Written evidence from Hermes Parcelnet Ltd (WOW0102)

RESPONSE TO QUESTIONS

1. Is the term 'worker' defined sufficiently clearly in law at present? If not, how should it be defined?

1.1.  Hermes’ workforce includes around 2,200 employees, some 14,500 self-employed couriers and in normal time, 400 agency workers. In the 4-6 week pre Christmas peak period, Hermes makes use of up to 1,800 agency workers.

1.2.  Hermes believes that the definition of the term ‘worker’ is sufficiently clear in law, but that the understanding of the meaning of the definition in the business world and society more generally is not as cogent as it should be.

1.3.  The definition of worker in section 230(3) Employment Rights Act 1996 (c 18) makes it clear that a worker must be someone that is giving personal service to another. The concept of personal service is well known and well understood in law and business, and should remain a fundamental characteristic of any definition of ‘worker’. Hermes’ view is that there should be more clarity regarding the importance of ‘control’ in determining whether an individual is providing personal service.

1.4.  ‘Control’ in the context of the personal service provided by an individual who is a worker should be considered as being (i) where the individual is required to perform personally and therefore cannot use another person to provide the service in his place; or (ii) a level of control that makes it impossible for the individual to use someone else to provide the service in his place. This level of control would be present where the level of instruction from the ‘employer’ as to how the person performs his service should be such that it is not reasonably practicable for that person to be able to rely on another to perform that service on their behalf. Hermes has argued elsewhere that where substitution is prohibited, worker status may be indicated.

1.5.  The extent to which a worker is integrated into the ‘employers’ business is a characteristic of a level of control that does not exist when someone is self-employed. This type of control should be another important consideration in any definition of worker.

1.6.  Considering Hermes as a case in point, Hermes benefits from the services provided by some 14,500 self-employed couriers. The nature of the services that self-employed couriers provide (i.e. the ‘what’ of the services provided) is well defined by Hermes and understood and carried out by the self-employed couriers. Hermes requires couriers to collect parcels from specific locations (known as sub-depots) or receive parcels at their residential address (depending on the arrangement with the courier in question). Hermes couriers must attempt to make delivery three times before returning any parcel as being ‘undelivered’. A small number of parcels (circa 1-2%) are identified to couriers as requiring to be delivered in the morning or the afternoon, and notwithstanding this the courier is free to deliver according to whatever route and timing of deliveries they see as most expedient.

1.7.  Whilst Hermes is explicit in what services are provided to it by self-employed couriers, Hermes exerts no control over the way in which self-employed couriers perform those services (i.e. the ‘how’ of the services being provided). There is no “follow-the-blue-line-on-the-map” type control (route mapping/control) over its couriers nor any productivity targets imposed. Accordingly, it is not unusual for Hermes couriers to deliver parcels for two or three hours in the morning, take a break to do other things and deliver the remainder of their parcels in the afternoon. As a case in point, oral evidence was provided by a Hermes courier, Graham Baines, to the Work and Pensions Committee on 6 February 2017. Royston Smith MP queried whether he considered himself to be self-employed. He replied:

“Absolutely, yes, and that is the reason I took the job on. I like being self-employed. I am my own boss, I can map my own day out; I am under no pressure. I pick my parcels up and I go and deliver. I can go and do a tennis lesson. I can go home. My mum was ill recently and I would pop and see her and still go back out delivering. I am totally self-employed and, as I said, I have been a self-employed person for 20 years with my tennis coaching. The reason I took the job on is for that flexibility and to be my own boss, and that is what I really enjoy about my job.”[1]

1.8.  Annex 1 to this Submission is the contract that all Hermes couriers sign. A plain English document of only two pages, the document clearly emphasises the couriers’ self-employed status, as well as their unfettered right of substitution. It is suggested to the Committee that this sort of clarity should be considered best practice. Importantly, this contract is reflected in the reality of the parcel delivery and collection services provided by self-employed couriers who have complete freedom to arrange for a substitute to carry out deliveries and collections on their behalf, either sporadically or on an everyday basis, and to make their own arrangements to pay that substitute. Whilst responsibility for deliveries and collections on the round sits with the courier who has entered into the contract with Hermes, the courier can choose to effectively 'sub-contract' the work to someone else without Hermes' consent

