NMW and sleep-ins

25 October 2018

This article was featured in the October 2018 issue of the magazine.

Danny Done, managing director at Portfolio Payroll, sets out the current position 

Care sector employers were recently handed a significant reprieve by the Court of Appeal (‘the Court’) when they decided that sleep-in workers were not entitled to receive the national minimum wage (NMW) for time spent asleep during a sleep-in shift. 

The case, Royal Mencap Society v Tomlinson-Blake, involved a typical and very common scenario seen in the care sector. An employee regularly performed overnight ‘sleep-in’ shifts at the employer’s premises to be able to provide care to service users if woken. The employee argued that the care home had failed to correctly issue her with the NMW for time spent asleep and in doing so failed to follow regulation 32 of the National Minimum Wage Regulations 2015. 

The employee’s claim was originally upheld by both the Employment Tribunal (ET) and the Employment Appeal Tribunal (EAT). Both of these courts ruled that ‘time worked’ for NMW purposes included all times when the employee was available for work, which considering the employee was expected to be available throughout the sleep-in shift included time spent asleep. However, when the employer appealed this decision to the Court a different verdict was produced. 

The Court overturned the previous rulings, stressing that both the ET and EAT erred in not looking at the clear distinctions between ‘working’ and being ‘available for work’ as laid out in the First Report of the Low Pay Commission 1998. The Court decided that the correct interpretation was that when a worker is expected to sleep for the whole or most of the sleep-in shift, then they are only ‘available for work’. This means that the only time which attracts NMW is the time spent awake for the purposes of actually ‘working’. The Court also made the important point of analysing previous case law on this basis, much of which had been used to guide existing workplace practices, ruling that some of these cases had been decided incorrectly. 

 

... circumstances may require dismissal and re-engagement on new contracts...

 

Although Unison is currently seeking to challenge this ruling with the Supreme Court, employers should pay close attention to this case and consider how this will impact their existing pay practices. Some employers may have already changed their pay practices to include NMW for all hours of a sleep-in because of previous case law and are now left in the situation where this is far beyond what is considered necessary. Some may wonder if they can take action to reverse this practice. The answer is that they can, but the method they adopt will depend on the way that the pay increase was introduced. If a formal change to terms and conditions was used, then it will require a further formal change to reduce pay. Some circumstances may require dismissal and re-engagement on new contracts the terms of which do not include paying NMW for all sleep-in hours and only those spent awake for the purposes of working.

Some employers that receive funding may be under significant pressure to make these contractual changes if their local authority has cut the amount of funding provided in light of the judgment. This will certainly make the business need for pay cuts more urgent.

Until we know whether the Supreme Court will allow the appeal to be heard, we remain in a state of limbo: a successful appeal will once again restore the requirement to pay NMW for all hours of a sleep-in. Agreement with the Court will effectively cement the position because no further appeal can be made. Employers can, and in some cases must, use the judgment to balance the books.

The current uncertainty has been perpetuated by HM Revenue & Customs (HMRC) in its latest communication to employers that had registered with the Social Care Compliance Scheme. The scheme had been set up to alleviate the burden of previous case law which had required employers to pay NMW for all hours of a sleep-in. Once signed up to the scheme, employers complete a self-review of pay practices and are required to make good any underpayments discovered. Importantly, the underpayments would not be accompanied by the usual fine that HMRC levies against underpaying employers. The continuance of the scheme was questioned in light of the Mencap judgment but HMRC have confirmed it will continue. However, HMRC appears to have protected its position, in light of any potential Supreme Court hearing, by being intentionally vague in its instructions to employer. It confirms that a self-review should take the judgement into consideration, but then goes on to re-state its deadline for sleep-in underpayments to be repaid. The Supreme Court’s decision on whether to hear the appeal is, therefore, hotly awaited.