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UK developers and contractors at risk of unpaid wages claims

New Regulations are now in force giving EU construction workers posted to the UK the right to bring a claim for underpaid wages against the UK contractor sitting immediately above their EU employer.

This means that UK developers and contractors can now be liable to pay the difference to bring the wages up to national minimum wage (NMW) levels. Similar Regulations came into force in Northern Ireland.

The Regulations currently remain in full force and effect following the recent Referendum decision for the UK to leave the EU.  

We set out the detail of the Regulations and highlight what you need to know.

Unlawful deduction from wages claim

Posted workers in the construction sector have the right to bring a claim for underpaid wages where they are paid less than the NMW. This now includes the higher rate national living wage for workers aged 25 and over.

The new right applies to any pay reference period commencing after the Regulations came into force on 18 June 2016.

A posted worker is someone who, for a limited period, carries out work in the territory of a Member State other than the State in which they normally work. If their immediate employer fails to pay them the NMW, the posted worker has the right to bring a claim in the employment tribunal against the UK contractor immediately above their employer. However, the worker cannot bring a claim against the contractor if they have already started a claim against their employer.

Scope of the new right

The Regulations apply to a posted worker in the construction sector who:

  • is working or has worked in Great Britain; and
  • is working or has worked for the employer to perform services that relate to the employer's contractual obligations to the UK contractor.

Relevant definitions

"Contractor" means a person with whom the employer has contracted to provide services.

"Employer" means a service provider established in a Member State which posts or hires out workers in accordance with the EU Posted Workers Directive. This means that the Regulations only apply to posted workers working for an undertaking established in the EU. They will not apply to posted workers who are normally based outside the EU.

"Posted worker in the construction sector" means a worker who:

  • normally works in a Member State other than the UK but, for a limited period, carries out work on behalf of the employer in Great Britain; and 
  • undertakes building work relating to the construction, repair, upkeep, alteration or demolition of buildings including any of the following (i) excavation; (ii) earthmoving; (iii) actual building work; (iv) assembly and dismantling of prefabricated elements; (v) fitting out or installations; (vi) alterations; (vii) renovation; (viii) repairs; (ix) dismantling; (x) demolition; (xi) maintenance; (xii) upkeep, painting and cleaning work; and (xiii) improvements.

Due diligence defence

It is a defence for the contractor to show that it exercised all due diligence to ensure that the worker's employer would pay the worker no less than the NMW. 

There is no further detail within the Regulations on how this defence would be made out but there is government guidance

The guidance outlines some best practice principles, which UK contractors should consider when carrying out due diligence checks on service providers who will be posting workers. These include:

  • understanding the service provider’s operating context;
  • establishing that the service provider: 

(a) is set up legally;

(b) can prove financial transparency and robust financial monitoring;

(c) has a good track record in paying employees correctly and on time;

(d) has no outstanding judgements against them relating to breaches of employment rights;

  • considering getting assurance/guarantee/indemnity from the service provider that they shall pay their workers no less than the minimum wage;
  • considering setting a turnover or reserve threshold for service providers as part of the tendering criteria.

Compensation

The tribunal may order the contractor to pay the worker the amount due to make the wages up to the NMW, plus any additional amount it considers appropriate to compensate the worker for any financial loss they have sustained due to the underpaid wages.

Time limit 

The worker must present their claim within three months of the date of payment of the relevant underpaid wages, or within three months of the last in a series of underpaid wages. There is a two year backstop period on claims presented under the Regulations.  This means that a claim cannot include underpayments where two years have passed since the date of payment. 

Early conciliation

A claim brought under the Regulations will be subject to early conciliation (EC). The time limit for the claim to be presented to the employment tribunal will be extended by participation in EC in the usual way. 

Anti-avoidance

The Regulations cannot be excluded or limited by a contract of employment or other agreement. However, this does not apply to COT3 agreements or settlement agreements, so a claim under the Regulations can be settled in the usual way.

Brexit

The Regulations implement the EU Posted Workers Enforcement Directive.  As they are founded in EU law, it is possible that changes may be made to the Regulations in due course as a result of Brexit.  However, this will not be known for at least a two year period from when the negotiations to exit the UK from the EU begin.  For more information on the effect of Brexit on UK employment law see our article.  

Further information

If you would like further information please contact a member of the TLT Employment or Construction teams. 

Contributor: Amy Whiting 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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