The Risk of the Wage-Work Bargain

March 2016

According to Secretary of State for Business Sajid Javid, “the idea of employers paying a fair day’s wage in return for a fair day’s work has been the basis of our economic system for generations” (BIS & Home Office 2016), no doubt expressing a widely held view. Similarly, the contract of employment has been said to channel “the risks of economic security in such a way as to protect the individual worker…” (Deakin & Wilkinson, 2005, p. 109). And while considerable attention has been given by scholars to the circumstances in which the right to be paid for work might be qualified or defeated (such as absence, partial or defective performance, for example), Napier’s (1984) conclusion that the “residual rule continues to be that the actual performance of services is a condition precedent of the payment of wages”, in general, is still held to be true.

And yet millions of workers find that having carried out the work, their wage is not forthcoming, either in its entirety, or at all. It seems that far from being fair and secure, the exchange of labour power for wages may prove to be a risky enterprise.

For example, China Labour Bulletin reported mass protests in China in the run up to the lunar New Year on the 8th of February, caused in the main by “chronic wage arrears”. It revealed that of 1,050 strikes recorded between December and February, 90% were related to wage arrears, and no longer confined predominantly to the construction industry, were spreading across other sectors.

Meanwhile, Human Rights Watch (2015) reported that two years after Rana Plaza disaster in Bangladesh, and despite legislation being put in place many garment workers (alongside other abuses) fail to receive their full wage, or are paid late.

For those tempted to think that this is a phenomenon associated with labour markets in newly industrialised economies, consider the substantial body of scholarship and campaigning over “wage theft” in the United States. A 2008 study of low paid workers in three cities found 26% of them to be paid below the minimum wage, and over three quarters who worked overtime to be paid below the legally required overtime rate. Researchers estimated that the workers lost over $2600 per year to pay violations (Bernhardt et al, 2009). Kim Bobo, meanwhile in her book ‘Wage Theft’ (2011), described the phenomenon occurring across different industries all around the US, featuring abuses such as total non-payment, payments to supervisors and bouncing pay-cheques.

Similar experiences can be found in Britain. The BBC’s Inside Out programme recently reported on security staff employed at the Olympic Games who remained unpaid four years later. It revealed that 11 stewards were owed between £1,000 and £1,800 each, but because of subcontracting arrangements and the dissolution of their employer Britannia Security Services Ltd have been unable to secure their outstanding wages.  While the UK labour market is arguably less regulated than that of the USA (perhaps surprisingly), and so there are fewer rights to violate, the limited official sources of data reveal tens of thousands of cases of non-payment per year.  What the BBC saw as remarkable, may turn out to be commonplace.

Take those who are unpaid when their employer becomes insolvent. Freedom of Information (FOI) requests by Unpaid Britain to the Insolvency Service have determined that about 40,000 workers per year are paid out from the National Insurance Fund for arrears in wages or unpaid holiday pay (frequently for both). At the height of the recession the numbers approached 100,000 per year.

Another indicator is claims made to Employment Tribunals (ETs). Figures published by HM Courts and Tribunals Service (HMCTS) show that in 2014/15, 28,000 claims were lodged for “unauthorised deductions from wages” – which generally equates to unpaid wages. There were a further 31,000 under the working time regulations, most of which will relate to unpaid holiday entitlement. While some of these figures (10,000 according to HMCTS) relate to group submissions which may reflect a litigation strategy rather than specific individual cases of non- payment), the data will under-count claims including unpaid wages, by counting each claim only once. So an unfair dismissal claim will be counted under that “jurisdiction” only, even if there are also claims for unpaid wages and holiday pay (this appears quite common according to our preliminary examination of Employment Tribunal judgements). It is almost certain that taking into account claims with more than one issue at dispute, unpaid wages is the issue most frequently raised in ETs.

However, these figures report on the picture after the 2013 introduction of fees for ET claims. This has led to an enormous drop in claims. In the HMCTS London Region, for example, there were 18,700 claims classified as “unauthorised deductions” (also known as Wages Act claims) in 2013 – the year in which fees were introduced. The following year there were only 2,200. Given that the success/failure ratio of claims has not significantly altered since fees were introduced, it is likely that many legitimate claimants have been deterred by fees[1]. Citizens Advice data on enquiries to their bureaux nationwide shows that the number related to problems with payment of wages is on fact rising year on year, with 9,000 cases of unauthorised deductions being dealt with in 2015 (up 84% on the previous year).

Even if these figures for non-payments due to insolvency, and wage and holiday pay claims to ETs accurately represented the extent of unpaid wages, it would suggest a significant problem. The total of about 100,000 puts the offence on the same level as “robbery”, as reported in the Crime Survey for England and Wales, which registered 106,000 cases in 2014. They are likely to represent only a minority of cases, however (as the Unpaid Britain project hopes to reveal) due to legal barriers, low levels of enforcement by regulators, workers’ reluctance to pursue some cases and ignorance of their rights (particularly regarding holiday pay).

Over the course of the next two years, we will be shining a light on this neglected, but fundamental, breach of employment rights.  We would welcome readers’ experience of this – whether it is of employers going bust, unpaid periods of “training”, holiday pay not being paid on leaving a job, or just a few hours work here and there remaining unpaid. On the other hand, there are reports of misunderstandings by workers as to what they should be paid, an what deductions are legitimate, and we want to hear of them too.

[1]Another possibility is that more cases are being resolved through ACAS – a hypothesis that we will address in a later blog.

References:

Bernhardt, A., Milkman, R., Theodore, N., Heckathorn, D.,  Auer, M., DeFilippis, J., González, A. L.,  Narro, V., Perelshteyn, J., Polson, D. & Spiller, M. (2009) Broken Laws, Unprotected Workers  http://www.unprotectedworkers.org/index.php/broken_laws/index

BIS & Home Office (2016) Tackling Exploitation in the Labour Market Government Response, Department for Business Innovation and Skills (January 2016) https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/491260/BIS-16-11-government-response-to-tackling-exploitation-in-the-labour-market.pdf

Bobo, K (2011) Wage Theft in America: Why Millions of Americans are not being paid-and what can we do about it, New York: New Press.

Deakin, S. & Wilkinson, F. (2005) The Law of the Labour Market, Oxford Monographs on Labour Law, Oxford University Press

Napier, B. (1984) Aspects of the Wage-Work Bargain Cambridge Law Journal, 43:2 pp 337-348