SUMMARY: 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 Created a culture of fear throughout its workforce due to arbitrary and outdated disciplinary practices; and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.
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.
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.
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: firstname.lastname@example.org
This update is for general guidance only and does not constitute definitive legal advice.