Category Archives: Risks

Sports Direct: Failure to Pay National Minimum Wage – A Business Model With Exploitation at its Heart? (Part 1)

14184143 - green grass  uk pound symbol against blue skySUMMARY:  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 this month it has been announced that shareholders will be asked to vote on whether there should be an independent workplace review – we will have to wait until September to see how this latest chapter unfolds.

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 Created a culture of fear throughout its workforce due to arbitrary and outdated disciplinary practices; and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

On the back of the ever increasing publicity of how some high profile companies treat their employees, we have produced a two part series to enable you to assess whether your company is inadvertently making the same mistakes as those reportedly made by Sports Direct.  The first in this series explores the allegation that Sports Direct failed to pay its workers the minimum wage and sets out the law behind this complex issue.

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THE ALLEGATIONS:

HM Revenue and Customs (“HMRC”) are currently investigating allegations that Sports Direct paid its workers less than the National Minimum Wage (“NMW”) effectively saving the Company millions of pounds per year.

The underpayment allegedly arose as a result of workers being forced to undergo compulsory rigorous security checks at the end of their shifts as a theft prevention measure, adding as much as 15 minutes onto their working day (or up to one hour and fifteen minutes to their working week), which is unpaid.

In addition, it is also alleged that workers faced a 15 minute deduction from their pay for “clocking on” 1 minute after their designated start time, even if they actually arrived on site on time.

WERE THE SPORTS DIRECT STAFF WHO WEREN’T EMPLOYEES ENTITLED TO NMW?

All employers are obliged to pay the NMW regardless of their size, and the NMW applies to all “workers” ordinarily working in the UK who are over compulsory school leaving age, not just employees.  This includes agency workers and apprentices.

WHAT ARE THE CURRENT NMW RATES?

From 1 April 2016, there are now 5 rates of NMW:

CATEGORY   RATE (£)
National Living Wage Workers aged 25+

7.20

Standard Adult Rate Workers aged 21-24 (inclusive)

6.70

Development Rate Workers aged 18-20 (inclusive)

5.30

Young Workers Rate Workers aged under 18 but above the compulsory school age

3.87

Apprentice Rate Apprentices either:

  1. Under the age of 19; or
  2. Aged 19 or over, but in the first year of their apprenticeship

3.30

HOW DO I DETERMINE IF MY COMPANY IS PAYING THE NMW?

In order to determine whether the NMW is being paid to your workers, you will need to determine their average hourly rate of pay.

On the face of it this calculation seems quite a simple one – sadly, this is not so. The average rate of pay is calculated by dividing the total amount of “money payments” that a worker earns across the relevant reference period, by the number of hours the worker has worked during that same reference period. However, what amounts to a “money payment” frequently trips up the uninitiated – see below.

The number of hours worked (known as “working time”) can also prove a tricky area for companies and one which has given rise to a raft of case law on its own. This is dealt with below.

Turning then to the relevant reference period, this is usually one month and cannot be greater than one month. However, if the worker is paid weekly or daily, then this is their reference period.

What Money Payments Should Be Considered?

Companies must exercise caution as some payments cannot be included as “money payments” for NMW purposes:

EXAMPLES OF INCLUDED PAYMENTS Basic salary
Bonus**An annual bonus paid for example in December, will usually only count for the December reference period
Commission/Incentive Payments Based on Performance
Accommodation Allowances
Allowances Paid by HMRC Dispensation Agreements
 

EXAMPLES OF EXCLUDED PAYMENTS

Benefits in Kind
Loans Given by the Company
Advances of Wages
Pension Payments
Lump Sum Payments on Retirement
Redundancy Payments
Tribunal/Settlement Awards
Premiums Paid for Overtime/Shift Work
Expenses
Tips and Gratuities

What About Deductions From Pay?

Certain deductions from a worker’s pay can reduce their pay for NMW purposes, including deductions made by a company in respect of expenditure in connection with carrying out their duties (e.g. the cleaning or purchase of uniforms). After these deductions have been taken into account the worker must still be left with at least the NMW.

Another famous retailer, Monsoon, was ordered to pay more that £100,000 to its employees in 2015 as a result of its practice of requiring staff to wear Monsoon clothes at work and deducting the discounted cost of the clothes from their wages. After the deduction, staff were left with less than the NMW.

Conversely, certain deductions do not reduce a worker’s pay for NMW purposes such as a deduction permitted by the contract between the Company and the worker due to misconduct.

In the case of Sports Direct, it has been reported that deductions were made from workers’ pay for lateness. If the deductions were not permitted by contract, the deduction would reduce the workers’ pay for NMW purposes.

A deduction of this nature could also amount to an unlawful deduction of wages, allowing the worker to bring a claim in the Employment Tribunal.

What Is Classed As Working Time?

Finally, a key issue for the Sports Direct case is what is actually classed as working time?

Working time is defined as any time during which a worker is working, at their employer’s disposal and carrying out their duties. There has also been recent case law demonstrating that, for those workers without a fixed placed of work, travelling time to their first assignment of the day and travelling time from the last assignment of the day may count as working time.

