Court of Appeal in landmark ruling that sleep-in shifts are not subject to the National Minimum Wage – has the crisis been averted?

The ruling provides huge relief for care providers who no longer face the prospect of having to fund substantial back pay liability. Insolvencies and redundancies have been averted and the financial viability of the sector has taken a step back from the precipice.

So the crisis has been averted, at least for now. But what happens next?

Will the ruling be appealed?

It is understood that the Court of Appeal refused Unison permission to appeal. However, Unison can make an application directly to the Supreme Court, usually within 28 days. If an appeal is pursued, it will have the unfortunate consequence of re-igniting uncertainty and concern about the viability of the sector.

Are all sleep-in shifts covered by the ruling?

Not necessarily. The judgment was limited to the facts of the case where sleep-in staff were "expected to sleep for all or most of the period but may be woken if required to undertake some specific activity". Staff were only available for work and did not need to be paid the NMW when asleep.

It contrast, Lord Justice Underhill gave the example of a night watchman with patrolling duties during the night, but otherwise permitted to sleep. They would be working, rather than only available for work, and therefore entitled to the NMW.

Where exactly is the line drawn? For example, what if a care worker is required to carry out regular checks on service users during the sleep-in shift but otherwise permitted to sleep? What if staff are permitted to sleep but the complex needs of the service user mean that in practice staff have to get up and provide support a number of times through the night? It will still therefore be necessary to assess each particular case on its facts.

How will care providers react to the ruling?

In response to earlier decisions that sleep-in shifts were subject to the NMW, some, predominantly larger organisations, have increased pay for sleep-in shifts to the National Minimum Wage. While the cost implications of such a change have been considerable, it seems unlikely that these providers will change back to only paying an allowance for sleep-in shifts. They have already budgeted for the increased costs and reversing their decision would create negative publicity, damage staff morale, and remove their competitive advantage in recruiting staff. Any such change may also be restricted by contractual/employment law obligations.

A significant number of care providers have become compliant with the previous rulings by continuing to pay an allowance for sleep-in shifts but 'offsetting' (averaging out) the underpayment with rates above the National Minimum Wage for day work. It seems likely that many of these providers will continue paying an allowance for sleep-in shifts but without the need to offset on the basis that sleep-in shifts are not subject to the NMW.

Some providers had to increase their sleep-in rates and/or day rates to ensure that they could offset. Will they now seek to reduce those rates? Given the potential damage this could have on employee relations and restrictions on unilateral variations to employment contract terms, it seems unlikely that a significant number of providers will take this route. However, given the funding challenges prevalent in the sector, some providers may feel that they have no alternative.

The providers who took no action to become compliant with the previous rulings while waiting for a final determination by the courts on whether sleep-ins were subject to the National Minimum Wage are likely to maintain the status quo.

Providers who don't increase the sleep-in rate should be aware that they will be at a competitive disadvantage when it comes to recruiting and retaining care staff. This risk will have to be balanced against the costs of paying staff the NMW for sleep-ins, which many providers will not be able to do without additional funding from local authorities.

What happens to providers who joined the Social Care Compliance Scheme (SCCS)?

HMRC have not yet responded to the judgment. A number of questions remain unanswered:

• Is it now closing the SCCS, or waiting for the outcome of any appeal?
• Are providers who are soon due to reach the deadline for their declaration still required to submit it? Will HMRC provide written confirmation that is not necessary?
• Will HMRC be compensating providers it has previously required to back pay staff for sleep-in shifts?

Will local authorities reduce sleep-in rates?

Local authorities have been under considerable pressure for a number of years to increase sleep-in rates to comply with the NMW. Despite this being a clear requirement of the Care Act 2014, some local authorities failed to increase rates and many increased rates but not to a sufficient level to comply with the NMW.

Where rates were increased will local authorities seek to reduce rates in their fee setting decisions next year in light of the Court of Appeal ruling? We sincerely hope not as it would be a retrograde step in a sector that is significantly underfunded.

However, it would not be particularly surprising given the commissioning practices we have seen over the last few years as local authorities faced greater and greater budget cuts. It would be helpful for providers if local authorities came forward with a commitment to pay the NMW for sleep-in shifts for the future.

Ultimately, there needs to be a proper funding solution for social care. More funding would enable higher pay for staff, improved recruitment and retention and, importantly, more great care and support for service users.