Category Archives: Legal Obligations

Sports Direct: Use of Zero Hours Contracts – A Business Model With Exploitation at its Heart? (Part 2)

11578822 - 3d human charcter holding green zero, 3d render, isolated on whiteSUMMARY: The Sports Direct founder Mike Ashley faced the Business Innovation and Skills (“BIS”) Select Committee on 7 June 2016 for an evidence session into the working practices adopted by Sports Direct. A month later, it was widely reported that Sports Direct’s profits had been hit. Mr Ashley’s fortunes have not improved as, at the beginning of this month, it was announced that shareholders will be asked to vote on whether there should be an independent workplace review; and this week it was reported that Sports Direct is to pay £1million to its workers for breaches of the minimum wage legislation.

But how did it come to this?

To recap, Mr Ashley received intense criticism stemming from the Guardian Newspaper’s investigation at the end of 2015, which uncovered allegations that his Company:

1. Failed to pay its workers the minimum wage;

2. Engaged a significant proportion of staff via zero hours contracts and short term hours agency worker agreements;

3. Created a culture of fear throughout its workforce due to arbitrary and outdated disciplinary practices; and

4. Conducted daily physical security searches of employees.

In the first article of a two part series, we deal with the allegation concerning a breach of national minimum wage legislation; the first article can be accessed here.

In this second article, we explore the allegation that Sports Direct sought to increase its profit margins by engaging workers on zero hours contracts and short term hours agency agreements in order to avoid many of the legal obligations of employing staff. We also review the legal considerations that your business should take into account when using either zero hours contracts or being supplied with temporary workers via an agency.

THE ALLEGATIONS

Reports revealed that nearly 80% of Sports Direct’s workers are not employees but, instead, workers engaged via zero hours contracts or short term hours agency worker agreements. During the Select Committee’s evidence session on 7 June 2016, Steven Turner, the Assistant General Secretary of the Unite Union, remarked that this practice has created a “business model that has exploitation at its heart.”

In May 2015 the Government banned exclusivity clauses in zero hours contracts; clauses that prohibit a worker from taking up work under another contract, or which require the worker to get the company’s consent beforehand can no longer be included.

However, alternative work arrangements, specifically the arrangements adopted by Transline and the Best Connection Group, who supply Sports Direct with agency workers, could be placing workers in a worse position compared to if they had been engaged via a zero hours contract post the May 2015 change.

The reason behind this claim is that the Transline and the Best Connection Group do not have an obligation to offer these agency workers any work over and above a minimum of 336 hours over a 12 month period.

However, the agency workers must accept any suitable assignment offered to them unless there is “just cause,” and if assignments are not accepted, it is likely that the worker will not be offered another.

In addition, the workers are effectively forbidden for looking for additional hours elsewhere; workers who have done so have not been offered any further assignments – this is effectively an exclusivity clause in disguise.

WHAT IS A ZERO HOURS CONTRACT?

Zero hours contracts are contracts between a company and a worker and/or an employee, which specifies that the company is not obliged to provide the worker or employee with any minimum working hours, and that the company only pays for work undertaken. Similarly, the worker or employee is not obliged to accept any of the hours offered to them.

CAN ZERO HOURS CONTRACTS STILL BE USED?

Yes, zero hours contracts can still be used by companies.

The change in the law in May 2015 did not ban companies using zero hours contracts completely, instead it prohibits zero hours contracts containing exclusivity clauses.

WHY WOULD A COMPANY USE A ZERO HOURS CONTRACT & WHEN IS IT APPROPRIATE TO DO SO?

The key benefits of a zero hours contract are that a company using these contracts:

  • does not have to guarantee a minimum amount of work, and
  • only pays for work undertaken.

This is useful if your company is a start-up business and you are unsure of your people requirements. Alternatively, zero hours contracts may be useful if a company wishes to engage staff for seasonal work, or to cover absence and holidays.

The other benefit to companies is that the relationship between the company and the worker does not have to be one of employment. However, the worker will still benefit from the right to receive the National Minimum Wage, paid annual leave, rest breaks and will be protected from discrimination.

WHAT SHOULD THE BUSINESS CONSIDER WHEN ENGAGING AGENCY WORKERS?

If like Sports Direct, your company is supplied with workers via an external agency, you should be very clear as to the employment status of these workers because this will affect their rights.

Usually, the arrangement dictates that workers supplied by an agency are classed as workers of the end user client and not as their employees.

From day 1, agency workers are entitled to access to collective facilities (such as canteen facilities, child care facilities and transport facilities) and access to information about employment vacancies. Agency workers are also entitled to take rest breaks, receive the National Minimum Wage, receive Statutory Sick Pay (if they satisfy the relevant qualifying conditions set out in the legislation), take paid annual leave and benefit from protection against discrimination.