1.9.  The Committee’s Inquiry is being conducted against a backdrop of a large number of claims asserting workers status being brought to the Employment Tribunal. Hermes enjoys a constructive and collaborative relationship with its couriers and such claims are extremely rare. Hermes has however addressed similar issues in 2014 when a former courier, Mr Ankuma, asserted that he was an employee or in the alternative that he should be regarded to have worker status

1.10.                    On 21 November 2014, Employment Judge King handed down his decision in the case of Ankuma v Hermes & Others[2]. A full copy of the judgment is attached to this Submission as Annex 2. The Employment Tribunal unambiguously both the assertion that Mr Ankuma was a worker; and rejected the assertion that he was an employee. In doing so, Employment Judge King states:

The Claimant provides his own equipment, he could hire staff or provide substitutes. He took a degree of financial risk as if the homeowner was absent he would not be paid for that failed delivery. I have already set out the intention of the parties[3]. It is clear that the delivery of parcels is an integral part of the Respondent’s business, it is their business to deliver parcels but any courier, including Claimant’s substitute could do this… There is no payment for sickness or holiday and the Claimant is not prevented from working elsewhere.

The contract… is concise but clear and unambiguous. It reflects the reality in the way the parties work as I have set out in my findings of fact. It therefore follows that the contract as set out was the intention of the parties, the terms and the reality. As such I find that there was no contract of employment.

Section 230 of the Employment Rights Act 1996 required an employee to enter into or work under such a contract so the Claimant is not an employee for the purposes of the Employment Rights Act 1996. Section 30 of the Employment Rights Act requires a worker to work under either such a contract or requires the Claimant to perform the work personally. The Claimant was not so required so he cannot be a worker…”[4]

1.11.                    In distinguishing Hermes’ business model from those of Uber[5] and City Sprint[6] (both currently being challenged before employment tribunals), reference should be made to paragraph 50 of the Ankuma decision in which Employment Judge King considers the issue of personal service and observes that Hermes couriers both have and exercise a right of substitution. He goes on to consider the question of Hermes’ degree of control over its couriers at paragraph 54. He emphasises that Hermes does not have control over its couriers, building on his conclusion in the preceding paragraph that there is no mutuality of obligation in Hermes’ arrangements with its couriers.

1.12.                    Therefore Hermes is clear that its couriers are neither workers nor employees, but validly self-employed.

2. What should be the status and rights of agency workers, casual workers, and the self-employed (including those working in the 'gig economy'), for the purposes of tax, benefits and employment law?

2.1.  Hermes recently submitted a detailed Written Submission to the Work and Pensions Committee considering the position of its employees, agency workers and self-employed couriers. A copy of that Submission is annexed to this Submission as Annex 3. Attention is drawn to paragraphs 1 to 5 where this question is considered in detail. Hermes notes that it is unable to meaningfully assist the Committee with regard to benefits policy, given that Hermes is unable to determine who among its workforce howsoever engaged is in receipt of benefits.

2.2.  Hermes would also suggest to the Committee that the phrase “the gig economy” is presently being applied to a very wide range of undertakings with very little in common. By way of example Uber is a highly sophisticated, digital platform with very few assets, through which licensed Private Hire Drivers offer their services to members of the public. By contrast Hermes is a 40-year-old, asset heavy business in which every courier has a face-to-face relationship with the business with which he or she contracts. Hermes couriers pick up parcels from a Hermes sub depot and have a personal relationship with a named Field Manager for which they have contact details, including a phone number. Many Hermes couriers have a long-standing relationship with the company. 12% of couriers have worked with the company for 10 years or more, 33% for more than 5 years and 66% for more than 2 years. Against this backdrop it is difficult to see how Hermes couriers are necessarily engaged in a short-term undertaking.

2.3.  Similarly, income volatility is seen to be a key identifier of “the gig economy”. Hermes couriers choose how many rounds (typically of 60-70 parcels) to take on. This capping of the number of parcels per round means that Hermes couriers earnings are stable over time. Accordingly income volatility is not an issue. Therefore with little income volatility, all couriers having a personal point of contact with the business, regularly engaging in person with the company and Hermes owning land, plant and vehicles the length and breadth of the country, it is difficult to see on what basis Hermes might be considered a “gig economy” company. If being self-employed is the mark of “the gig economy” the Committee should be prepared to apply this pejorative to most hair dressers[7] and building sites[8] in United Kingdom; self-employment is the norm for service provision in those industries.

