In Secretary of State for Work and Pensions v Johnson, Woods, Barrett & Stewart [2020] EWCA Civ788 - the Court of Appeal looked specifically at those working UC claimants who are paid monthly and can therefore occasionally be paid early when their normal pay day falls at the weekend or on a bank holiday.
What’s the issue?
For the four women that took the case to the Court of Appeal (with the support of CPAG and Leigh Day solicitors) it meant over the course of a year the Universal Credit computer system often interpreted them as having earned twice as much in one month and none in others (meaning the loss of the work allowance), with their Universal Credit calculated accordingly.
The rigidity of the Universal Credit system means that a claimant’s Universal Credit award takes into account any wages paid within that Assessment Period regardless of what period those wages cover.
The effect of the policy on these claimants included: one gave up work altogether because of the instability; one passed up a promotion and took a lower skilled job with a different employer because it offered different pay dates; one feeling very stressed by the financial instability and some months is unable to afford rent; and one has accumulated debt and had to use food banks.
The Court of Appeal found that the system was "irrational" and therefore "unlawful".
The DWP has confirmed that they will not be appealing the Court' of Appeal's decision (statement here) and will now have to consider what to do to rectify the situation.
How quickly will the rules be changed?
Not very! The DWP has indicated that they need time to consider possible solutions. We are not expecting this change to the Regulations to happen any time soon due to the pressures they are currently under because of the recent increase in the numbers of people claiming Universal Credit, and the fact that Parliament will soon break for the summer holidays
HMRC has issued new guidance to employers on this matter; we assume that this will be similar to the guidance issued at Christmas encouraging employers to report wages as being paid on the normal pay day even where they are paid early due to non-banking days. However this, for many employers, would probably mean changing their own systems, which we assume many will not be prepared to do.
What will the new rules say?
Good question. The Court of Appeal did not suggest a remedy to the problem and have left it up to the DWP to find one but we are aware that the DWP are keeping an open mind and will consider different options before deciding.
One solution could be to allow a realignment of a claimant’s Monthly Assessment Period where pay dates and Assessment Periods are causing problems. But Will Quince (The Parliamentary Under-Secretary of State for Work and Pensions) has stated:
“Changing assessment periods to align with pay dates is problematic. Nevertheless, everything is on the table, and I am looking at all options.”
“My first instinct is to look at whether we can find an automated fix, but we will of course look at manual fixes, if that is necessary.”
It could be that pressure is put on HMRC and employers – Will Quince also stated: “At the heart of this problem is an interaction between employers and HMRC…..we are beefing up our work with HMRC colleagues and counterparts, to ensure that the guidance is absolutely clear. If employers follow it and report the correct dates, this issue simply will not occur.”
What about those who have lost out in the past - will they receive compensation?
Will Quince was asked about this on a couple of occasions when the Court of Appeal decision was debated in Parliament. He was very non-committal.
CPAG – who represented three of the claimants – believe that “The requirement to amend the legislation means that such changes are unlikely to be immediate and are likely to be prospective only.”
So it is unlikely that the DWP will undertake an exercise that will compensate individuals automatically – but where a claimant has lost out in the past, because of wages paid early due to being due on a non-banking day, they could have grounds for a complaint and could seek compensation outlining their particular case and hardship caused.
What was the Court’s decision?
The Court found that the way the Universal Credit system treats wages in these situations – which can result in two monthly wages being taken into account in one Universal Credit Monthly Assessment Period - is irrational and unlawful, and agreed with the High Court’s previous decision that something needs to be done (although they did not agree with the remedy previously suggested).
The Court did not accept the DWP’s argument that “oscillations in Universal Credit payments are a central feature of the universal credit scheme”, that “it is set up to respond immediately to changes in circumstances of claimants as they move in and out of work” had merit in the circumstances of this case.
They concluded instead that: “The oscillations here are not a response to any change in the Respondents’ work patterns or family circumstances. The oscillation is a response only to whether the last day of the month falls on a non-banking day or not.”
How many people will be affected?
When the case was discussed in Parliament, Will Quince stated: "…I understand that fewer than 1,000 UC claimants have notified us over the past 18 months that they may be affected by this,.."
This appears to us to be a low number – we believe that there are many more UC claimants affected – see below for what they should do now.
Could this be bad news for some?
Depending on what the DWP decide to do, it could be. Higher earners in receipt of Universal Credit can find that they are better off when they have two months' wages taken in one Monthly Assessment Period and none in the next. So depending on what changes the DWP make to the rules - whether an automated fix or a manual fix when the claimant raises the issue - some UC claimants could be made worse off.
Will this help those paid weekly?
This case looked specifically at those UC claimants who are paid monthly and whose wages pay date falls near the end of the month, around the same time as the end of their Monthly Assessment Period.
Those workers paid weekly, fortnightly or 4 weekly tend to be paid on a fixed day of the week and usually on a banking day, rather than at the weekend. However there may be occasions where their pay day falls on a bank holiday and therefore they are paid early. So any change to the rules could help when this happens – but these claimants will still see the odd Monthly Assessment Period where five weekly/ three fortnightly /two 4 weekly wages are taken - and this will not be because of being paid early.
What should people do now?
We don’t yet know if the DWP is intending to review cases to see who has missed out due to these rules and pay any compensation, or whether any change to the rules will apply retrospectively: we think this is unlikely.
What is clear is that changes will be made. Those who are in the same situation as the claimants in this case - ie when paid early due to their wages falling on a non-banking day have two monthly wages taken into account in one Monthly Assessment Period meaning they are worse off or struggle to budget - should:
- If they already have a challenge under way - then pursue this.
- If they have challenged this issue in the past 13 months but were not successful - then take that challenge to the next level.
- If they have never challenged this issue, but they have had two monthly wages taken into account in one Monthly Assessment Period in the last 13 months - then they should request a late Mandatory Reconsideration of the decision.
That way they are making the DWP aware that they are one of the any claimants affected by this issue and therefore will fall under any new Regulations / ways of working that come out as a result. And if there are any retrospective changes, that they (hopefully) will benefit from these.
See our Standard Letter UC HM5