Whilst the social care sector has undoubtedly faced some challenges as a result of the Covid-19 pandemic, transactions in this sector have nonetheless continued to play an active role in the M&A market. It goes without saying that care providers (and any potential purchasers targeting these types of assets as part of their acquisition strategy) will welcome the recent Supreme Court’s decision in Mencap v Tomlinson-Blake.
At first hearing of the case, the Employment Tribunal had found in favour of Mrs Tomlinson-Blake who had used her "listening ear" and experience to know when she was needed and it was therefore held that she was found to be "working" even when she was asleep. On that basis, she was deemed eligible to be paid an hourly rate at the rate of minimum wage regulations as opposed to a fixed sleep-in fee. However, in 2018 the Court of Appeal ruled that "sleepers-in" were to be characterised as "available” for work and not therefore actually “working" and so the national minimum wage was only deemed applicable to the hours she was actually carrying out her duties. On Friday 19th March, the Supreme Court upheld the Court of Appeal’s decision in favour of Mencap.
This marks a decisive result for care providers and means that they can avoid potentially onerous financial ramifications where they might otherwise have been obliged to pay back costs for a period of up to 6 years.
What does this mean from an insurance perspective?
Sleep-in pay has always been a key area of underwriting focus for insurers when looking at placing a warranty and indemnity (“W&I”) policy for an acquisition in the healthcare sector and for some markets, this would have always been a standard area of exclusion. It is not uncommon, therefore, for parties who couldn’t obtain this aspect of risk covered under the W&I to have sought an alternative solution by way of a contingent risk policy. Whilst these recent decisions turn on a specific set of facts, we suspect that any contingent insurers who might have written policies regarding minimum wage claims relating to sleep-ins will be able to “sleep easy” in the comfort that these policies are highly unlikely to now suffer a claim.
It will be interesting to see how the wider M&A insurance market might react in light of this decision. As minimum wage liabilities relating to sleep-ins no longer present a significant area of risk to underwriters, coverage under W&I policies should become common practice.
Whilst care home providers will be relieved by the decision which might otherwise have been crippling for a sector which is already largely underfunded, it will nonetheless be interesting to see whether the decision will pave the way for mounting pressure for major social care reform as the issue of payment of care workers generally remains under considerable scrutiny. It also raises the question as to whether any care providers who might currently be paying for sleep-ins at the national minimum wage might now stop, which could give rise to other claims relating to unlawful contractual changes. The care sector still presents challenges to underwriters and so early engagement of an experienced broker (and underwriter) who understands the nuances of the commercial and regulatory landscape is crucial in maximising the coverage available to insureds.
“No longer will care business face claims that they underpaid staff, and there will be respite from similar ‘copycat’ claims, currently in the legal system, which are now likely to fall away. “But while there will be celebrations today, many businesses in the sector face the future reality of turbulent employee relations with disgruntled staff; staff who had been pinning their hopes on the possibility of additional pay going forward, as well as significant back pay.”