Bringing Wages Home: Labour’s proposal for a Fair Pay Agreement in the social care sector – by Sandhya Drew

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1. Introduction

The King’s Speech on 17 July 2024 announced the 35 Bills which are the legislative priority of the new Labour Government.  Those relating to labour law are of particular interest to readers of this blog.

Labour’s manifesto referred across to its plans for labour reform: a New Deal for Working People. Reading these documents together, Labour’s proposal contains a raft of improvements to the current structure of the minimum wage framework: removal of the age-based distinctions, removal of the last element of the original unjustified age discrimination, expansion of the Low Pay Commission’s remit, move to a living wage and reforms to address manipulation of hours and zero-hours contracts. Unification of the two-tier employment status system has also been pledged. These would all be welcome changes. 

A proposal on social care has even more potential to address in-work poverty.  Based, it is said, ‘on the grain of Britain’s economic traditions’, the proposal is for a Fair Pay Agreement (“FPA”) in the adult social care sector.  The FPA would cover:

‘…fair pay and conditions, including staff benefits, terms and training, underpinned by rights for trade unions to access workplaces, in a regulated and responsible manner, for recruitment and organising purposes. This will help us tackle the serious recruitment and retention crisis facing the sector, deliver higher standards for those receiving care and help us to tackle NHS waiting lists’. 

Labour commit to ‘consult widely’ and to learn ‘from those economies where [FPAs] already operate successfully’.  There is a cautious reference to other sectors:  ‘A Fair Pay Agreement will not be the best solution for many parts of our economy, where labour markets are operating effectively or where existing collective arrangements at employer or sector level are already working well and are supported by trade unions’. 

More detail is to be found in this Report published last September from the Resolution Foundation.  Following on from the need to strengthen labour institutions,  ‘the UK needs to experiment with new tools’.  The Report proposed Good Work Agreements (“GWA”) in ‘problem sectors’.   A ‘trailblazer’ GWA was proposed for the 1.7 million workers in the social care sector.  It would cover ‘training and progression, sector-specific health and safety issues, pay ( in cases where there is a clear need for a pay floor above the National Living wage) and wider terms and conditions (like …irregular shift patterns)’.  The Report suggested that the social care sector was something of a pilot scheme for problem sectors.

Orally, there was no reference to the introduction of any specific Bills.  However, the King’s Speech referred expressly to the New Deal for Working People and to the need to make work pay.  The published version referred to an Employment Rights Bill.  There can therefore be cautious optimism that the pledged system of FPAs will be introduced, though the lack of detail so far justifies discussion and examination.

This blog post is in three sections. In the first, the reasons for the focus on the social care sector will be reviewed.  The second section will consider the legal mechanisms available to the Labour Government as it draws on experiences from other jurisdictions and from the UK’s own labour law history.   In the third section, it will be argued that, depending upon the exact legal framework adopted, the sectoral approach represented by FPAs is potentially an effective tool for formalisation of informal work.  Further, it may long term be transformative of the famously voluntarist approach to collective bargaining and agreements.   

2. Why the social care sector?

The social care sector is a good candidate for the first implementation, with a record of poor pay protection and under-coverage of law.  Hours manipulation and on-call work undercuts the wage floor.  There are recurrent reports of exploitation of agency care workers. It is a political priority: the new Secretary of State for Work and Pensions has in the past stressed the relationship between a resilient social care sector and a working NHS. For these workers,  the current statutory Minimum Wage system has proved to be an hourly rate easily circumvented by mainstream “factory” concepts of worked hours.   TUC analysis of the 2021 Labour Force Survey found that 6 out of 10 workers earned less than £10 an hour and 24 per cent of the sector were employed on zero-hours contracts.  The TUC in August 2023 argued for a sectorally-agreed minimum hourly rate of £15. There are a number of unions organising within the sector, including UNISON, the GMB, and the Care Workers Union.

How does collective bargaining operate in this sector? At present, statutory recognition through Schedule A1 of the 1992 Act is reserved for the organised sector, where the union can show it has a membership mandate.

As to the State, it already has a strong presence in this sector. The Care Quality Commission (“CQC”), created under the Health and Social Care Act 2008, has as its purpose under s3 ‘to protect and promote the health, safety and welfare of people who use health and social care services’. Service providers, with some exceptions, are required to register with the CQC, with ongoing inspection.

