar officer of the body corporate, or any person purporting to act in any such capacity. In such a case, that person, as well as the body corporate, is guilty of the offence and liable to be proceeded against and punished with an unlimited fine.

The City Link case involves a rather miserable run up to Christmas 2014. The company was placed into administration on 24 December 2014 and, as a result, over 2,000 people lost their jobs. The prosecution case was that the managing director, David Smith, the finance director, Robert Peto, and the non-executive director, Thomas Wright (who represented private equity firm Better Capital on the board of City Link) knew that redundancies were inevitable on 22 December 2014. However, the company administrator did not notify the Secretary of State until 26 December. All three directors were acquitted in mid-November of the charges against them. The judge ruled that no proposal was made on 22 December to make redundancies, and that the three defendants had every hope of saving City Link and the employment of its workforce by placing the company in administration.

In separate proceedings, criminal charges have been brought against Dave Forsey, the Sports Direct chief executive. He is alleged to have failed to make the appropriate notification in relation to 80 or so workers at a Scottish warehouse when USC, one of its retail arms, went into administration. Some of the affected workers were apparently dismissed with just 15 minutes’ notice and have since won compensation. We understand that Mr Forsey has pleaded not guilty to the criminal charge against him and his case has been adjourned until March 2016.

Growing state intervention

The above cases seem to be part of a trend towards greater state intervention in support of employment rights. For a long time it had seemed that the role of policing such rights had been entirely left up to individual employees and their representatives, with each right underpinned by an employment tribunal remedy. That model has been under severe strain with the introduction in recent years of employment tribunal fees. Signs of an emerging focus on state enforcement could be the first welcome news in some time for employees, with the added bonus of being good for those employers which play by the rules but suffer unfair competition from those that do not.

The last government was active in improving compliance with the NMW. It boasted that it increased the budget of the HM Revenue & Customs (HMRC) NMW enforcement team from £8.1m in 2010 to £13.2m in 2015/16; introduced new ‘naming and shaming’ penalties from 2013 for employers not paying the NMW; and increased the maximum penalty for under-payment of the NMW from £5,000 per employer to £20,000 per worker.

Further evidence of this emerging trend can be found in the Tackling exploitation in the labour market consultation published by BIS on 13 October 2015. The consultation remained open for comments to the extended date of 7 December 2015 and contained four main proposals:

  • to establish a statutory director of labour market enforcement, who will set priorities for existing enforcement bodies across the spectrum of non-compliance;
  • to create a new offence of aggravated breach of labour market legislation;
  • to increase intelligence and data sharing between the existing enforcement bodies and also other bodies to strengthen the targeting of enforcement; and
  • to widen the remit, strengthen the powers and change the name of the Gangmasters Licensing Authority (GLA) to enable it to tackle serious exploitation.

New director

Responsibility for enforcing various parts of the statutory employment rights framework falls to a number of public bodies. For example, the Health and Safety Executive (HSE), local authorities and other sectoral enforcement bodies enforce aspects of the Working Time Regulations 1998. The NMW is enforced by HMRC. Regulation of employment agencies and businesses is conducted by the Employment Agency Standards Inspectorate (EAS) and licensing of labour providers in the fresh produce supply chain by the GLA. Enforcement of immigration rules is the responsibility of the Home Office. Meanwhile, the National Crime Agency (NCA) tackles serious and organised crime more generally, including offences by those engaged in organised labour market exploitation. However, individual police forces (of which there are 43 in England and Wales) may also investigate instances of labour market exploitation, for example where individual workers are subject to intimidation or physical abuse. Devolution has made the picture even more fragmented.

To add to this framework, in November 2014 the first independent Anti-Slavery Commissioner (IASC) was appointed. The commissioner has a UK-wide remit to ensure that modern slavery issues (defined in Part 1 of the Modern Slavery Act 2015 as covering the offences of slavery, servitude, forced or compulsory labour and human trafficking) are tackled in a coordinated and effective manner.

The consultation questions the ability of the current regime to deal with all forms of forced labour and abuses of employment law or to protect the vulnerable and ‘local workers’ and responsible businesses affected by those prepared to exploit cheap labour. Enforcement officers report that over the last decade serious and organised crime gangs have been infiltrating legitimate labour supply chains across a number of sectors, and that the incidence of forced labour may be growing. The Syrian refugee crisis, combined with migration from West and East Africa, is fuelling the supply of vulnerable labour.

By creating a new, high-profile leadership position, the government aims to ensure the development of a single set of priorities across the enforcement bodies working to reduce labour market exploitation. The director of labour market enforcement, appointed by and reporting to the business secretary and home secretary, will set priorities for enforcement bodies across the spectrum, from payroll errors to criminal exploitation. Legislation to create this position is proposed in the Immigration Bill 2015-16.