2.4.  Turning to Hermes’ approach to working with agency workers, Hermes reiterates paragraphs 5.2 to 5.4 inclusive of Annex 3, Hermes’ Submission to the Work and Pensions Committee. For ease of reference:

5.2  Hermes’ warehouses (referred to as “depots”) are in normal time 80% staffed by a core of 1,700 PAYE employees (covered in paragraph 5.1 above[9]). This workforce is supplemented throughout the year by a further 400 agency workers. Logistics is highly cyclical with the 4-6 week peak period before Christmas [being] particularly busy. During this time Hermes’ use of agency workers increases significantly to 1,800.

5.3  Hermes presently operates three hubs and in September will open a new £30m ‘super-hub’ in Rugby. Hermes’ hubs are the lynch pin of its logistics operations and business continuity is critical. Accordingly the labour supply for Hermes’ hubs is outsourced but with management functions undertaken by Hermes employees to ensure full visibility of working practises throughout the business.

5.4  Hermes’ Code of Conduct was established in September 2016 and all of Hermes’ suppliers of agency workers have agreed to comply with it. Compliance with Hermes’ Code of Conduct will be a condition in all of its contracts for the supply of agency workers. This Code of Conduct is but one element of our industry-leading social compliance model which will be externally audited to ensure impartiality. The Code of Conduct requires that all agency workers supplied be paid at least the NLW without exception. A copy is annexed to this submission[10].

2.5.  In considering the pay of Hermes couriers, average gross earnings stand at £11.40 per hour and are calculated (using an extremely conservative set of assumptions about deductions for fuel, vehicle insurance, depreciation and other expenses) to be £9.90 per hour after expenses. This is in effect an average premium of 37.5% over and above the NLW of £7.20. Accordingly Hermes couriers are paid a rate which enables them to make personal arrangements for pension provision, income insurance and other benefits which in a full time PAYE employment situation would be provided by the employer. Per paragraphs 5.5-5.6 of this submission, if Hermes couriers were employed on a PAYE basis, it is likely that a workforce of 15,000 couriers would be reduced to a fleet of some 6,000 vans for the reasons set out therein.

2.6.  Hermes’ Code of Conduct is a detailed consideration of the standards to which it expects everyone associated with the business to adhere. Obviously the Code of Conduct binds employees. Breach of its provisions would likely be considered misconduct absent extraordinary circumstances. Similarly all of Hermes’ agency worker suppliers are bound by the Code of Conduct. Accordingly it protects all of Hermes’ agency workers. Finally, the Code explicitly protects Hermes couriers. Hermes suggests that this Code goes over and above best practice. Hermes’ Code of Conduct is annexed to this submission.

2.7.  The Code of Conduct described in excerpted paragraph 5.4 above is only one aspect of what Hermes believes is an industry-leading social compliance package. The diagram below shows other components:

2.8.  In addition to the Code of Conduct new Standard Operating Procedures (SOPs) are in the process of being rolled out to Field Managers which offer further protection to couriers, agency workers and employees. These SOPs will deal with a range of scenarios including cover for a round when notice has been provided and short notice cover including emergencies. Copies of the SOPs specifically referred to above are annexed to this submission as Annexe 5.

2.9.  Cover for Hermes couriers who have a family emergency such as bereavement, a sick child or extreme weather are addressed by the Annexed SOP entitled: “Round Cover Process – Short Notice”. This directs Hermes staff [emphasis added]:

“Hermes acknowledges that in exceptional circumstances a Courier will be unable to provide services. Demonstrate understanding of issue, providing reassurance to Courier that their round/s will remain available to them when they are able to resume service delivery.”

The SOP goes on to make clear to Hermes Field Team staff that they should make every effort to assist the courier in making sure that cover for the round is arranged. As a last resort, this may result in Hermes – at its own cost – arranging for a commercial courier to cover the round. Accordingly it is very clear within the business that couriers dealing with exceptional circumstances should be treated compassionately.

3. For those casual and agency workers working in the 'gig economy', is the balance of benefits between worker and employer appropriate?