Lastly, the hourly rate does little to ensure decent pay and conditions in this sector.  An FPA might put in place an increased hourly rate of £15 or arrangements on payment for on-call hours.  These arrangements could be negotiated by reference to a decent standard of living.   This is consistent with international developments. Greater protection of wages is a new focus of the ILO, ensuring a link to standard of living, rather than simply requiring wage-fixing machinery.  In February 2024, the ILO Meeting of Experts announced a future focus on the living wage, with the development of instruments in an area where the ILO has not yet acted, endorsed by the ILO’s Governing Body on 13 March 2024.  The EU Minimum Wage Directive is another example of recent action, though it has been criticised as failing to conceive of a minimum in relation to a decent wage,  and of continuing to conceive the wage in terms of work done. The Directive fails to conceive of it as a relational or social wage measured against the requirements of Article 23 UN Declaration.

3. What would the legal framework be?

a. Precedent systems

Even with a focus on this single sector, the legal apparatus for creating a FPA is complex. The cautious, incremental, single sector approach to be taken by the Labour Government is no doubt due to the fate of FPAs in New Zealand.   Following a Discussion Paper in 2019,  a Fair Pay Agreements Act 2022 was passed and came into effect on 1 December 2022. Then, following a right-wards change of government, it was repealed with effect from 20 December 2023 by the Fair Pay Agreements Act Repeal Act 2023. This was without a single FPA having been reached. Although bargaining had begun for the hospitality sector, security officers and guards, commercial cleaners, early childhood education workers, and grocery supermarket workers, the legislation had simply been introduced too late in the Parliamentary Session and became an election issue without having time to bed in.   Despite the setback in New Zealand,  lessons can be learnt from the frame of the 2022 primary legislation and its Regulations.  

Lessons may also be learnt from other countries in Europe, where fair wages are protected through collective agreements, or a combination of collective agreements with administrative or legislative arrangements, as noted by EU Directive 2022/2041 Preamble (12). It was reported that, as of 2022, most EU Member States have a statutory national minimum wage in place. The wage level, adjustment mechanisms and coverage vary.  Countries that rely solely on collective bargaining for minimum wages are the Scandinavian countries – Denmark, Finland and Sweden – as well as Cyprus, Austria, and Italy.  The exact systems vary according to the nature of union organisation and state intervention.   All these states are members of the OECD which promotes collective bargaining as a means to prosperity. 

Britain has also been here – or near here – before. Models are available from its own history.  In 1909, the then President of the Board of Trade, Liberal MP Winston Churchill,  spoke on the second reading of the Trade Boards Bill, afterwards the Trade Boards Act 1909.   He emphasised the competition argument for sector-wide standard-setting: ‘But where you have what we call sweated trades, you have no organisation, no parity of bargaining, the good employer is undercut by the bad, and the bad employer is undercut by the worst’.  Sweated industries were characterised by underpaid work, excessive hours and unsanitary working conditions. Low wages abroad were a factor:

‘…these are trades which are sweated both at home and abroad, and at home because they are sweated abroad, for it is unquestionable that the low rates of wages paid for piecework in these various trades would not be acceptable in this country, and would not be accepted, if the miserable people who are compelled to accept them were not compelled thereto by the knowledge that the rates which are offered to them, miserably mean and contemptible as they are, are still a trifle higher than the rates paid on the other side of the Channel; and that if these people refused to accept these mean and contemptible wages it would be perfectly possible for their employers to send the labour which they now give to them to the other side of the Channel at still lower rates’. 

There is an obvious parallel today with migrant workers being paid well below the UK minimum wage but above the minimum wage in their country of origin.

The Wages Council Act 1945 renamed trade boards and extended their application to the vast majority of occupations, thus mainstreaming the system. The renaming and the widening of scope, according to Bevin at the second reading,  was a declaration by Parliament that ‘the conception of what is known as sweated industry is past’.  This might be read as recognition that collective bargaining now underpinned all work, not simply sectors of exploitation.Yet, the principle which continued to underpin the legislation was ‘the great voluntary system of negotiation in the industries of this country’.  The autonomous boards which had the power to fix remuneration did not change this.   The aim was ‘to avoid state…regulation of wages.  It [was] vital to the country, however, that the fabric of voluntary agreement and joint organisation, which have been of inestimable value during the war, should be maintained.  So: The commission can recommend a wages council only if it reaches the opinion, after full inquiry, that voluntary machinery is inadequate, or will become inadequate, and that a reasonable standard of remuneration is not being, or will not be, maintained’. The fundamental principle remained voluntarism and tripartite collective bargaining was to be introduced only where that was not resulting in reasonable remuneration.  However, with the enactment of the Wages Act 1986, and the repeal of the Wages Councils Act 1979 in 1993, the architecture of wages councils disappeared from legal view. 

