’OLICING THE MINIMUM WAGE 233

F d N e w conomy 1-

Pol ici na the minimum wage

A minimum wage will require various changes in the law

M ost of the debate surrounding a statutory minimum wage has in- evitably been on economic and so-

cial policy issues. There has been a tendency to overlook the legal policy issues involved in its implementation and the problems of drafting legislation which fits into the exist- ing framework of employment rights.

While it will be possible to draw on over 80 years experi- ence of selective minimum wage fixing by the now dis- banded Wages Councils and the still extant Agricultural Wages Boards, the core of this framework is now provided by the statutory ’employ- ment protection’ rights for workers enacted over the last

BOB SIMPSON

Senior lectumr in Law, LSE

of civil servants (A National Minimum Wage: An Inquiry, HMSO) assumed that a minimum wage would be payable only to those workers who had ‘employee’ status - in legal terms those who work under a ’con- tract of service’. Since then a significant per- centage of the working population have fallen outside the category of employees and

“It would be widely agreed that to meet the

social objectives, a S M W should apply to all forms of dependent

labour whether the workers are employees

or self-employed“

30 years. A statutory minimum wage (SMW) would have to be fitted into this body of mod- em law, most of which was recently consoli- dated in the Employment Rights Act 1995, but with an eye for appropriate innovations. We will consider how this might be done under three broad headings: the scope, the form and how the minimum wage would be enforced.

The scope Who would be entitled to the S M W ? In 1969 a report by an inter-departmental committee

into the ranks of the self-em- ployed working under a ‘con- tractfor services’. The latter do not qualify for most core em- ployment rights. Moreover, the status of many of these workgroups - eg homework- ers, agency supplied tempo- rary workers, casual workers and indeed a majority of the entire labour force in the pri-

vate sector of the construction industry - is frequently unclear. They may well be treated as self-employed for some purposes (taxa- tion, safety regulations) but as employees for others (employment rights). It would prob- ably be widely agreed that in order lo meet the social policy objectives behind a SMW, it should apply to all forms of ’dependent’ la- bour whether the workers concerned are le- gally employees or self-employed. But how would dependent labour be defined?

The Wages Act 1986, which regulates the

1070-3535l95l040233 + 04 512.0010 Q 1995 THE DRVOEN PRESS

234 NEW ECONOMY

legality of deductions from pay, provides an appropriate core definition of the ’workers’ to whom it applies. As well as individuals who work under a contract of service (or appren- ticeship), this includes those who work under a contract for services except those providing professional or business services.

That would be a start, but further provision on coverage would almost certainly be neces- sary. For example, in order to enwre that homeworkers are covered it would be possi- ble to reuse the definition of homeworker en- acted for a similar purpose as part o f the old Wages Councils legislation. More generally, an appropriate long-term measure would be to enable the Secretary of State to designate any persons or group of persons as workers for the purposes of the SMW legislation.

The caring professions More controversially, it might be thought de- sirable to expressly exclude from the right to the SMW certain working arrangements which are not characterised as a form of de- pendent workers. The 1969 report suggested excluding domestic servants, ministers of re- ligion, voluntary workers, charitable work- ers paid nominal sums and relatives working ma family business. Such an exclusion nowa- days would be highly questionable. The pos- sible application of the S M W to a range of caring occupations, notably privately hired child minders, has generated some debate. Would it be sensible from any perspective - political, economic or social - to require par- ents to pay a childminder the SMW in order to enable them to go out to work on .i job that may only be paid at the same SMW rate? Even were it assumed that the costs of child- minders are often shared, the frequent changes in childminding arrangements make it a difficult activity to regulate effectively. It can be argued that the attempt should never- theless be made in the absence of compelling reasons to the contrary.

There is a precedent for dealing M ith diffi- cult cases on an ad hoc basis by way of regu-

lations. The Employment Act 1988 gave the Secretary of State power to designate people as trainees for certain purposes. Trainees and young workers are two groups in respect of whom a policy decision has to be made on whether they should have a legal right to be remunerated at at least the level of the SMW. Young workers are probably the easier group to deal with, as their entitlement to the S M W could be phased in - as happens in France Although politically controversial, but would pose no legal difficulties.

The position of trainees is more complex. A policy decision on whether they should be entitled to the SMW raises no particular legal issues save that if they are excluded, the attri- bution of trainee status would have to be monitored if not fully regulated. It would oth- erwise be possible to avoid paying the SMW by changing the label attached to an individ- ual to that of trainee on tenuous grounds. If trainees were to be included among those en- titled to the S M W , the employer’s obligation would in appropriate cases be limited to top- ping up any state funded training allowance to the S M W level.

Form The debate over whether a SMW should be expressed as a weekly or an hourly rate, which was discussed in some detail in the 1969 report, appears to have been resolved in favour of the latter. A target weekly rate could still be rele- vant if the hourly rate were to be fixed by reference to official data on actualeamings. For example the hourly SMW rate could be fixed at a level calculated to ensure that it produced a weekly wage of half the m e n t average eam- ings for a full time employee working the cur- rent average working week.

However it is the mechanism by which the rate is fixed and not the actual level which involves legal considerations. The Secretary of State could be given complete discretion as to when to fix the rate, at what level, when if at all to revise it and if so by how much. If the law took this form, a government which was

POLICING THE MINIMUM WAGE 235

unsympathetic to the SMW could, by doing nothing, allow the real value of the SMW to decline.