3.1  Hermes reiterates the definitional difficulties in identifying which companies are “gig economy” companies and which are not. Hermes draws the Committee’s attention to a February 2016 report by the JP Morgan Chase Institute. It considered the difference between asset sharing networks, for example Airbnb; and on-demand labour platforms. Its conclusions were stark, namely that those offering services via labour platforms tended to be poorer, experience more income volatility and typically be working a second or even third job[11]. Hermes is unambiguous that it is not a digital platform.

3.2  Hermes believes that in a best practice model, the benefits are equally shared. Both Hermes and its couriers benefit from the flexibility which its model affords its couriers. In turn Hermes couriers depend on the flexibility – defined in this respect as an absence of control, please refer to paragraphs 1.10-1.11 above – of Hermes’ arrangements. This allows for couriers to drop off and pick up children from school, care for elderly relatives or fit providing services to Hermes around tuition, study or carrying out other paid work.

3.3  In return for this flexibility, Hermes couriers sacrifice a number of employment rights which Hermes’ employees enjoy. This is not however a sacrifice for which nothing is given in return, in addition to flexibility which Hermes couriers require. As stated in paragraph 2.5 above, presently Hermes couriers’ average gross earnings stand at £11.40 per hour and are calculated (using an extremely conservative set of assumptions about deductions for fuel, vehicle insurance, depreciation and other expenses) to be £9.90 per hour after expenses. This is in effect an average premium of 37.5% over and above the NLW of £7.20. This significant premium enables couriers to make provision for pension arrangements, income protection insurance and to budget to take self-paid holidays.

3.4  Hermes recently announced to its couriers that from 1 April its benchmark minimum per hour target pay rate will increase to £8.50 per hour after expenses. This will result in an increase in per parcel rates for many of our couriers, although with average annual earnings standing at £9.90 per hour the effect of this increase will be most felt by those in the bottom quartile for earnings. Hermes has fixed the problem of variability of its couriers’ earnings by raising the baseline level such that NLW will be exceeded across the year by definition.

3.5  Accordingly the market value of the work which Hermes couriers undertake is at a significant premium to the National Living Wage and allows them to make their own pension and insurance arrangements as they see fit. Turning again to Hermes courier Graham Baines’ oral evidence to the Work and Pensions Committee on 6 February 2017:

Steve McCabe MP: The overwhelming thing I think I am hearing—and I can understand why some of my colleagues are asking about the benefits of other kinds of contracted employment—is that you are putting a very high premium on freedom. Am I right to hear that? Is that what you are telling us?

Graham Baines: I think with myself, yes. I have two jobs, and I like that. I don’t think I would want to be tied. Holidays, yes, but I just put extra money away to cover if I want to take a holiday, so I am fine for that. I get cover for my work. I love the freedom of being my own boss, and it suits my lifestyle.

Craig Mackinlay MP: You have got income protection insurance—very wise, and I am glad to hear it. If you have gone up to that sort of level of provision for yourself, are you looking after your own pension provision as well and perhaps making sure that your national insurance is up to date so that you will qualify for the state pension?

Graham Baines: Yes. I have pensions. I have an accountant, always have had an accountant, who does my tax every year. I pay national insurance and my tax.

Craig Mackinlay MP: You have made your own pension provision on top of state pension?

Graham Baines: Yes.[12]

3.6  Hermes’ contract with its couriers makes clear that they are contracting to provide a service. Hermes’ couriers need not necessarily provide this themselves but they are undertaking that parcels will be delivered – and so they must be. Hermes has been rather surprised that in recent debate on this issue, that parliamentarians have expressed the view that the very essence of self-employment is a right to not turn up or not to provide a service without consequence. This is a fundamental misunderstanding of the nature of self employment. The self-employed do not enjoy a right to withdraw their labour without consequence; nor should any such right be introduced. To do so would put those who use self-employed individuals in a position of not having any recourse in the event that any self-employed individual is in breach of contract by failing to provide the services he had agreed to provide.

3.7  The truth is that in Hermes’ business at least, the benefits of flexibility are equally shared. Hermes couriers depend on and require the flexibility which self-employment allows, enabling them to attend to childcare or study needs, or take care of sick or elderly relatives. A very large number of Hermes couriers would be unable to provide services on a full time basis; even the regularity of part time hours on a rota would likely be problematic for a majority.