The director’s remit will cover the whole labour market, both direct employment and labour providers. Their focus will be on labour market exploitation, as opposed to the IASC, which looks at all types of modern slavery. The idea is for the director to lead an ‘intelligence hub’. They will identify problems in the labour market, develop a strategic plan containing enforcement priorities, targets, budgets and funding, and submit this to the business secretary and home secretary. The director will draw intelligence not only from HMRC, the GLA and EAS, but also from Immigration Enforcement, the police, the NCA, HSE, local authorities and the voluntary sector. The plan will, however, keep sensitive material and tactical intelligence confidential for national security reasons. Once approved by ministers, the plan will be laid before Parliament and published.

The director’s duties will involve:

  • bringing together the heads of the enforcement bodies quarterly;
  • keeping the plan up to date and relevant;
  • reporting progress via an annual report to the business secretary and home secretary; and
  • assessing the plan’s success.

The director will also be able to submit formal reports to ministers on other issues, which will then be laid before Parliament and published. Further, they will encourage people to report infringements and exploitation. The proposals tentatively suggest the director could initiate a voluntary certification scheme, enabling businesses to examine and test procedures against indicators of vulnerability to labour exploitation. This could be a precursor to more regulation and it remains to be seen how this is addressed in the consultation responses.

The government says it wants to look beyond both unintentional error and deliberate non-compliance to criminal intent by businesses with exploitative models. Such businesses might be engaging in:

  • threats of violence or retribution against workers or their families;
  • intimidation;
  • deliberate and systematic withholding of wages or spurious deductions at a significant level; or
  • retaining workers’ documents.

The exploitation presenting the biggest threat involves workers who pay individuals or agencies in their home country for an opportunity to work in the UK. Such workers may build up debts that are later held against them and sometimes the groups organising their work retain their travel documents. They may also be placed in remote locations, leaving them isolated and with little or no access to the authorities. These kinds of workers are often low skilled or in short-term, seasonal roles. This puts them at greater risk of exploitation by rogue gangmasters, as their ability to integrate with those around them is restricted.

New criminal offence

The consultation identifies a gap between NMW criminal penalties and those for modern slavery offences. Unscrupulous employers whose offences against workers fall in between these two concepts are ineffectively dealt with.

Two options for a new offence are proposed. The first is a custodial penalty for employers that have committed an existing employment law offence within the remit of the director of labour market enforcement (many such offences are currently punishable only by a fine). This penalty would be imposed where:

  • the motivation for the offence (wholly or partly) was the deprivation of a person’s rights as a worker (for example their right not to have unlawful deductions made from their pay); or
  • the employer has exploited the worker in connection with the commission of the offence (for example threatening a worker to make them work for less than the NMW).

Secondly, in addition or as an alternative, the government would introduce a system of improvement notices (to be issued in civil proceedings but a breach of which would be criminal). An enforcement body could ask a court for an improvement notice after an employment law breach, which would require a business to take remedial steps within a specified period.

Data sharing

To improve the effectiveness and efficiency of enforcement action, the government suggests the development of an intelligence hub for exchanging data and intelligence between relevant enforcement bodies. This sounds like another major government IT project that sounds eminently sensible in a consultation but could be time consuming and costly to implement effectively in practice.

Broadening the GLA’s remit

The Modern Slavery Act contains a requirement to consult on the role of the GLA. The GLA’s current remit is limited to investigating licensing-related offences in regulated sectors (farming, food processing and shellfish gathering). The consultation proposes to increase the GLA’s remit, strengthen its powers and rename it, transforming it into an organisation that prevents serious exploitation across the whole labour market. The organisation would remain a non-departmental public body, operationally independent of the government but ultimately accountable to Home Office ministers.

The beefed-up GLA would help the director of labour market enforcement deliver their plan, work with business to provide training and develop codes of conduct, and use new, police-style powers to investigate suspected regulatory breaches and criminal offences within the director’s remit, including:

  • entering and searching premises, including to execute an arrest warrant for indictable offences under s17 of the Police and Criminal Evidence Act 1984 (PACE);
  • searching people at the time of arrest;
  • using reasonable force under PACE;
  • seizing and sifting evidence under s50 of the Criminal Justice and Police Act 2001; and
  • applying to the courts for harm prevention orders to restrict behaviour after the commission of a modern slavery offence.

The future

It will be interesting to see whether the proposals in the Tackling exploitation in the labour market consultation are implemented in full. Ensuring that the law is respected and that vulnerable workers are protected is in itself uncontroversial, so there seems little reason to believe that the consultation responses will be anything other than broadly supportive of the proposals. Unless the acquittal of the City Link three deters the authorities from pursuing criminal prosecutions, it looks as though the trend towards state enforcement will only increase. If so, employment lawyers and in-house counsel may need to dust off their copies of Archbold and consider how they would respond to an employer on the receiving end of a dawn raid.

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