Alternatively the legislation might require the Secretary of State to f ix the SMW by a specified date or within a specified time and to revise it annually. The revision process could be linked to a specified index of move- ments in pay or earnings and could be subject to a discretion not to make any uprating or to increase the SMW by some smaller amount, subject to Parliamentary approval. Current discussion has focused on a third model un- der which the Secretary of State would be re- quired either to take the advice of an inde- pendent body such as a bipartite or tripartite Fair Wages Commission or to act on that body's recommendation as to what the rate should be. Whatever the model adopted, liti- gious employers (or trade unions) might well seek to challenge the propriety of the exercise of statutory powers by either a Commission or the Secretary of State, by way of judicial review, but that is an ever present risk in the modern law where the exercise of statutory powers by public bodies is concerned.

But the most basic legal issue still remains -defining what is meant by 'wage'. Again the old Wages Councils legislation provides a model to draw on. 'Wage' would mean what the workers received after all deductions ex- cept lawful deductions on account of income tax, social security contributions and properly authorised contributions to a pension fund. It would not then be possible for employers to rely on fringe benefits, such as cheap canteen facilities, to make up any part of the obligation to pay the SMW. If, however, it was decided to allow an employer to make deductions from pay on account of benefits provided it would clearly be necessary to regulate the amount of permissible deductions. This task could be made part of the remit of a Fair Wages Commission.

Including benefits A fundamental problem arising from an

hourly SMW lies in the reality of pay struc- tures. These are often more complex than a simple time rate system. Performance-re- lated systems and the wide range of pre- mium payments - bonuses, overtime, unsocial hours - would clearly make it diffi- cult to determine whether or not the workers concerned were being paid at least the SMW. Where the total number of hours worked is known it would, of course, be possible to divide the workers' pay by this number to see if they were being paid at least the SMW rate. This would allow all premium payments to be taken into account.

In particular, it is strongly arguable that overtime payments should not be allowed to compensate for payment below the S M W rate during 'normal' hours, even where overtime working is compulsory. Where workers are paid entirely by results, whether or not an employer was paying the SMW could be as- sessed by references to 'the amount that could be earned by a worker of ordinary compe- tence'. The use of such formulas could be dif- ficult to reconcile with the goal of a simple, widely understood right to a SMW.

Enforcement In 1969 enforcement of a SMW was seen to be primarily a matter for the civil law, with em- ployees having the right to make claims against their employers in the County Courts in cases of payment below the SMW. In the 1990s, few would regard this minimalist ap- proach to enforcement as sufficient. One of the main criticisms of the Wages Councils system was that the rates were not ade- quately policed. An effective enforcement strategy needs to:

widely publicise the existence and current

allow for enforcement by individual

permit the revision of pay structures by a

0 and include administrative inspection. The right to be paid at at least the SMW rate

rate of the SMW

workers

form of collective enforcement

236 NEW ECONOMY

would be a statutory implied tenn in each worker’s contract and the primary forum for enforcement of thxj right would be the Indus- trial Tribunals. There are two particular problems associated with individual en- forcement. One is victimisation of the indi- vidual which could be made unlawful in the same way that workers rights are protected in relation to safety at work. Action by em- ployers, other than outright dismissal, is un- lawful and can lead to an award of compensation. Action that invo1ve.i dismiss- al is automatically unfair and can lead to an order for reinstatement or much larger com- pensation. The other sipticant problem of cost could be reduced by allowing trade un- ions to bring claims on behalf of members or groups of workers which include their mem- bers.

Power to the people A more central role could be provided for trade unions by giving them power to refer collective agreements or the pay structures of employers to the Central Arbitration Com- mittee (CAC) for revision in order to ensure that no worker covered by these is paid at a rate below the SMW. The CAC Wac set up by the last Labour Government in 1975 and al- though its role has been reduced through the 1980s and 1990s, it has achieved wide respect. The existence of a flexible and sensitive en- forcement agency is of vital importance to making a S M W work on the ground. Pay structures may need to be completely revised in circumstances where an industrial tribunal award on a single claim would have the effect of disrupting them.

The CAC could have an additional role if the government wanted to allow for phasing in the SMW on a selective basis. If phasing in in selected areas is to be permitted, the best way to acheve this would be by wav of appli- cations by employers, or references by the Secretary of State, to the CAC which would be empowered to make binding awards set- ting out the timetable for advancing pay rates

of the employers concerned to SMW levels. A similar procedure could be followed if a more complex S M W structure was put in place which allowed for regional or sectoral vari- ations in the SMW rate on either a short term or long term basis. This could be made to work through CAC awards which delineated their scope with care. This is certainly feasible but would mean that the S M W was more than just a straightforward legal entitlement.

The Wages Inspectorate was abolished with the demise of Wages Councils in 1993, though a small agricultural wages inspec- torate still exists. One of the characteristics of British labour law is that labour inspectorates have never formed a prominent part of the structures on which legal rights at work rest. Health and safety is the only area where the role of an inspectorate has been a central com- ponent of the law. Resurrecting the Wages Inspectorate with adequate resources to po- lice the SMW would be a major policy com- mitment. The inspectorate would have the right to inspect records which employers would be required to keep (as they were un- der the Wages Councils legislation), and could prosecute employers who underpaid their workers, though in practice, no doubt, only persistent or blatant offenders would find themselves in the criminal courts.

A SMW can work The above is not an exhaustive review of all the legal policy issues raised by the SMW. Enough ground has been covered to point up the need for these issues to be thought out well in advance, to avoid the risk of a SMW policy foundering on protracted argument over how to implement it. Thirty years of employment protection rights have at least given the lie to the assertion that a SMW cannot be made to work in Britain because the distinctive tradition of British labour law has not provided workers with comprehen- sive rights. With proper legislation a SMW can be made to work as a valuable addition to employment laws 0