3.8  Hermes has made a commitment to budget to make negotiated rate increases to couriers in connection with inflation. In the course of the year, and at any time, couriers are free to negotiate to agree new rates with their field manager. As well as being the right thing to do, Hermes is obliged to pay couriers at a sustainable rate to ensure that it has a robust and reliable supply chain. Therefore for reasons of business continuity as much as corporate social responsibility, Hermes models its rates of pay to ensure that they offer good earning potential to couriers. .

3.9  Hermes gives its senior management a budget to make payments to new couriers to ensure that they have an earning potential that is at least NLW during the first weeks of providing service, whilst they learn the round so that they are effectively compensated for the additional time taken.

4. What specific provision should there be for the protection and support of agency workers and those who are not employees? Who should be responsible for such provision – the Government, the beneficiary of the work, a mutual, the individual themselves?

4.1.  In considering this question Hermes would refer again to its Code of Conduct, described at paragraph 2.6 above. Hermes’ Code of Conduct is a declaration of its ethical principles as a business. Its Code enables Hermes to evidence that it is committed to fair business practices – and expects the same from its suppliers, partners and workforce. By way of example, unlike a number of its competitors, Hermes has never fined couriers for failing to turn up.

4.2.  In order to ensure that the principles set out in its Code of Conduct do in fact protect its workforce, Hermes established an internal Service Provider Complaints Panel. Issues which are raised by agency workers, couriers or employees via the Whistle Blower Hotline or by conventional escalated complaint are considered by the Panel except where the complaint concerns an alleged serious breach or potential breach of human rights; in which case the matter will be directed to Hermes’ ombudsman either by the Whistle Blower Hotline or the Panel. Hermes is one of the few companies that has a remedy process in place which looks to the principles of internationally recognized human rights for guidance.

4.3.  Hermes’ ombudsman is Anna Triponel who was appointed by Hermes in September 2016 as its internal Ombudsman on human rights issues. Ms Triponel worked on the drafting of the UN Guiding Principles on Business and Human Rights. Subsequently she spent three years working at Shift. Shift is the leading centre of expertise on the UN Guiding Principles on Business and Human Rights. Shift’s team of experts works globally with businesses, governments, civil society and international organizations to embed the Guiding Principles into practice. Shift’s Board of Trustees is Chaired by the former Special Representative of the UN Secretary-General for Business and Human Rights, Professor John Ruggie.

4.4.  Ms Triponel has dealt with three complaints that were reviewed both by the Ombudsman and the Panel. The first led to a reinstatement of the courier and an apology by the field manager, the second led to assistance to a sub-depot to strengthen its policies and processes, and the third led to recommendations from the Ombudsman to Hermes relating to supporting field managers and couriers in finding temporary replacement couriers and strengthening the training provided to field managers. The Ombudsman dealt with one complaint directly that led to a field manager making the Code of Conduct provisions related to child labour and youth employment clearer for its couriers. Finally, the Ombudsman referred two cases to the Panel related to payment issues.

4.5.  In November 2016 Ms Triponel reviewed around 50% of the cases that had been handled by the Panel to assess the potential for human rights issues as well as broader points of learning for Hermes. This resulted in insights such as a significant proportion of complaints made appear to stem from high business demands of field managers, coupled with an accumulation of grievances felt by couriers. These insights in turn informed a number of recommendations, including guidance and training for field managers, support for field managers and couriers in finding temporary replacement couriers, incentive structures for field managers and the auditing of the Code of Conduct compliance program. The company has acted upon some of these recommendations, including introducing new Standard Operating Procedures (“SOPs” see paragraph 27 above for further detail) regarding with-notice and no-notice situations in which cover needs to be arranged. Hermes is conducting an exercise in 2017 to identify and address its salient human rights, informed by the complaints and other inputs received to date, which might result from its business model.

4.6.  As noted in paragraph 2.9 above the introduction of new Standard Operating Procedures (SOPs) are a key driver of improvement in and ensuring consistency of day-to-day operations. Over time the SOPs will reduce the need for complaints to be made.

4.7.  Hermes would like to do more than just signpost its couriers to pensions, health insurance, mortgages and accountants but it is perverse than in so doing, it would put its business model at risk. Hermes currently uses its bulk buying power with insurance companies to ensure that couriers can get good deals – Hermes would like to offer more such deals to its couriers.

