Mike Ashley’s Sports Direct is facing a multimillion-pound bill in fines and back pay after the billionaire admitted his company had broken the law by failing to pay staff the national minimum wage The Info Blog.
The concession, which was made as Ashley appeared in front of MPs investigating his firm’s treatment of its workers, confirmed the findings of a Guardian investigation last year in which undercover reporters exposed how the company was paying staff less than the legal minimum.
Ashley, who could also face being disbarred as a company director because of the breach, admitted that at a “specific time” Sports Direct effectively paid workers less than the minimum wage because they were held back at the end of their shift and searched by security before leaving the company’s warehouse.
While the admission that the company was breaching employment law was the main headline, the MPs also extracted a string of revelations, with Ashley telling them that:
it was “unacceptable” for the company’s workers to be docked 15 minutes of pay for being one minute late for work;
he is struggling to control the company he founded and in which he still owns a majority stake;
the group may have to reorganise its top management;
he would review the use of the controversial “six strikes and you’re out” policy under which workers are sacked for six black marks within six months.
Appearing before MPs on the business, innovation and skills committee, Ashley also launched a passionate defence of his retail group, saying Sports Direct had a “hard-working culture” and was a “victim of its own success”.
But he said: “I’m not Father Christmas, I’m not saying I’ll make the world wonderful.” Ashley said a review of Sports Direct’s working practices had uncovered “unpleasant surprises” for him.
Ashley confirmed that HM Revenue & Customs, which polices minimum wage abuses, is investigating the retailer and that the company is in talks with its full-time staff about a deal to offer back pay.
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An HMRC spokesman said: “This isn’t about doing deals. While we don’t discuss individual cases we won’t accept anything less than what’s owed. Our role is to investigate all cases where we believe an employer is not paying its workers the national minimum wage to ensure those workers receive what they are owed under the law.”
Experts said that the minimum wage admission now raised the prospect of hefty fines for the company.
Businesses that have breached the legislation can be forced to pay arrears to workers, as well as being fined up to 200% of those arrears. Using rough figures derived from the experience of the Guardian’s undercover reporters last year, the pay arrears could total around £2m per year for the warehouse in Shirebrook, Derbyshire.
Jeni Morris, a former HMRC minimum wage investigator and founder of a consultancy firm NMW Direct Ltd, said: “HMRC will have their high-profile specialist taskforce conduct this investigation as thoroughly and swiftly as possible.
“The investigators will be looking at all areas of the company’s business – for the maximum six years that the law allows. I think they will make an example of Sports Direct because of all the publicity that has been involved. It has the potential to be the highest national minimum wage fine since the introduction of national minimum wage legislation in 1999.”
To date, the record figure retrieved by the Department for Business, Innovation and Skills is the £1.7m paid by Total Security Services to 2,519 employees that was announced earlier this year. That figure does not include fines.
In December, the undercover Guardian investigation revealed that Sports Direct warehouse staff were required to go through searches at the end of each shift, during which their time was unpaid, and they also suffered deductions from their wage packets for clocking in for a shift just one minute late.
The practices contributed to many staff being paid an effective rate of about £6.50 an hour against the then statutory rate of £6.70, which potentially saved the FTSE-100 firm millions of pounds a year at the expense of some of the poorest workers in the UK.
Ashley said that he had moved to address the queues of workers waiting, unpaid, to be searched at the end of each shift, but also admitted that docking workers 15 minutes’ pay for being one minute late was “unacceptable” and “unreasonable”. Both practices had led to breaches of minimum wage legislation, the Guardian investigation found.
Earlier, the committee heard from Steve Turner, assistant general secretary of the Unite trade union. He said there was “arrogance and contempt” at the top of Sports Direct, and that its approach to working practices was a “determined business model”.
Luke Primarolo, regional officer at Unite, who has led a campaign highlighting the working practices at the firm, referred to a culture of fear at the Sports Direct warehouse. “People are scared because they are working under a system when they know they could lose their employment at any moment,” he said.
Unite officers said there had been 110 ambulance callouts to the warehouse, including 38 times when workers had complained of chest pains. Five ambulances had been called to Sports Direct’s warehouse in birth and miscarriage-related matters, including one worker who gave birth in the toilets.
MPs also heard that some staff received their wages through a pre-paid card. Staff were charged £10 to get a card, plus a £10-a-month management fee, 75p to use it at an ATM machine, and 10p when they got a text message confirming they had used it.
Conservative MP Richard Fuller said the evidence from Unite was “very disturbing”.
Unite’s Turner said no workers had yet received back pay from the company. “We have been in discussions with the company and HMRC. There is an agreement with HMRC and we are currently in the process of balloting our members … But this only affects employees [and not around 3,000 temporary workers].”
Unite added that around 200 warehouse workers were employees of Sports Direct, while more than 3,000 people working in the warehouse were supplied by employment agencies.
On Monday, Ashley admitted for the first time to problems with the security procedures at the retailer’s Derbyshire warehouse.
In a letter to the sport chain’s 27,000 staff, the billionaire founder of the sport chain acknowledged that there had been issues with searches, and he also revealed that the group’s chief executive, Dave Forsey, would not be taking his four-year share bonus, worth as much as £4m.
Sports Direct responded to the Guardian’s reports by announcing an internal review of the retailer’s working practices to be led personally by Ashley, plus a pay rise for staff, which the company said would cost it £10m.
MPs had been locked in a battle to get Ashley to attend parliament to answer their questions on working practices at the firm. He had repeatedly refused, despite the MPs formally issuing him with a summons, and he also taunted committee members by calling them a joke.
However, Ashley, who also owns Newcastle United, backed down over the weekend. MPs had indicated they would proceed with plans to potentially have him found in contempt of parliament, and would seek to trigger a Commons vote on whether the tycoon was a “fit and proper” person to be running a business.
John McDonnell, the shadow chancellor, said: “It’s truly shameful and deeply worrying that Sports Direct is saying it has so little control over its company, which has led it to actions breaching the law. No one person or company should be above the law or think they can opt out of it.”.