Employment Rights Bill unpacked: Fair Work Agency

The Employment Rights Bill creates a new state enforcement agency, which is likely to be called the “Fair Work Agency”. Initially, this will cover specific areas which are already covered by existing enforcement agencies, plus a new remit over holiday pay.  The Bill also gives the government broad powers to extend the Fair Work Agency’s remit to cover other employment rights.

The Bill sets out a range of enforcement powers, including powers to require individuals to provide information, to enter business premises to get documents, and in some cases to require employers to provide undertakings – backed up by criminal offences. This is potentially a big change towards more state enforcement of employment rights, although questions remain about how quickly this will happen and whether the new agency will have sufficient resources to be effective.

What will the Fair Work Agency cover?

The Bill covers the following areas:

• Rules on employment agencies and employment businesses
• National minimum wage rights – including entitlement to the minimum wage and record-keeping requirements
• Modern slavery offences
• Statutory sick pay
• Holiday pay – the right to payment for holiday, including the operation of rolled-up holiday pay for irregular hours and part-year workers
• Gangmasters licencing
• Financial penalties for failure to pay sums ordered by an Employment Tribunal in in a COT3 (a penalty enforcement system from 2016 that is rarely used in practice)

Many of these areas were already covered by existing enforcement agencies.  The Bill will combine the Employment Agency Standards Inspectorate (which deals with employment agencies), HMRC’s National Minimum Wage Enforcement Team, and the Gangmasters and Labour Abuse Authority (which covers modern slavery). It also abolishes the Director of Labour Market Enforcement, who currently oversees the work done by these bodies in order to assess the extent of labour exploitation and set strategic priorities for enforcement.

The most significant new addition for employers is enforcement of rights to holiday pay.  This is not currently subject to enforcement by a state agency, and it is also a notoriously complex area where employers may make mistakes.  

The inclusion of financial penalties for failure to pay tribunal awards and settlements is a bit of an oddity.  Since 2016, an employer who fails to pay can be subject to a penalty payable to the Secretary of State if the claimant completes an enforcement form.  This power is not being used regularly in practice, and published data shows that only 836 claimants used the scheme between the financial years 2016/17 and 2021/22.  

The Bill also gives powers to add to the list of employment rights that are covered by the Fair Work Agency.  This could be very significant, depending on how the power is used – for example, by adding areas such as discrimination, family-related rights, trade union rights, and new laws in the Bill itself such as the right to guaranteed hours.  An extension to the wide-ranging area of discrimination law would be particularly significant (although it is unclear how this would fit with the existing role and powers of the Equality and Human Rights Commission).  Perhaps more likely is an extension to narrower rights, such as statutory pay for family-related leave, to sit alongside enforcement of statutory sick pay.  Any changes are unlikely to happen quickly though, as it seems the Agency will not be up and running before late 2026 at the earliest.  It is also worth noting that the government’s “Next Steps” document does not mention adding new rights, but says that they plan to implement a new regulatory and enforcement unit for equal pay which seems intended to be separate from the Fair Work Agency.

What powers will it have?

A key aspect of the Bill is the powers of enforcement which give the Fair Work Agency its “teeth”.  Extensive powers are planned:

• Power to issue a notice requiring a person to provide information - either by attending a specified time or place to answer questions, or by providing specified information or documents.
• Enforcement officers being able to enter business premises to examine documents, require any person on the premises to produce documents, or check any computer or other equipment used to process or store information or documents.  Enforcement officers can also seize documents.
• Power to request a “Labour Market Enforcement Undertaking” (LME).  If the Secretary of State believes that a person has committed a labour market offence, they can be asked to give an undertaking to comply with any requirements set out in an LME.  A court can make an LME order can be made if an undertaking is refused, and failure to comply with an LME order is a criminal offence.  This only applies to a labour market “offence”, such as civil or criminal offences under national minimum wage legislation.
• However, there are also new criminal offences that can apply to all breaches of employment rights covered by the Fair Work Agency.  It is an offence to knowingly or recklessly produce false documents and information.  It is also an offence to intentionally obstruct enforcement action, or fail to comply with an enforcement requirement without reasonable excuse. The penalty is a fine, imprisonment for up to 51 weeks (in England and Wales), or both.  Corporate officers can also be found guilty of these offences if they consented to the conduct or it was attributable to their neglect.
• Also – and very significantly – the recently-published factsheet about the Fair Work Agency says “Some additional enforcement powers will be added during bill passage. This will include powers to issue civil penalties and to order employers to compensate workers, based on existing powers in the National Minimum Wage Act 1998.”  This suggests that the Fair Work Agency might grow extra teeth as the Bill goes through parliament. 

