National Minimum Wage v sleep-ins in the care sector

On Friday (13 July 2018), the Court of Appeal released a Judgment in the combined cases of Mencap & Shannon which removed that liability.

So, what happened and why? Have employees lost out? Have businesses been saved?

The original legislation

When the National Minimum Wage (NMW) legislation was created, over 20 years ago, it imposed a requirement on the Government to refer various matters to the Low Pay Commission. This included the “circumstances in which, times at which, or the time for which, a person is to be treated as, or as not, working…”

The Low Pay Commission recommended an exemption for “sleep-in” shifts, primarily used in the care industry where someone would sleep at a service in case they needed to deal with an emergency in the night. It recommended that employees should be paid the NMW for the time actually called upon to help/work, but otherwise should be paid a fixed fee for the sleep-in shift which should be agreed with each employer.

This was the common practice at the time, as employees were often paid a fixed £25-30, and so wasn’t a change of policy. They simply recommended that the practice remain in force.

The Government adopted the Low Pay Commission’s recommendations in full in the legislation. The exemption was included and the purpose of the exemption, for sleep-in shifts, was explained in the Government’s guidance.

So, at the outset, everyone knew what was happening.

Time

Over time, the reasoning behind the exemption began to be overlooked by both the Courts and the Government.

During the 20-year period, since creation of the legislation, an increasing number of employee-friendly rights were created. This changed the environment in which the legislation was viewed and led to some focusing on the wording of the legislation itself, ignoring the Low Pay Commission’s recommendations which stood behind them, and applying a different interpretation to the language of the exemption.

At least one Judge said it wouldn’t feel fair for an employee not to be paid the NWM when having to be on the employer’s premises.

Even the Government changed its guidance note, fundamentally changing the supposed purpose of the exemption, from someone sleeping in the care industry, to someone working in a pub who also got free accommodation above it. They’re not really the same are they?

This was despite the fact that the Low Pay Commission’s recommendations and the key part of the NMW legislation remained unchanged.

Case law

Ultimately, this shift in views led to a number of Courts considering the exemption, and applying interpretations in favour of employees. The cases were very fact sensitive, and so potentially distinguishable, creating some uncertainty. Until, the case of Royal Mencap Society v Tomlinson Blake, last year.

In Mencap, the Employment Appeal Tribunal reviewed all of the case law and held that the whole time a worker was on a sleep-in shift was working time for the purposes of the NMW and not just the time they were disturbed for an emergency.

It also held that a multifactorial evaluation was needed to determine whether a worker was working for the full sleep-in shift, including:

• Regulatory reasons for the employer to have a worker sleeping in (i.e. is it a legal requirement someone be present?);
• The level of restrictions on a worker’s activities during a sleep-in (i.e. would they be disciplined for leaving their post?);
• The degree of responsibility a worker had during a sleep-in shift in respect of the duties they would be expected to carry out; and
• The immediacy of the requirement to carry out duties in an emergency or incident.

Remember, the legislation had not changed. This was simply how a senior Judge believed it should be interpreted, and the guidance she believed should be followed. When doing so, she expressly stated that she was ignoring the Low Pay Commission’s recommendations completely.

Impact

The Judgment was estimated to cost Mencap £20m and the care sector over £400m, as thousands of employees could claim back-pay and businesses could face fines from HMRC, for breaching NMW legislation and reputational damage from being ‘named and shamed’ as not having paid the NMW.

Depending on your view it was either:

• Employees finally getting money to which they were entitled; or
• A devastating blow to an already under funded industry.

In July 2017 the Government announced it would temporarily waive all historic fines for not paying the NMW in the care sector for sleep-ins up to 26 July 2017. However, all underpayments to employees still had to be paid.

In November 2017 a new Social Care Compliance Scheme was introduced, which gave employers in the care sector, who signed up to the scheme, up to a year to identify how much was owed to their workers. At the end of the review the employers would then have up to three months to pay workers any arrears due.

So, while the Government limited the fines payable for not paying the NMW, it did nothing to limit the back-pay. This pending liability was threatening the future of a number of care businesses. It led to Care England and The Local Government Association intervening in the appeal of the case to make submissions to the Court.

Appeal

The Mencap case was appealed and on Friday the Court of Appeal released a Judgment upholding the appeal.

The Court of Appeal:

• Reviewed the Low Pay Commission’s recommendations in detail;
• Reviewed the exemption in the NMW Legislation, in light of those recommendations;
• Discussed all relevant case law; and
• Held that employees do not need to be paid the NMW for all of a sleep-in shift, only for the time when an employee is actually called-upon to work.

This reverts back to the Low Pay Commission’s recommendations and the original purpose of the exemption in the NMW legislation.

Comment

Is it the right decision? In my opinion: in law, yes; for care providers, yes. They just followed the agreed practice and earlier Government guidance.

But what about employees who have to sleep on site? The Government could still change the law and remove the exemption. However, that would require the legislation itself to be changed and so it would not cause a problem in back-pay.

For now, the £400m liability, has gone. All because of one, important, legal Judgment.

Many employers in the industry had increased the ‘fixed’ payment for a sleep-in shift to match the current NMW for the length of the shift (an increase from £30 to around £78).

Depending on how the change was worded in the contracts there may be scope to reverse the change and go back to the lower fixed payment.

Alternatively, employers may be able to fix this rate, and not increase it to match the NMW increases in the future.

For more information on the issues raised, please get in touch.