How Sports Direct Flouts The Law Without Actually Breaking It?
If Sports Direct hoped that the report it commissioned law firm Reynolds Porter Chamberlain (RPC) to put together into its working practices would appease stakeholders, shareholders, and MPs, the U.K. leading sports apparel retailer was mistaken.
Published on 6 September and commissioned by the company’s board in response to issues and allegations raised during majority owner—and now chief executive—Mike Ashley’s attendance in front of the House of Commons’ Business, Innovation and Skills (BIS) Committee on 7 June, the review identified “
serious shortcomings” in working practice at Sports Direct’s warehouse operations in Shirebrook, Derbyshire.
In particular, RPC said that the “six strikes” policy, whereby workers were punished for misdemeanours such as spending too long in the toilet, excessive chatting, or taking a day off sick, should be suspended with immediate effect because it was “a blunt instrument that left too much subjectivity in the hands of a few.” The report also recommended that casual retail staff should be offered guaranteed hours (at least 12 hours per week)
instead of “zero hours” contracts, and that the HR function should be strengthened and given greater profile.
Other changes the firm has promised include providing additional
training for warehouse supervisors to “ensure there should be no culture of fear”; providing a confidential reporting system for victims of sexual harassment; considering a test scheme transferring 10 agency staff a month to Sports Direct; and ensuring that facility loudspeakers are only used for logistical purposes and not to criticise staff for not working hard enough.
The company has also agreed to appoint a full-time nurse at its Shirebrook warehouse “who will hopefully be in a position to offer professional advice about when an ambulance is or is not required.”
A Freedom of Information request by Unite, Britain’s largest trades union, to the East Midlands Ambulance Service stated that “a total of 110 ambulances or paramedic cars were dispatched to the Shirebrook warehouse’s post code between 1 January 2013 and 19 April 2016 with 50 cases classified as ‘life-threatening,’ including chest pain, breathing problems, convulsions, fitting, and strokes. There were also five calls from women suffering pregnancy difficulties, including one woman who gave birth in the toilet in the warehouse.”
RPC also said that there should be a policy in place to ensure all warehouse staff are paid above the National Minimum Wage, and that the company’s failure to do this was “unacceptable but unintentional,” which is not the same as saying it is against the law—an odd omission for a law firm. However, failure to pay the National Minimum Wage only carries financial penalties, as opposed to a prosecution, because it is a civil offence rather than a criminal one.
In August Unite secured back pay of around £1m (US$1.3m) for thousands of workers at Sports Direct’s Shirebrook warehouse for the company’s
non-payment of the minimum wage, dating as far back as May 2012 in some instances. However, the deal only applies to workers directly employed by Sports Direct and through employment agency The Best Connection: As many as 1,700 workers supplied through another agency, Transline, may only initially receive half the back pay they are owed because of its refusal to honour commitments from when it took over from Blue Arrow, another agency, two years ago.
The publication of RPC’s review had immediate, profound consequences. On 7 September—a day after the report was made public—more than half (53 percent) of the 45 percent of independent Sports Direct shareholders (Ashley owns a 55 percent majority stake) voted against management and called for an independent investigation into how the company treats its workers, making the Trade Union Share Owners (TUSO)-backed resolution the most supported on record for an employment-related resolution in the United Kingdom, according to the Trades Union Congress (TUC). On 20 September the company bowed to shareholder pressure and announced that a further independent review would take place.
The RPC report and shareholder meeting have also led to Ashley moving from the role of deputy executive chairman to becoming chief executive after former CEO Dave Forsey—who is set to appear in court accused of breaching rules on consulting workers and notifying the authorities ahead of large-scale job losses when
firing 200 workers at Sports Direct’s USC subsidiary—unexpectedly quit.
Current chairman Keith Hellawell’s future also has a question mark hanging over it.
However, Ashley’s decision to take more direct control is not the approach most investors were looking for, and some experts have criticised the company’s pronouncements about its efforts to improve corporate governance.
Dr. Shainaz Firfiray, assistant professor of Organisation & Human Resource Management at Warwick Business School, called the company’s decision to conduct an independent review of its employment practices “a rather superficial exercise” to restore confidence, adding that the company’s “token gesture” of appointing worker representatives on its board “is perhaps an attempt to make it look credible, but will help little if other board members are unwilling to listen and address worker concerns.”
But despite the poor working conditions at the company, employment lawyers say that many of the practices that Sports Direct used in the warehouse are
not illegal. Emma O’Leary, a consultant at ELAS Business Support, a leading U.K. employment law advisory service, says that “unless there are fundamental breaches of health and safety legislation or a criminal offence has been committed then generally, poor employment practices do not carry prosecution.” She adds that “the practice of having a tannoy (loudspeaker) is not illegal as such but it can certainly amount to bullying and harassment.”
“It all depends on how employees interpret the use of such techniques, and if they are prepared to make a complaint,” says Zee Hussein, partner and head of corporate services at law firm Simpson Millar. “It can be a grey area, and it is often not clear cut from a legal standpoint,” he adds.
Zero-hours contracts are also not illegal. “The issue with the contract Sports Direct used was that they banned employees from working anywhere, whilst at the same time offering no guarantee or any particular hours or any work at all,” says O’Leary.
Homa Wilson, senior associate in the employment practice at law firm Hodge Jones & Allen, says that “the government had already banned exclusivity clauses in zero-hours contracts, so that part of the Sports Direct employee agreements would have been voided. However, the problem with employment law violations is that it is up to the employee—and not any regulator—to make a complaint. And now that workers must pay a fee to bring a case against an employer at an Employment Tribunal, the number of cases being pursued has dropped significantly.”
Since July 2013, under government plans to cut court costs, claimants have had to pay separate fees to issue their claim and have it
heard at an employment tribunal. Within a year of introducing such fees, the number of claims was halved.
There are two categories of claim types, as well as two sets of fee types: unpaid wages, redundancy pay, holiday pay, and notice pay are “Type A” claims, while unfair dismissal, discrimination, and
being fired for whistleblowing are classed as “Type B” claims. Both are subject to an issue fee—which is the fee needed to bring the case to the tribunal—and a hearing fee, which is the sum a claimant needs to pay if the case goes forward.
However, the difference in total costs can be significant—particularly for workers on low salaries or wages (as is the case at Sports Direct). For example, the issue fee for an employee bringing a Type A claim is £160/U.S.$208 (compared to £250/U.S.$325 for a Type B claim) and £230/U.S.$299 for a hearing fee (compared to £950/U.S.$1,235 for a Type B claim). This means that someone bringing an unpaid wages case can expect to pay £390/U.S.$507 for the case to proceed, while someone who is unfairly dismissed would need to pay three times as much at £1,200/U.S.$1,560. Given that the U.K. National Minimum Wage is £7.20/U.S.$9.36 per hour (falling to just £3.87/U.S.$5.03 for someone under the age of 18), an unfair dismissal case amounts to in excess of what was a month’s salary for someone who is now redundant.
As a consequence—and due to the absence of an effective regulator—unscrupulous employers can flout the law more easily than they should be able to. “It’s like any other walk of life—you can do what you like for as long as you like until you get caught and face the consequences,” says O’Leary. “If staff are fearful of their jobs they will never speak out and they will not bring claims—thus places like Sports Direct get away with it.”