The powers to require information or documents and to enter business premises will be especially significant for employment rights that were not previously covered by enforcement bodies, particularly the right to holiday pay.  

How significant is this in practice?

The government says that the intention is to “create a strong, recognisable single brand so individuals know where to go for help and lead to a more effective use of resources”.  The overall idea of streamlining employment enforcement agencies makes sense.  The significance of the change depends on the area of law involved.

• Holiday pay. This is significant because the right to paid holiday applies to all workers, it can be so complex, and it is not currently subject to state enforcement.  It is a particular risk for employers who have taken a “wait and see” approach to some of the more complicated areas of holiday pay. While there is no existing criminal offence of failing to pay holiday pay, nor any civil penalties, the factsheet and impact assessment clarify that these are likely to be created in the near future and that they are likely to be modelled on the regime which applies to national minimum wage. This could mean, for example, employers having to pay 100% of any unpaid holiday pay to the Fair Work Agency if a breach is uncovered – potentially even more if the penalty is not paid promptly.  
• Statutory sick pay. There is currently no direct state enforcement of the right to statutory sick pay (SSP).  HMRC can determine whether SSP should be paid if there is a dispute between an employee and employer, but this requires the employee to make a complaint and there are no penalties for getting it wrong.  The extension of the new investigation powers to SSP is quite a big change, but is likely to be of less concern to employers than holiday pay enforcement because the right to SSP is simpler to operate correctly. 
• Employment agencies. This is not a significant change from the current system.  The Employment Agencies Standards Inspectorate already has powers to require information or documents and enter business premises.  They can also require LME undertakings and ask courts to issue LME orders – although it is worth noting that not a single LME order was made in the last reported year.  There is even a risk that scrutiny enforcement work in this area will be diluted by inclusion in a new combined agency, depending on how well the Fair Work Agency is funded and resourced.
• National minimum wage. HMRC already has significant enforcement powers, including the requiring LME undertakings and issuing LME orders, the ability to order employers to make missing payments and the power to impose penalties.  As with the rules on employment agencies, this is more of a change of enforcement body than a major change to the enforcement system itself. 
• Modern slavery. This does not appear to be a significant change to the powers already held by the Gangmasters and Labour Abuse Authority, which can conduct unannounced inspections and require access to premises, the provision of documentary evidence, and interviews with workers. The GLAA already has the power to conduct criminal investigations where an offence is suspected, and the existing modern slavery regime includes criminal sanctions with a maximum penalty of 10 years’ imprisonment. 
• Immigration. – Immigration rules as a whole are not covered by the Fair Work Agency.  There is one change though, as the current system of immigration LME undertakings and orders is being replaced by the provisions in the Bill.  These new provisions are very similar and will not make any significant change in practice.

Ultimately, the significance of the Fair Work Agency for both employers and employees will depend on its resources and funding.  Although it is likely to generate its own revenue to some extent through imposing penalties, it will still need additional resources to do its job effectively. The 2018/19 report from the Director of Labour Market Enforcement highlighted that the likelihood of an HMRC national minimum wage inspection for the average employer was once every 500 years.  It is, of course, more probable that a non-compliant employer will be reported and so subject to investigation.  Nevertheless, to make a real difference the new Agency will need substantial funding.

Next steps and what employers can do

As with most of the reforms in the Bill, the Fair Work Agency is unlikely to be up and running before late 2026 at the earliest – and it may well take longer than this to close down the existing agencies and transfer their responsibilities.  The Bill requires a labour market enforcement strategy to be set every three years, so the first of these will give some guidance on where resources are likely to be focussed.

Employers should already be complying with all of these important rights, particularly those that are backed by criminal and civil penalties such as modern slavery and employment agencies rules.  Holiday pay is the main area where you may want to ensure your house is in order – especially if the Fair Work Agency is given additional enforcement powers.  Although we would expect the Fair Work Agency to target employers perceived to be exploitative, the risks of turning a blind eye to the rules look set to increase. 

For more information about the Employment Rights Bill, see Lewis Silkin - What’s in the Employment Rights Bill?