So the new Government has choices with which to build its FPA system, primarily from the New Zealand model and from its own history, although only the NZ model was a precedent system which contained regulation of minima through statute and through collective agreements.   

b. Elements of the framework

i. What would the legal basis be?

In New Zealand, the 285 sections of the now-repealed Fair Pay Agreements Act 2022 contained a detailed system for creating regulating FPAs. It also provided for the making of Fair Pay Agreements Regulations 2022.  In contrast, the ultimate legal basis in Italy is constitutional. It relies on Article 36 of the Italian Constitution, which guarantees to workers remuneration commensurate to the quantity and quality of their work and in any case such as to ensure them and their families a free and dignified existence. The Italian system consists of national collective agreements which cover broad sectors. These are usually for 3 years and are binding on employers who have registered with the unions who negotiate or unions who have fed into those three big unions. These agreements, while not binding on other employers, set the standard for what is considered proportionate and adequate under Article 36 of the Italian Constitution. The Scandinavian system has a much more developed system of collective bargaining, with peace obligations for the duration of the agreement (studied here in passing and in more detail here). 

In the UK, the absence of a written constitution to underpin the agreements makes it an amendment to the Trade Union and Labour Relations (Consolidation) Act 1992 (“the 1992 Act” most likely, with regulations to add specificity. 

ii. How would the process be started

None of the Scandinavian nations nor Austria or Italy have a statutorily mandated minimum wage.  Unlike those states, and like the UK, New Zealand does.  Thus, though the Labour Government has already committed to reforming collective bargaining in the social care sector a ,study of the New Zealand model might be the most fruitful. In particular,  the model helps illuminate the rationale for collective bargaining in social care and, in addition, in what circumstances the model might be extended beyond that single sector.  In the now-repealed 2022 Act, given specificity by the 2022 Regulations, the two gateways for a union application for collective bargaining were a Representation Test (s29(1)) and a Public Interest Test (s29A(1)). 

The Representation Test bore similarities to the UK process for obtaining statutory recognition.  There had to be support for bargaining towards a proposed FPA from at least 1000 or 10% of all employees who would be within coverage.  Membership of the union was not sufficient.   

The Public Interest Test did not require any of the evidence required to meet the Representation Test. Indeed, it was predicated upon the sector being unorganised.  The criteria were (a) low pay AND one of the following (a) little bargaining power; (b) lack of pay progression beyond what is lawfully due; (c) pay not adequate, given hours or contractual uncertainty. Low pay (s29A(1)(a)), given specificity by the Regulations (Reg 6), was established where 60%+ of employees within coverage receive pay equal to or close to the minimum rate and 30% or less of employees receive pay at or higher to the median.  Out of the three alternative criteria, the little bargaining power notion (s29(1)(b)(i)) was based upon the fact (Reg 7) that, of a section (to be prescribed by Regulations) of employees who would be within coverage, 20% or less were union members OR 20% or less were employed under a collective agreement.  The concept of lack of pay progression was given –  questionable – specificity by Regulations (Reg 8) as stagnation in pay, defined as 60% of covered employees who had been working ‘relatively long period’ (judged by role and turnover) receiving a rate of wages which was on average no more than 20% above the rate of wages of a new entrant.  The third and final criterion was inadequate payment (s29(1)(b)(iii)) where the adequacy of payment was assessed in light of unsocial hours worked over more than half a 40-hour week, irregular payments, or precarious contractual arrangements.  Most interestingly,  these marks of precarious employment were to be used to reach a conclusion that pay was not sufficient.   Challenges would remain in tracking pay data. However,  the public interest provisions contained interesting ways forward for union organisation and representation.  

Since social care is already identified as a sector for FPAs, these tests may not be for immediate consideration.  The options are legislation which has a broader scope, with its provisions triggered for the social care sector, or – more likely given the caution – one which only mandates the agreements for the single sector. 

The New Zealand legislation provided for the application to commence the FPA process being made to the Chief Executive of the relevant central government department.  In the UK, although the CAC has the skills to determine these applications, it does so in a bilateral context.  Sweeping past the Director of Labour Market Enforcement, who has focused on immigration enforcement,  Labour has declared it would instead create a Fair Work Agency.   This Agency would likely have the equipment to arrange the FPA process.   It may be directly supervised by the Department of Health and Social Care or any successor department.  

