Criminal liability under Section 31 National Minimum Wage Act 1998

Introduction

The National Minimum Wage Act 1998 (“the Act”) puts into place a right for workers to be paid a certain amount of money for the work that perform. The entitlement to the Minimum Wage applies to virtually all those working within the UK.

A ‘Worker’ is broadly defined under the Act. That definition is found within Section 54:

In this Act “worker” (except in the phrases “agency worker” and “home worker”) means an individual who has entered into or works under (or, where the employment has ceased, worked under)—

(a) a contract of employment; or

(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual;

and any reference to a worker’s contract shall be construed accordingly.

In addition to the the National Minimum Wage, the National Living Wage now applies to all workers aged 25 and over.  This came into place through a change to the National Minimum Wage Regulations 2015. For the purposes of legislation and enforcement the term ‘minimum wage’ refers to both the National Living Wage and National Minimum Wage.

The Act put into place various sanctions for non compliance with the legislation, the most serious of which is criminal prosecution under s31 of the Act.

Criminal liability under the Act:

Criminal liability under the Act is governed by section 31 and there are six categories of liability:

• The employer refuses or wilfully neglects to pay the minimum wage (subsection 1)
• A person fails to keep or preserve minimum wage records (subsection 2)
• A person knowingly causes or allows a false entry into minimum wage records (subsection 3)
• A person furnishes or produces false records and information (subsection 4)
• A person delays or obstructs a compliance officer (subsection 5a)
• A person refuses to cooperate with the provision of required information (subsection 5b)

Where an offence has been committed under subsection (1) or (2) and that offence is due to ‘the act or default of some other person; then that other person is also guilty of that same offence under subsection 6 of the Act. This means that employees and directors can be personally liable for the failings of their companies.

A statutory defence is available under the terms of subsection 8 of the Act. This applies only to offences under subsection 1 or 2. This states that it is a defence for a person charged to prove that they ‘exercised all due diligence and took all reasonable precautions’ to comply with the Act. The phraseology of the statute makes it clear that this defence involves reversing the burden of proof (unusual in the criminal courts). This means that it will be for the employer to prove the statutory defence to the civil standard (on the balance of probabilities).

The offence is summary only, which means that it can be tried only in the Magistrates Court; but the penalties could be extremely onerous for an individual or company as the sentencing powers of the Magistrates under s31 involve the imposition of an unlimited fine.

Enforcement Policy

The enforcement policy in respect of both Civil and Criminal enforcement is set out in a 1998 Policy document published by HMRC.

The policy emphasized that HMRC’s focus will be on cooperation and compliance enforced by civil means and that criminal sanctions will be reserved for:

the small minority of employers that are persistently non-compliant and refuse to cooperate with compliance officers, criminal investigation is appropriate.

HMRC have made it clear that they will pursue a policy of ‘selective’ criminal investigation as their enforcement strategy. This means that only the most serious cases will be investigated criminally as a method of trying to ensure voluntary compliance.

Small businesses not exempt

HMRC have emphasized that they will focus their effort of employers who “deliberately disregard” the Act. This means that the size of the default will not be a determining factor over whether to institute criminal proceedings. The focus is rather on repeat, persistent or serious offenders. The policy states that prosecutions will be used to:

send a clear message to other would-be recidivist employers that non-payment of minimum wage or a failure to keep records is not a risk-free occupation.

It therefore appears that prosecution will be considered irrespective of the size of the business, rather HMRC will be concentrating on the persistence of the offenders and their attitude towards compliance. This means that small business will not be able to ‘fly under the radar’ for criminal prosecution if their compliance attitude is poor.

Selection criteria for Prosecution

It is interesting that HMRC have chosen to publish selection criteria for prosecution. This states that:

“In cases under section 31(1), the number of workers involved would normally exceed five and there would normally be at least one previous instance of a failure to pay by the same employerwhich required action in either the civil courts or the employment tribunal to enforce payment.

Generally cases under section 31(2) to (4) will not be the subject of a criminal investigation except in the context of another offence under section 31.

In cases under section 31(5)(a) and (b) there would normally have been two or more occasions on which a refusal has taken place.”

When choosing to prosecute these criteria must be followed or the prosecution will face the risk of being challenged as an Adaway abuse of process (see R v Adaway [2005] LLR 142:

…if they reach a conclusion which is wholly unsupported, as the conclusion to prosecute in this case was, by material establishing the criteria for prosecution, it is unlikely that the courts will be sympathetic, in the face of the other demands upon their time at Crown Court and appellate level, to attempts to justify such prosecutions.

Enforcement undertakings

HMRC also has the power to ask a business in default to enter into an undertaking to to prevent further offending. This enables HMRC to address breaches by ‘working with the business’. It has been made clear that penalties and recovery will exist alongside an undertaking to recover money for workers which they are owed.

If an employer either refuses the undertaking or fails to comply with it a Magistrates Court has the power to impose a Labour Market Enforcement Order. This is governed by a November 2016 Code of Practice.

Conclusion

Prosecutions for breaches under s31 are few and far between but a poor attitude towards compliance and a history of breaches will mean that prosecution will be considered. HMRC are keen to ‘make an example’ of businesses who breach the legislation and there are powers to name employers in default. An attitude of conciliation and co-operation with HMRC is essential to prevent prosecution and businesses would be well advised that willful attempts to evade their responsibilities may result in prosecution, regardless of the size of the business in question.

Quentin Hunt is a Barrister who specialises in Criminal defence work. Prior to establishing his defence practice Mr Hunt spent 9 years as a ‘grade 1’ specialist prosecutor for HMRC and is vastly experienced in advising those who find themselves either under investigation by HMRC or facing prosecution as a result of an HMRC investigation. If you find yourself in such a position you may contact Mr Hunt for a no obligation conversation about your case.