Following 12 weeks with the Company, agency workers are entitled to receive the same pay and other basic working conditions as equivalent permanent staff; this can include the auto enrolment pension obligations.

This is a relationship which often gives rise to uncertainty of employment status and, consequently, there are many reported cases on this very issue. Companies are therefore advised to ensure that, when engaging agency workers, they have in place the appropriate documentation with both the agency supplying the worker and the agency worker.

COMMENT:

Exclusivity clauses in zero hours contracts, which could exploit the most vulnerable of workers, are now unenforceable. However, this protection does not address the real issue for zero hours workers, which is the practice of ceasing to use workers who have turned down an assignment because they have accepted an alternative assignment and are unavailable.

In addition, as is evident from the Sports Direct review, Companies are now taking advantage of other working models such as the arrangements adopted by Transline and the Best Connection Group; although these arrangements are not prohibited by law, they raise questions of morality.

Only time will tell if the ongoing review by the BIS Select Committee will result in recommendations for change. In the meantime, we would recommend carrying out a review of the arrangement that your Company adopts for the supply of its staff to ensure that any legal obligations are being met.

CONTACT DETAILS:

If you would like more information on this topic or would like to discuss a specific concern in relation to your business, please contact us:

Call: +44 (0) 808 172 93 22     Email: fgmedia@fgsolicitors.co.uk

This update is for general guidance only and does not constitute definitive legal advice.

On The 9th Day of Christmas…

9th Day of ChristmasOn the 9th day of Christmas my employee said to me…“My line manager has promised me a pay rise in the New Year”.

2016 looks like a prosperous year for the employee! If however the employer did not intend for the employee to have a pay rise, does it have to honour the manager’s promise?

Before breaking the bad news to the employee that their fortunes are not on the up, the employer needs to understand whether it can deny the employee the anticipated pay rise. In doing so, the following needs to be considered:

  • The contract of employment. Most contracts will set out when and how salary will be reviewed. Often contracts provide for an annual review and, more importantly, that reviews do not automatically guarantee a pay rise. However, pay rise promises made in the context of the salary review scheme are likely to be binding.
  • Historical pay rises. If the organisation’s usual practice is to award predetermined salary increases on an annual basis there may be an implied contractual right to an annual automatic pay rise; the manager’s comments may therefore be in line with this practice. Vigilance should however be exercised to minimise the risk of this type of right being created.
  • The detail of the conversation between the employee and the manager. Irrespective of the terms of the employment contract and/or implied rights to a pay rise, the manager’s comment may in any event have created a right to a pay rise. The main consideration will be whether the manager intended to make a contractually binding promise and the onus is on the employer to disprove that this was the intended consequence. The following factors will as, a minimum, need considering when determining if the employee has any entitlement:

1. When was the promise made? For example, pay rise suggestions at the end of the Christmas party are unlikely to create legal obligations whereas promises made around salary review time during 1:1 meetings may well do so. However, do bear in mind that a manager’s promise made at a social event, or on other occasions outside the parameters of the salary review scheme, can bind the employer in some instances.

2. Is the employee’s account accepted by the manager?

3. What did the manager offer? Is there certainty about the terms of the offer – for example, the amount of the increase and the date from which it becomes payable.

Ultimately, promises made by managers do have the potential to bind their employer and as such can have costly consequences and managers should be reminded of this.

Contact Details

For more details about the issues in this article please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

This update is for general guidance only and does not constitute definitive advice.

Collective Redundancy Consultation – when “10 + 10” equals “20” (part 2)

financial legal obligationsSUMMARY: European Court of Justice provides clarity on when the collective consultation obligation arises

BACKGROUND

Current legislation requires employers to collectively consult when they propose to dismiss as redundant at least 20 employees at one establishment within a period of 90 days or less.

In February 2015, we reported that the Advocate General in the “Woolworths case” had indicated that it is not necessary to aggregate the dismissals across all of an employer’s establishments for the purposes of determining whether the collective consultation obligation has been triggered.

The Advocate General’s opinion appeared to give some comfort to employers who were contemplating large-scale redundancies across various sites; collective consultation that may have been triggered in the past, may no longer need to be a future consideration.

The Advocate General’s opinion was a precursor to the European Court of Justice’s (“ECJ”) decision.

THE ECJ’S DECISION

The ECJ was subsequently asked to decide whether the expression “at least 20” refers to the number of dismissals across all the employer’s establishments or only the number of dismissals in each individual establishment.

The ECJ found that “at least 20” requires a separate account to be taken of the dismissals effected in each establishment.