The New Zealand legislation provided for bargaining parties to be formed 3 months after the date of state approval for the process to commence.  These might be groups of unions (for example Italy which has 3 umbrella groupings of unions) or employer associations. Exact composition is determined by the public body.  Special interventions were in place for health, the police and defence (ss 63-66).  There were also provisions for default bargaining parties.   There were provisions for information and access to the workplace (s85-91).  

iii. What would be in the Agreements?

Despite the name, the New Zealand FPAs extended beyond pay to cover working conditions (s115-116).  The agreements could go beyond mandatory content, unless they did not relate to the employment of covered employees, were contrary to law, or were inconsistent with the Act.  Content was covered by Part 6 of the Act.  The agreed pay amounts became minimum entitled provisions (117-119).  There was provision for delayed commencement (to allow for future pay rises).  The terms of the FPA were to be validated by means of a FPA notice issued by the governing public body (s156).  Failure to comply led to a penalty (s161).  Parties to an employment contract could agree higher but not lower pay (s162). It did not preclude other collective bargaining (s163).  FPAs could be varied unless the term was time-specific (s164, s169).   They could be renewed and replaced (ss182-195).  

This would seem the model to follow and nothing in the UK context would prevent it. Indeed, the proposal from the Resolution Foundation referred to above, anticipated that in some cases, the focus might be on conditions rather than pay.  The correct approach to hours and on-call working is an obvious element to reach agreement on.

iv. Would there be new obligations on the bargaining parties?

The New Zealand framework imposed obligations on the bargaining parties. They were to use their best endeavours to represent the interests of all covered, whether its members or not (92 A-G).    Part 5 of the 2022 Act set out a duty of good faith (s17).   This appeared to be a duty of behaviour such as to be ‘active’ and ‘constructive’, ‘responsive’ and ‘communicative’.  The specific duties to parties on the countervailing side also relate to good faith conduct of the process, including active engagement in bargaining. This of itself would be an advance to a system of collective bargaining resisted by employers as ‘compulsory’, a characterisation advanced and accepted in the Deliveroo case.    

More substantively, peace obligations might be imposed on the employer and employee parties for the duration of the collective agreement in relation to its subject matter.  A challenge to the Constitutional Court of South Africa failed to establish that the peace clause in the collective agreement infringed the right to strike.  The Court held, first, that the peace clause further the ‘majoritarian’ legitimate aim of orderly collective bargaining and, second, that it limited the right to strike only in relation to the subject matter and the time of the collective agreement.   The New Zealand model provided (s24) that participation in a strike or lockout that relates to bargaining for a proposed agreement or a proposed variation was unlawful, unless the strike or lockout was on grounds of safety or health (s84 Employment Relations Act 2010).   There is a pragmatic solution.  In the case of a serious trade dispute, as practice in Scandinavia shows, a collective agreement that can be terminated. This is perhaps of more relevance should FPAs be extended in the future to organised sectors than to sectors which are unorganised.  This provision would of course have to be set in enabling legislation. 

v. Coverage and enforcement

The pay and conditions agreed for the sector would of course cover the whole sector,  whether highly visible formal working arrangements or more shadowy work.  This is the significance of a sectoral agreement, capturing informal paid care work as well as more formalised work. It also seems logical for the FPAs to be legally binding as between the parties, following the existing device in section 179 of the 1992 Act.  Alternatively, the presumption against effect between the social partners could be removed or reversed.  Where all three social partners are parties to a sectoral agreement, they have an interest in ensuring enforcement of its terms.

However, the device of incorporation into individual contracts is hardly likely to work in cases where coverage extends beyond membership of the union and the formal sector.  Here a tension arises between the principle of voluntarism and the utter lack of bargaining power or visibility of many care workers.

One solution would be to make compliance with the sectoral agreement  a condition for registration under the Health and Social Care Act 2008, referred to above. Section 8 contains a broad definition of regulated activity. Section 16 allows provision to be made by Regulation for the making of applications for registration as a service provider or manager, and the registration of persons as service providers or managers. Section 20 contains further explanation of the purposes for which Regulations might be made. While the overall purpose of the 2008 Act is ensuring the health of the service users, decent pay and conditions for workers providing that service do not seem alien to that purpose.  Alternatively,  an amendment could be made to Reg 20(3)(3) to include conditions of persons who work.  Compliance with the FPA as a condition of successful application would be an effective method of ensuring coverage. Greater coverage could be achieved by applying duties to those connected with registered activities for example by employment agencies, themselves exempt from registration, by Schedule 1 (1)(3) of the Health and Social Care Act 2008 (Regulated Activities) Regulations 2014/2936.