4.8.  In its submission to the Work and Pensions Committee (paragraph 10) Hermes noted that the Construction Industry Scheme[13] is in effect a deduction at source scheme which assists the self-employed in remaining current and compliant with their tax obligations. Hermes repeats that DWP and HMRC might wish to jointly consult on similar schemes for other industries which make significant use of a self employed workforce.

5. What differences should there be between levels of Government support for the self-employed and for employees, for example over statutory sick pay, holiday pay, employee pensions, maternity pay?

5.1.  The reality is that changes contemplated in this question would fundamentally alter the nature of self-employment. If the Government intends to introduce measures granting sick pay, holiday pay, maternity pay and new pensions entitlements from public finances these measures will need to be comprehensively costed.

5.2.  If it is proposed that the clients of the self-employed should be required to make sick pay, holiday pay, maternity pay and new pensions payments to the self-employed difficult questions of apportionment are raised. Such measures would almost completely erode the difference in status between the employed and the self-employed.

5.3.  Taking Hermes as a case in point, particularly in rural areas, many couriers will deliver parcels for more than one company at the same time. Hermes’ contract with its couriers explicitly permits this reflecting the reality of the couriers’ status as self-employed. In the hypothetical case of a courier regularly delivering parcels for three companies, what reasonable apportionment might be made between those three companies?

5.4.  Therefore if Hermes was obliged to employ its couriers on a PAYE basis, it has determined that the vast bulk of its parcels volume could be delivered by a very much smaller number of full time couriers; potentially as few as 6,000 vans. Such a transition would be disruptive but ultimately Hermes would be able to make this transition, albeit with a diminished workforce. If Hermes was obliged to buy a fleet of 6,000 vans, the directors’ obligations to the company’s shareholders would require that these assets be as fully utilised as possible. This would mean larger delivery areas for the (employed) drivers, a much larger number of deliveries per day and service level and productivity targets.

5.6              Hermes is proud to pay its couriers an average premium of 37.5% over and above the NLW of £7.20[14]. Delivery of parcels on a full time PAYE basis would likely be a NLW job for those driving Hermes’ hypothetical 6,000 vans considered in the preceding paragraph. Therefore what is contemplated in the question would in fact destroy employment opportunities, precisely where they are needed most. At present Hermes is able to offer 100% coverage of the UK by working flexibly with couriers the length and breadth of the country. A workforce driving 6,000 company-owned vans would inevitably cluster around existing transport and logistics hubs, rather than as now being spread around smaller and more remote communities.

6. How should those rights be changed, to ensure fair protection for workers at work?

6.1.  A case for changing the rights of the self-employed is not necessarily made out but the case for clarity over worker status is inarguable. In this respect Hermes would refer to paragraphs to 17 to 19 of the submission of The Law Society to this inquiry. For ease of reference the text of these paragraphs reads:

17.              The evolutionary nature of how to define in law who is an employee, worker or self-employed person has resulted in uncertainty for many as to what rights and status they enjoy. Currently, the only way to resolve this uncertainty is to take disputes to the employment tribunal. It is possible for two tribunals to come to contradictory views on the status of an employee or a worker, without either committing an appealable error of law. This possibility undermines the utility of case law.

18.              The very existence of a separate category of ‘worker’ creates uncertainty. As a result many people have no clear idea of their true legal status. This can encourage a business to try to impose a particular status, which is more closely related to what they wish the relationship to be rather than what the relationship is in reality.

19.              An example of this arose in the recent Uber decision where the company’s contracts were drafted in a way that clearly stated that each Uber driver controlled their own fate and Uber was merely their client, while imposing restrictions and work practices that reflected a different relationship. The Employment Tribunal judgment stated that:

‘We are satisfied that the supposed driver/passenger contract is a pure fiction which bears no relation to the real dealings and relationships between the parties.’

‘It is not real to regard Uber as working ‘for’ the drivers ... the only sensible interpretation is that the relationship is the other way around.’

Hermes agrees with the Law Society in this respect.

6.2.  With regard to how Hermes protects its couriers, agency workers and employees, please see paragraphs 2.4 to 2.7 of this submission which sets out in detail how Hermes’ Code of Conduct operates.

6.3.  With regard to pension provision for the self-employed, the National Employment Savings Trust (NEST) provides a means by which the self-employed might be encouraged to make contributions to a private pension fund. In a situation in which the self-employed may work for multiple companies simultaneously it seems to make little sense to allow the self-employed to join those companies’ Group Personal Pension plans. Hermes suggest however that NEST could and should be better publicised to the self-employed and would be glad to work with the Pensions Advisory Service in this regard.

