compensation compromise agreements public sector pay redundancy

local authority spending and the spiralling cost of the agency carousel

Liverpool_council_chamberIn September last year I wrote about the problem of what have been described as “revolving door managers” in the NHS. Settlement payments have amounted to a shocking £1.6 billion, often paid to employees who were re-employed in virtually the same or similar jobs with weeks or months. Faced with a problem on such a massive scale the Government proposed arrangements for clawbacks in the event of re-engagement. However, I and others pointed out that a direct intervention to alter contractual rights would be fraught with difficulties and no doubt susceptible to frequent legal challenges. The problem remains unresolved.

In the meantime it seems that the contagion has spread to local authorities, but on a scale perhaps even greater than in the NHS. According to research carried out by The Times (£) local authorities have spent an eye-watering £5 billion in rehiring staff they recently made redundant in a “scandalous…spending spree on agency and consultancy workers”.

The spending is all the more surprising since it comes at a time when councils have seen their budgets cut by £20 billion. It seems that the response to losing 400,000 permanent or other salaried staff has been to replace them with agency workers and consultants. In some sectors, for example social workers, the same person who used to work for the council secures higher paid work in the private sector, perhaps as a self-employed consultant, and then sells those services to the council, in effect to do the same work as before.

The newspaper conducted its research by making a series of freedom of information requests to local authorities. The results revealed that the worst offenders were Birmingham (£155 million in the last five years), Essex (£133 million), Kent (£127 million) and the London Boroughs of Lambeth (£125 million) and Camden (£125 million). Locally, Lancashire was the biggest spender (£51.2m), followed by Manchester (£48.3m), Liverpool (£29.7m), Cheshire East (£29.4m), Wirral (£18.9m) and St Helens (£16.2m).

However, what is the alternative? If councils are required to make savings then, as with any business, by far the biggest expense is the wage bill. The problem is that, as any accountant will tell you, moving an expense item from one column to another (e.g. permanent staff to consultants or agency staff) delivers no saving at all. The situation can get even worse if, for example, the only available service providers (e.g. for social care) cost a good deal more than direct employees. No-one can blame the agencies for charging as much as they can get away with.

holiday pay redundancy

big payouts

Cadburys Dairy MilkIn November 2014 I warned that employers should get ready for backdated holiday claims, particularly from those who are now entitled to include average overtime when calculating the rate payable.

The Government’s response was to attempt to limit the effect on employers by introducing the Deductions from Wages (Limitation) Regulations 2014. The Regulations are intended to restrict employers’ exposure to backdated claims by limiting the period of claim to two years before presentation of the claim and by confirming that the right to paid holiday is not automatically incorporated as a term in employment contracts. However, of course, this does not displace the entitlement to paid holidays under the Working Time Regulations.

Further, the Regulations only apply to claims lodged after 1 July so there is a window of opportunity for employees.

Of the UK workforce of 30.8 million, five million do voluntary or compulsory overtime. The scope for claims and increased payments going forward is therefore considerable.

In mid-January John Lewis and Waitrose staff were informed that they will share £22 million in additional payments this year to provide for the increased entitlements. 60,000 employees will share “bonus” (i.e. backdated) payments in February amounting to £10 million and the ongoing cost for the employer will be £12 million per year. However, there is a catch. The cost of the payments is likely to result in the reduction of a profit-related bonus which is due in March.

Tracey Killen, the partnership’s director of personnel said:

The John Lewis Partnership has acted promptly to change its pay practices in response to the EAT ruling. We believe our approach is a fair and practical outcome for our partners in light of this decision.

Meanwhile, a voluntary redundancy deal agreed with workers at Cadbury’s Bournville plant has in resulted payouts which average £100,000 per employee.

compensation employment tribunal decisions employment tribunals

Government minister attacks “scandal” of non-payment of tribunal awards

Baroness_Neville-RolfeBusiness minister Baroness Neville-Rolfe has described as scandalous the fact that so few tribunal awards are paid promptly by employers. However, perhaps she should have looked to her own Government before criticising others.

The Small Business, Enterprise and Employment Bill includes provisions that employers who do not pay awards when they are due will receive a warning notice from an enforcement officer. Continued failure to pay will lead to a penalty of 50% of the award. There will be further penalties for repeated non-payments.

Speaking in the House of Lords on 26 January during the Bill’s latest committee stage she said:

I believe we share the same aim—that of ensuring the best outcomes for individuals who have been through an employment tribunal, and ensuring that they receive their awards. Our research indicates that, without enforcement, only 40% of awards are paid within six months. That is clearly scandalous. Our financial penalty clause is intended to incentivise prompt payment of employment tribunal awards and to prevent employers ignoring judgments by employment tribunals. It applies to all tribunals, awards and settlements conciliated by ACAS. Employers who have not paid the award will receive a warning notice from the enforcement officer. By paying the award in full, promptly, they will avoid a penalty. However, if they do not pay in full, they will be hit with a penalty of 50% of the award. If they continue not to pay, or to pay only part of the award, they can receive further penalties, each of 50% of the unpaid amount, as well as incurring interest on the outstanding award. We consider that encouraging prompt payment in this way is an effective way of dealing with a problem that we agree exists.

As I reported last September the problem is endemic, not just in terms of the delay in paying awards but in paying them at all. Research shows that 49% of successful claimants receive payment in full, 16% receive a part payment and 35% receive nothing at all. A key problem which is not addressed by the Government’s latest proposals is the number of respondents that cease trading, leaving claimants as unsecured creditors. In our relatively relaxed corporate regime it is fairly easy for such businesses to unload their creditors and carry on, particularly by the use of pre-pack administrations.

However the Government would do well to consider its own tardiness in making payments following successful claims. In February 2013 the Supreme Court delivered its judgment in the case of O’Brien v Ministry of Justice confirming that fee paid tribunal judges are entitled to pension payments. The entitlement to receive payments was confirmed in the Employment Tribunals in January 2014 and again in the Employment Appeal Tribunal in March 2014. Although inviting judges to submit details of their claims in March 2014, many remain entirely unpaid. Perhaps the Ministry of Justice should be issuing penalties against itself!