This enforcement system would not, of course, reach unregistered employers in the sector.  Penalties could be in place for these worst cases, both for unregistered commercial activity and for contravention of the FPA.  The New Zealand legislation provided for penalties.  It is likely that this model would be followed to ensure an effective system which targeted the worst cases. 

The proposed approach would be preferable to one relying upon enforcement in tribunals or courts of collective agreements as incorporated into contracts.  To support this conclusion, the Italian model of pay protection, relying on collective agreements rather than statute, has been criticised as giving too much weight to subsidiary agreements which may be ‘poorly remunerative’ and further inadequate to reach economically dependent self-employed workers.  This has led to calls for a statutory minimum, albeit with some concerns about the impact on collective bargaining. Thus, it can fairly be concluded that an enforcement model for FPAs which relied solely upon rights assertion by the individuals would be unlikely to achieve the stated aims of the plan.

4. Conclusion: sectoral agreements and informal work

As stated above, the social care sector has likely been selected because of the high level of informal work.  The conclusion here is that a sectoral agreement provides a useful tool with which to address – and bring into regulation – that informality.  

The sense in which the term ‘informal’ is now used is very different to the characterisation in the  Donovan Report as being local agreements which allowed refining of broad ‘industry’ agreements by ‘men’, and which gave functionality to the ‘façade’ of industry-level agreements. This focus on the functionality of local ‘informal’ agreements led the Donovan Commission (composed of 11 men and one woman) to favour enterprise agreements,  which were underpinned by the overall principle of voluntarism. The faith of the members of the Donovan Commission in voluntary collective bargaining is seen most clearly in its §225-234 where they suggested that wages councils frustrated voluntary collective bargaining and could be abolished. 

Contrary to the conclusion in the Donovan Report, it is here argued that sectoral bargaining avoids the pitfalls of local bargaining, which in the public sector led to systemic sex inequality in pay.  Perhaps most importantly of all,  this first step to an FPA will provide unions with useful roads into the informal sectors, and a method of formalisation.   The New Zealand Public Interest Test, set out above, stated that a lack of collective bargaining was itself a reason to set in motion sectoral bargaining.  

Second, if this trial within a single sector is extended, a system of FPAs is likely to shift the famously voluntarist, essentially bilateral, model of industrial relations in the UK, with consequences for each vertex angle of the tripartite structure.  Voluntarism is here understood as giving primacy to free bargaining between employer and worker, with limited legal effect to that bargaining except for the individual workers. The extreme of this voluntarism led to the Wages Act 1986 and consequent denunciations of ILO CO26, CO95, (both on minimum wage-fixing machinery), denounced respectively on 25 July 1985 and 16 September 1983.

This shift, for employers and their associations, will override suspicion of competitors. It will promote conversation and cooperation in the formal part of a sector to fix wages and ultimately to reduce the worst forms of exploitation.  This is already happening in the business and human rights field, with sectoral initiatives on human rights. For the state,  it would signal an interventionist shift in what is likely to be detailed regulation.  For trade unions, it will be a welcome shift from the hostile environment of recent years, but will also require a shift in negotiating tactics.  In terms of bargaining across a sector, trade union organisation in the UK also lends itself to this as broadly occupation-based under the TUC umbrella. In terms of shifts in the voluntarist paradigm, Britain has also been here before. An attempt in the paper In Place of Strife to break into the voluntarist model was greeted by the then male-dominated unions with sexist hostility towards the then  Secretary of State for Employment and Productivity.   

In conclusion, the Labour Government’s proposal would be an important contribution towards building resilience in the form of decent work in the social care sector.  It is hoped that it finds its way into the new Government’s first raft of legislative action.  

Thanks to the editors of the UK Labour Law Blog, in particular Hugh Collins, and to Gwyneth Pitt and Tzehainesh Teklè for their suggested improvements on drafts. Thanks also to Emanuele Menegatti of the University of Bologna for sharing his knowledge of the Italian system.  Errors are my own.

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(Suggested citation: S Drew, ‘Bringing Wages Home: Labour’s proposal for a Fair Pay Agreement in the social care sector – by Sandhya Drew’ UK Labour Law Blog, 23 July 24, available at https://uklabourlawblog.com/)