It’s all very well having a forum for resolving employment disputes, with laws designed to protect against unfair dismissal, non payment of wages, discrimination, breach of contract etc, but what if the employer can’t or won’t pay?
Failure to pay by recalcitrant employers is a major issue, so much so that the Government is considering reforming the current system. At the moment an Employee who is awarded compensation following a successful claim at an ET can use either the County Court or can use the High Court Sheriff’s Fast Track recovery procedure.
BIS has just published the result of a study called Payment of Tribunal Awards which reveals that only 49% of Claimants were paid in full and a further 16% were only paid in part which means 35% of successful Claimants received no payment at all. If I understand the statistics correctly, of the 64% who received full or part payment, 53% of them did so without taking enforcement action. Interestingly, Claimants who had received help from a solicitor or a Trade Union were more likely to receive payment than those who didn’t (58% to 53%). The conclusion to the document (page 48) notes that these figures for payment/part payment include those employees who received payment via the Government’s own Redundancy Payments Office or the Insolvency Service. In those cases the employer isn’t paying at all – the taxpayer is and if those people were excluded form these results the figures for payment/part payment would be even lower.
Despite the enforcement procedures available neither method seems well known and isn’t overly successful or BIS wouldn’t be looking to reform it. 24% of those polled said they weren’t aware of the procedures, 19% said they did not want the hassle of taking further action and 9% thought it was unlikely to be effective. Users of both systems of enforcement were also underwhelmed by the outcome of the enforcement process.
The usual reason for non-payment is that the employer becomes insolvent, although over half of the empty-handed Claimants thought that the company (and it would have to be a company, this wouldn’t work with a partnership or sole trader) had set up under another, new, name – a so-called “Phoenix company”.
As the study notes, the credibility of the Tribunal system is called into question if large numbers of employers think they can ignore its decisions with impunity.
The situation hasn’t changed much from the last time the issue was surveyed back in 2008, which only goes to suggest that it is high time the system was fixed – but how? Should Respondents be required to pay some or all of the compensation into Tribunal, like a security for costs order in reverse? Should non-paying Respondents be named and shamed? That sounds like a good idea, save who would you name – the company or the directors? Would it work anyway? Would claimants want the fact of non-payment made public?
The BIS document suggests that more work needs to be done to make Claimants aware of the Fast Track system and of the options available. However, if a company becomes insolvent what can then be done? Why should the taxpayer be required to pay Claimants when the employer could, but chooses to avoid its responsibilities by winding itself up? There is a need to look at “phoenix companies” carefully, especially as the forthcoming employer penalties to be imposed on employers who lose at Tribunal where there are, as yet undefined, “aggravating features”, means that the number of companies likely to want to crash and burn before magically resurrecting themselves may well increase sharply. Not only will they have to pay compensation to the employee, but also issue and hearing fees and then a penalty to the state.
Ultimately though, it is always very hard to make someone pay something unless they want to. Civil enforcement of debts can be very difficult, particularly when faced with a savvy debtor who knows how to play the system. It can often be a smarter move for a claimant (in whatever type of dispute) to accept a settlement (if) offered voluntarily by a defendant as that is more likely to get paid, even if it may not be as much as the claimant ideally would like. The best advice to claimants might be to recall the old adage “A bird in the hand is worth two in the bush” .