7. What help should be offered in preparing those people who become self-employed (with, for example, financial, educational and legal advice), and who should be offering such help?

7.1.  Hermes suggests that those considering becoming self-employed might be made aware of what sensible contracting arrangements might entail – i.e. what best practice looks like. Per what is set out in paragraph 3.4 above, Hermes believes that its contracting arrangements with its self-employed should be seen as an example of best practice.

7.2.  In particular, it should be drawn to the attention of those making the transition to self employment that they will be responsible for their own tax self assessment and payment. Hermes emphasises to its couriers the need to ensure that they meet their fiscal obligations. Unlike some “gig economy” companies Hermes only pays earnings into UK bank accounts. Those considering becoming self-employed in the UK should be advised that anything involving contracting with overseas entities or offshore flows of funds should be viewed with suspicion.

7.3.  Similarly, as noted about in paragraph 4.7 Hermes would like to do more than just signpost its couriers to pensions, health insurance, mortgage and accountants but it is perverse that in order to do so it would put its business model at risk. Hermes could and should be able to use its bulk buying power to the benefit of its couriers without putting their legitimate self-employed status at risk.

8. Is there evidence that businesses are treating agency workers unfairly, compared with employees?

8.1.  Recent media coverage has exposed mistreatment of agency workers in the transport and logistics sector. Agency workers engaged by Hermes via agency worker providers are protected by Hermes Code of Conduct. Please see paragraphs 2.6 to 2.8 above in this regard.

8.2.  Hermes suggests that agency workers in particular are vulnerable to mistreatment. Accordingly companies making regular and large scale use of agency workers should be able to demonstrate systems and processes enabling agency workers to blow the whistle. Having done so, agency workers should then be protected from retaliation by management. Hermes’ social compliance framework has provisions addressing whistleblowing.

9. Should there be steps taken to constrain the use by businesses of agency workers?

9.1  Hermes’ warehouses are in normal time 80% staffed by a core of 1,700 PAYE employees This workforce is supplemented throughout the year by a further 400 agency workers. Logistics is highly cyclical with the 4-6 week peak period before Christmas being particularly busy. During this time Hermes’ use of agency workers increases significantly to 1,800.

9.1.  If meaningful restraints were introduced in this area it would impede Hermes’ ability to serve its customers’ including H&M, John Lewis, QVC, J D Williams and almost every major retailer in the UK. Such restraints would particularly be felt in the pre-Christmas peak period.

9.2.  In 2016 UK consumers spent 16% more online than the previous year and this is set to rise again by a further 11% in 2017 according to Cap Gemini and IMRG 2. A 2015 report from Visa Europe showed between 2011 and 2014 online annual spending by consumers tripled. Online sales are increasingly the driver of retailers’ profitability but they cannot participate in this market without a reliable, cost-efficient delivery service.

9.3.  Customers are becoming increasingly demanding, insisting on faster shipping and more precise delivery times. Accustomed to an on-demand world, millennials in particular demand transparency on where their goods are; that they be able to interact with delivery companies and, if needs be, change their minds. Imported from the USA in recent years, “Black Friday” creates huge spikes in demand which requires flexibility in the IT, operations and resources of both retailers and carriers alike. Hermes is adapting to this new landscape to ensure it remains both competitive and sustainable.

9.4.  Hermes is proud of its place in the UK ecommerce ecosystem. In order to play our part, we work fairly with our staff, agency workers and couriers alike – all of whom we try our very hardest to treat fairly. While no system is perfect we have worked hard to ensure that no one who is a part of our business is underpaid, exploited or abused and we will continue to ensure that this remains the case.

9.5.  Against this commercial backdrop Hermes would suggest that the case is far from made out that businesses should be constrained from using agency workers. Use of agency workers enables businesses which are strongly cyclical, such as transport and logistics, to scale according to seasonal demand. By way of example, Hermes’ average daily parcel volume of 700,000 doubles to between 1.3 million and 1.5 million per day in the 4 week pre-Christmas peak period. Without agency workers to supplement Hermes’ depot workforce, the business would be unable to meet this demand; it would be highly inappropriate for Hermes to take staff off on, on an ostensibly permanent basis, only to make them redundant some four weeks later. Agency workers serve a valuable and important need for business.

