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Sports Direct in the spotlight

Sports Direct hit the headlines last summer when reports stated that over 90% of staff work on zero-hours contracts and working conditions are poor.

Sports Direct hit the headlines last summer when reports stated that over 90% of staff work on ‘exploitative’ zero-hours contracts and working conditions, especially in its warehouses, are poor.

Company founder Mike Ashley was called before a Parliamentary Select committee this month to answer questions about working practices within the business and candidly admitted that some ‘issues’ had been uncovered by an internal investigation that he hoped to address going forward. It is also reported that HMRC will investigate the firm’s pay practices. 

So what are the practices that have pushed Sports Direct into the media spotlight and what legal risks do they present?

Problems with pay

Concerns were raised that extra time taken for ‘rigorous’ compulsory searches meant that workers are paid less than the minimum wage. Undercover reporters found that it was taking fifteen minutes to search staff leaving the warehouse at the end of their shifts. Workers were not paid for this time.

The law on payment of the National Minimum wage is complex. However, where work is hourly-paid, the worker should generally receive the national minimum wage for all time spent actually working (minus any unpaid rest breaks). There is a strong argument that, even though these workers technically ‘downed tools’ at their scheduled finish times,  they were required to remain on their employer’s premises for an additional 15 minutes each day and therefore should receive extra pay accordingly.

This alleged shortfall in pay has caused outcry partly because reports suggest that Sports Direct enforce working time very strictly in other ways, to the detriment of workers. For example, allegedly, being just one minute late for work in the morning can result in the loss of 15 minute’s pay. An extremely stringent approach to working time seems inherently unfair unless it ‘cuts both ways’.

Following the introduction of the ‘National Living Wage’ in April 2016 many employers are undoubtedly looking to ‘tighten up’ working time and to make savings wherever possible. Arguments about what does and does not constitute working time have again taken centre stage now that a new statutory minimum level of pay has been introduced.

Employers must tread very carefully if asking employees to undertake mandatory activities (such as pre or post shift checks) in their own unpaid time, especially where this may push employees below minimum wage levels for the time they have spent on their employer’s premises.

In his appearance before the BIS select committee, Mike Ashley stated that employees may have been paid below the minimum wage ‘at a specific time’ after finishing work and that fines imposed for lateness were ‘not acceptable’.

Compulsory searches

As well as concerns over pay, compulsory searching of staff throws up a raft of other employment law risks. Although it seems that all members of staff are subject to searches, an individual employee or group of employees might bring a claim of discrimination if they felt they were being unfairly targeted or searched more intensively or aggressively than their colleagues. Newspaper accounts suggest that the searches at Sports Direct warehouses are very intrusive, requiring staff to ‘strip to a single layer’ above the waist and expose the waistband of underwear. Whilst it would be very risky practice for male staff to search female employees, or vice versa, this type of very personal interaction clearly puts an employer at risk of a sexual harassment claim.

Perhaps most importantly, while a business is obviously permitted to protect its interests by guarding against theft, such rigorous searches will certainly have a negative impact on employee morale. Staff who are not trusted are unlikely to be happy and poor employee engagement will inevitably impact on the bottom line.

The 'six strike' rule

If reports are accurate, other aspects of working life at Sports Direct warehouses may present legal risk.

Public chastisement of staff for underperformance and disciplinary warnings handed out for chatting and lengthy toilet breaks might well combine to create the kind of intimidating and hostile environment that gives rise to successful claims for harassment (when linked to a ‘protected characteristic’ such as sex, race or age).

The select committee heard that staff receive a ‘strike’ for each transgression of this kind – and after receiving six ‘strikes’ are dismissed. Although every case turns on its own facts, this blunt approach is likely to give rise to claims for unfair dismissal (where employees meet the two year service requirement). To demonstrate that dismissal was fair, an employer must show that it acted reasonably in all the circumstances (taking into account the size and administrative resources of the employer). Employers are obviously entitled to run a ‘tight ship’ to make sure the shop floor runs smoothly. However an employment tribunal is likely to take a dim view of a large and well-resourced employer operating a blanket ‘strike out’ policy that takes little account of the needs and circumstances of individual employees.

Impact on the bottom line

The adverse media attention that Sports Direct has received may well be a catalyst for change. It is important to note that the company has already pledged to make a number of changes within 90 days of the select committee hearing, including moving some staff on to more secure contracts and working with trade unions to agree a back pay deal for underpaid wages.

As well as complying with ‘the letter of the law’ businesses are also expected to promote best practice. For example many employers committed to pay the impending National Living Wage well before its introduction this spring to advertise their credentials as ‘employers of choice’.

Even in tough economic times we find that employers want to know not just what they are legally compelled to do, but what will be viewed as the ‘right’ or socially responsible course of action. In the current climate, commercial advantage is as important as legal compliance. Motivated employees deliver results and discerning customers may well choose the organisation with a reputation for paying properly and treating staff well. 

Stuart Jones (stuart.jones@weightmans.com) is Head of Employment, Pensions and Immigration and is based in Liverpool.