Kevin Barwick, a partner in RSM's not-for-profit sector group commented:
'The decision means care providers may no longer be liable for what was estimated to be £400 million in back pay.
'In the Court of Appeal’s view, the clear intention of the National Minimum Wage legislation was that if a worker was required to sleep-in on site they were not entitled to be paid for the time spent sleeping. This was also backed up by the recommendations made by the Low Pay Commission back in 1998 on which the NMW legislation was based.
'Historically, HMRC’s guidance had been that sleep-in shifts did not need to be paid at NMW rates. However, HMRC changed its guidance when emerging case law contradicted this. Care sector providers who followed HMRC’s initial guidance were understandably frustrated as it exposed them to the financial penalties and naming and shaming for failing to pay NMW as well as up to six years’ back pay to current and ex-workers. This frustration resulted in HMRC setting up the Social Care Compliance Scheme (SCCS) for care providers to opt into to avoid the financial penalties and naming and shaming for failing to pay NMW for sleep-ins.'
'The Court of Appeal’s decision turns the SCCS on its head and leaves many questions for HMRC to answer. For example, will those who have already paid penalties, back pay or incurred significant cost in calculating underpayments be compensated? And how do you compensate for the reputational damage that arose from being named and shamed purely for failing to pay NMW for sleep-ins?
'It also begs the question why HMRC chose not to halt all enforcement action until the outcome of the appeal? Opting into the SCCS still meant care providers had to pay back pay to affected workers. Surely, a fairer approach for a sector that was already suffering from cuts in government funding would have been to pause any enforcement of back pay as well as penalties.
'It is possible that an appeal will be launched in the Supreme Court but the case demonstrates the complexity of NMW legislation and that a rethink is needed about the current approach taken to enforcement when those who are trying to do the right thing are unfairly punished.'