Government names and shames 500 firms for illegally under-paying staff – but will it dissuade others from flouting the law?

Today the Department for Business and Trade published a list of more than 500 employers who have underpaid the minimum wage, in the latest ‘naming round’ that publicises firms that break the law. Among the list are household names such as Greggs, easyJet, Hamleys and River Island, as well as smaller local businesses from across the country. Collectively, the employers named today have left 172,000 workers a combined £16 million out of pocket. At the most egregious end of the spectrum, more than 2,600 workers lost out on over £500 each; of these, 564 were short-changed by £1,000-£5,000 each, and 21 by more than £5,000 each.

Withholding wages from those who are, by definition, among the lowest paid in our workforce is clearly an unacceptable breach of labour market rules. But how effective are lists like these that publicise wrongdoers, and how do they fit into the broader landscape of enforcing labour market rights?

Naming underpaying firms is an important part of the labour market enforcement toolkit

The naming initiative is perhaps the UK’s most prominent example of a ‘reputational’ policy approach to enforcing workers’ rights – one that aims to leverage firms’ worries about their public profile to improve compliance with labour market rules.

Our research has found that such policies are an important part of the enforcement toolkit. Businesses, perhaps unsurprisingly, do not want to be part of what one interviewee referred to as “the naughty list” – largely because they fear losing business. This fear was particularly acute for smaller businesses, many of whom felt that their reputation was a key way they differentiated themselves from their competitors.

Interestingly, those trading with other businesses were more likely than customer-facing firms to worry about the impact of being on the naming list. There was a sense among interviewees that consumers were often inclined to forgive and forget breaches of employment law, or to prioritise cheaper products over a firm’s track record on workers’ rights, whereas business clients were more worried about the impact on their own reputation.

For the naming scheme to be effective, it needs to be well-publicised

The effectiveness of the naming scheme hinges, however, on it being well-publicised. As one interviewee put it: “… if they’re on a list, but nobody knows about the list, then … that’s not going to affect them, is it?” During our research in 2021, only a fifth of the business representatives we interviewed had even heard of the scheme. Publicity that targets local media and trade publications, as well as the national press, can increase the odds that non-compliant firms’ stakeholders hear about a breach.

Highlighting the risk of being named should also have a deterrent effect on other employers who might otherwise be tempted to flout the rules. We found some quantitative evidence that industries where a business had been named and shamed saw a drop in minimum wage underpayment the following year, all else equal. But the impact was small in magnitude, suggesting that there could scope to leverage naming rounds more effectively.

Reputational policies need to be a complement, not a substitute, for financial penalties

Policies like the naming scheme can undoubtedly encourage firms to comply with labour market rules. But they cannot act in isolation.

With an estimated 334,000 workers underpaid the minimum wage in 2022, the workers affected by today’s announcement (which covers arrears periods ranging from 2009 to 2022) are unlikely to represent the full scale of underpayment. This partly reflects that, for non-compliant firms to be on the naming and shaming list, they first need to be found out. In the words of one of our interviewees, “If nobody’s checking on the business, if nobody’s, you know, inspecting, then … how will they get caught?” The UK has a long way to go in this regard: at 0.29 labour market inspectors per 10,000 workers – or, put differently, one inspector for every 34,500 workers – we are less than a third of the way to the International Labour Organization’s benchmark, and near the bottom of the international pack.

In addition, reputational deterrents are not a substitute for financial penalties. The employers named on today’s list have faced a financial penalty on top of being named, but our research has made clear that the fines in place are too small to deter underpayment from a purely economic standpoint. Even the maximum penalty that HMRC can levy, of up to twice the arrears owed, would need to be coupled with a one-in-three chance of being caught for a firm to have a financial incentive to comply (we estimate the absolute maximum chance of detection is currently around 13 per cent).

Reputational levers are an important part of the labour market enforcement toolkit – but they must sit alongside stronger fines and a properly-resourced system to pick up violations in the first place. The long-promised Single Enforcement Body has failed to materialise during this parliament, but overhauling the labour market enforcement system must be a top priority for the next government, ensuring that the substantial benefits of the minimum wage reach all who are owed it.