Against this legal backdrop, should the time spent by Sports Direct workers undergoing compulsory security checks be considered working time that is counted for NMW purposes? It is highly likely that the answer to this question is “yes”.  This is because workers are not free to leave the company’s premises until the compulsory security checks are completed.

How Can Your Company Avoid A Similar Fate?

Those companies operating in sectors where payment of the minimum wage is prevalent often adopt a proactive stance and schedule annual reviews to ensure legal compliance in this respect. These reviews can be linked to annual pay reviews or can form part of wider audits which align HR strategies to deliver the businesses’ objectives.

In any event, and at the very least, all companies need to:

  • have an awareness of the current NMW rates which are updated twice a year;
  • understand what payments can be included for NMW purposes; and
  • understand what counts as working time for NMW purposes.

This then enables a company to identify any risks which may arise on the back of the publicity surrounding high profile NMW cases such as Sports Direct; at the very least this will enable that company to tackle those risks head on.

CONTACT DETAILS:

If you would like more information on this topic, audits 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.

Should Employers Take The Gender Pay Gap Seriously?

wage-gap-concept-blue-symbolizing-men-red-womenSUMMARY: A failure to address gender pay gaps can create both financial, legal and reputational risk for employers. We answer some frequently asked questions about equal pay.

Do we have to pay men and women the same?

The law provides that men and women should be treated equally when doing “equal work”.  This means men and women must be treated equally in relation to their terms and conditions of employment if they are employed to do:

  • like work. This means work that is the same or broadly similar;
  • work rated as equivalent under a job evaluation study; and
  • work found to be of equal value in terms of effort, skill or decision making.

In order to establish if there is equal treatment or otherwise, there will need to be a comparison of the terms and conditions enjoyed by a member of the opposite sex working for the same employer, doing like work of equal value.

Employers should not forget that the equal pay law protects men too.  Women who are pregnant or on maternity leave have special rights when it comes pay, benefits and bonuses.

Is there any way of defending an equal pay claim?

It is open to an employer to defend a claim if it can show the reason for the difference is due to a genuine factor and is not based on the sex of the employee. Common factors would include a difference in geographical location, experience or qualifications.

Is it just pay that we have to ensure is equal?

The equal pay law covers all aspects of pay and benefits including:

  • basic pay;
  • contractual benefits, i.e., company cars;
  • holiday pay;
  • hours of work;
  • non-discretionary bonus payments;
  • non-monetary benefits;
  • pension benefits and access to pension schemes;
  • performance related pay and benefits, overtime rates and allowances; and
  • sick pay.

The following areas would not be covered by the equal pay law but could be challenged under the sex discrimination law:

  • discretionary bonus payments;
  • discretionary pay increases;
  • promotion; and
  • the terms of a job offer.

To avoid the risk of equal pay claims we are considering banning staff from talking about how much they get paid?

Whilst employers are able to impose some restrictions on their staff about discussions concerning pay, any ban on this type of discussion would be unenforceable, if the purpose of the discussion is to identify if there is unlawful pay discrimination. This means a gagging clause in a contract of employment will not be effective if its aim is to prevent this type of discussion.

Any disadvantage including dismissal suffered by the employee as a consequence of their disclosure about pay for the purpose referred to above will be unlawful victimisation.

Do we have to respond to a request from a member of staff asking for information about pay differences?

A person who thinks they may have an equal pay claim may submit questions to the employer to help them determine whether they have such a claim.    An employer is not legally obliged to respond.  Before making the decision not to respond, an employer needs to be aware that an employment tribunal can take into account any response, or lack of response as a contributing factor when considering the issue of discrimination.

An employer faced with a request for information will need to consider carefully the nature of any response it chooses to provide and any decision not to respond. In any event, if legal proceedings are commenced the employment tribunal may order the information to be provided.

Acas has provided guidance on the question and answer process – Asking and responding to questions of discrimination in the workplace.

Should we be aware of any additional legal requirements?

It is expected from October 2016 private and voluntary sector organisations with more the 250 employees will be required to publish information about the pay differences between men and women. The first reports will have to be published by April 2018.

These requirements do not apply to the public sector.

If we lost an equal pay claim, what are the sanctions?

Any claim by an employee can be brought during their employment or no later than six months after their employment has ended.  Any individual wishing to issue a claim would have to contact Acas to consider conciliation.

A successful employee would be entitled to:

  • a declaration that their rights have been breached;
  • payment of any arrears (in the case of pay); or
  • damages (in the case of a non-pay contractual term).

In most cases arrears of pay can go back up to six years before the date the claim was brought.

Any employer who loses any case in the employment tribunal can now be ordered to pay a financial penalty of between £100 and £5,000, which is payable to the government.

In some cases, a losing employer will be required to carry out an equal pay audit and publish its findings supported by a plan to avoid breaches occurring or continuing. The penalty for failing to carry out the audit is up to £5,000.

Contact Details

If you would like more information on good equal pay practices with a view to engaging with your workforce and to minimise the risk of claims, 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.