IMPLICATIONS FOR BUSINESSES

The ECJ’s decision means that where an employer is made up of several establishments, collective consultation is only required at those establishments where it is proposed to dismiss 20 or more employees.  There is no requirement to aggregate the dismissals arising across all the establishments.

Employers should however be aware that when contemplating large-scale dismissals across various sites/business units, consideration still needs to be given as to whether those sites constitute separate establishments.

Case

USDAW v Ethel Austin Ltd (in administration) and another UKEAT/0547/12 (European case reference: USDAW and Wilson v WW Realisation 1 Ltd (in liquidation), Ethel Austin Ltd and BIS C-80/14) (the “Woolworths case”)

Contact Details

If you are faced with a potential large-scale redundancy or business re-organisation and you have concerns about identification of an “establishment” for collective redundancies please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice.

Collective Redundancy Consultation – When “10 + 10” Equals “20”

financial legal obligationsWhere the implementation of a business proposal may result in large scale redundancies a number of legal obligations arise; these include consultation with appropriate representatives and notification to the Secretary of State. Failure to comply with these legal obligations has financial implications which can prove extremely costly.

The Law

Collective redundancy law derives from the European Collective Redundancies Directive which was implemented into domestic law by the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA). By virtue of section 188(1) of TULRCA employers are obliged to collectively consult where they propose to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less.

Crucial Question:

The crucial question for those employers whose businesses operate over a number of sites is “what, for collective redundancy purposes, is one establishment?” There has been a raft of case law on the point. In a number of cases which it decided to deal with together, the ECJ has been asked does “establishment” refer to all of the employer’s establishments in which dismissals are effected or does it refer to each individual establishment?

In other words, if a business proposes to dismiss for redundancy 10 individuals at a site in Northumberland and another 10 individuals at a site in Cornwall are they added together to make 20 and thus trigger a collective redundancy or are they treated as two separate and distinct exercises?

Advocate General’s Opinion:

Ahead of the ECJ’s decision in these cases the Advocate General has given the opinion that the concept of establishment “denotes the unit to which the workers made redundant are assigned to carry out their duties, which it is for the national court to determine…” in which case it is not necessary to aggregate the dismissals across all of an employer’s establishments for the purposes of determining whether there is a collective redundancy. To therefore take the example set out above it may not be necessary to add 10 + 10 together and thus trigger a collective redundancy.

Employers do need to be aware that the Advocate General went on to add that the issue of what is a local employment unit is a question of fact which will need to be determined in each instance.

Implications for Businesses:

On the one hand the Advocate General’s opinion offers a glimmer of hope to employers that an establishment is the unit to which the redundant workers are assigned which means, in theory, there will be fewer collective redundancy situations. However before a definitive view can be taken it will be necessary to decide where there are multiple business premises whether those business units together constitute a single local employment unit – by way of illustration the Advocate General gave the example of several stores in one shopping centre potentially forming a single local employment unit.

This therefore still gives employers a degree of uncertainty. That uncertainty may be removed when the ECJ delivers its decision as, whilst it is often the case that the ECJ follows the Advocate General’s opinion, it is not obliged to do so. We will report this decision when it is delivered – we expect that to be later this year. Pending that decision the sensible approach for employers currently is the aggregation of potentially redundant employees across different locations when determining whether there is a collective redundancy situation.

Contact Details

If you are faced with a potential large-scale redundancy or business re-organisation and you have concerns about identification of an “establishment” for collective redundancies please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

This update is for general guidance only and does not constitute definitive advice.

Holiday Pay Update Seminar – February 2015

Holiday PlanningHoliday Hell or Holiday Heaven… What’s Your Strategy?

Date: Thursday 5th February 2015

Time: 8:00-10:00am              Cost: Free

Venue: FG Solicitors Offices, 2 Deanery Court, Grange Farm, Preston Deanery, Northampton, NN7 2DT

Holiday pay has become a legal minefield for employers.

  • Are you unsure about your legal obligations?
  • Have you figured out whether you need to take into account overtime, bonus and commission payments?
  • What happens during periods of sick leave?
  • Have you calculated what an increase in the holiday pay bill could mean for your bottom line?

Whilst no two businesses are the same, we understand at FG Solicitors that you will all have common goals:

  • Accurately assessing the problem
  • Introducing the right strategy for the business

A clear strategy avoids holiday hell. Join us to identify solutions relevant to your business!

To book your place at our seminar, please contact us using the details below:

info@fgsolicitors.co.uk

+44 (0) 808 172 93 22

We look forward to seeing you at our next seminar.

If you feel this seminar would benefit other colleagues or companies please feel free to forward the details on.