9.6.  Hermes suggests that in order to ensure that agency workers are protected from exploitation and ill treatment, that their employer – namely agency workers suppliers – should be held to their existing duty of care. Hermes would consider it unacceptable for an agency worker supplier to assert that its duty of care to the agency workers which it supplies is passed over to its client when the agency workers which it supplies undertake work. Clearly there is and should be a duty on companies making use of agency workers to ensure that they are treated fairly – and this is a duty which Hermes has voluntarily imposed on itself and its suppliers in the form of the annexed Code of Conduct.

10. What are the issues surrounding terms and conditions of employees, including the use of zero-hour contracts, definitions of flexible contracts, the role of the Low Pay Commission (“LPC”), and minimum wage enforcement?

10.1.                    Neither Hermes nor any of its agency worker suppliers’ use zero hours contracts so the company is unable to comment in this respect. All Hermes agency workers and employees are paid NLW or in excess.

10.2.                    In paragraphs 3.3 and 8.4 above Hermes sets out minimum and average pay for its self-employed couriers. It should be emphasised that Hermes couriers enjoy a 37.5% premium above NLW for their services.

10.3.                    Hermes does not require personal service of its couriers. Accordingly they are free to use substitutes and arrange cover if they need to take time off. Hermes also ensures that the number of parcels per round is capped at 60-70 parcels. This means that couriers’ earnings are stable over time. This also means that couriers are never confronted with an unexpectedly large amount of work which they are required to undertake but had not been prepared for. As parcel volumes double during the pre-Christmas peak period, rounds tend to be reduced in geographical size and kept constant at 60-70 parcels, with the excess taken on by additional couriers. Hermes will work with couriers to see if they can provide cover for the increased volume, if not then Hermes will make temporary arrangements (at its own cost) to ensure that the excess volume is handled. Hermes used 4,000 additional couriers in the 2016 peak period.

10.4.                    Hermes’ contracting arrangements with its couriers are described at paragraph 3.6 above but for the purposes of this question it should be repeated that its contract with its couriers is a model of clarity. A copy is annexed as Annex 1. Referring now to paragraph 1.9 of this submission, Hermes repeats that Employment Judge King praised Hermes’ contract for its clarity. Hermes therefore feels confident that its couriers understand the basis on which they contract with the company. Would that all contracts with the self-employed should be held to the same standard.

10.5.                    Piecework payment incentivises productivity on the part of Hermes couriers. Per parcel pay rates vary from around 50p to £1.50 in more remote places, with drop density being the most important determinant. Couriers are free to request an increase to their piece work rates at any time, and they are reviewed annually. Couriers earnings are therefore linked to parcel volumes but the critical factor is the per parcel rate. Since 2015 Hermes has benchmarked per parcel rates after expenses (as stated in paragraph 3.3) to the level of the National Minimum Wage to ensure that none of its couriers are paid less than this amount on an annualised basis. As well as being the right thing to do, this ensures that Hermes has remained competitive in local labour markets.

11. What is the role of trade unions in representing the self-employed and those not working in traditional employee roles?

11.1.                    Hermes has a number of channels through which couriers can make their voice heard. Couriers Online is a lightly moderated social media forum provided for couriers who discuss a range of issues. Hermes undertakes focus group work with its couriers and individual directors, including the CEO, meet couriers on a one to one basis periodically. In the near future, Hermes will issue a survey to its couriers intending to identify engagement rates. Separately, at the behest of Matthew Taylor’s independent review of employment practices in the modern economy, Hermes is undertaking a survey of its couriers. Finally, we are working to set up drop in sessions in which couriers can air concerns or make suggestions.

11.2.                    Hermes is currently considering establishing a not-for-profit membership owned organisation to engage with and represent couriers. Hermes would provide the seed funding for this organisation to be set up. This representation and engagement body would be jointly owned by all Hermes couriers and would have legal personality, independent of Hermes Parcelnet Limited. By design, Hermes would not be able to influence this body either directly, or indirectly, for example by putting its funding at risk.

11.3.                    These recommendations will be considered by the Hermes UK main board in the near future. Hermes would be glad of an opportunity to brief members of the Committee in detail about this potential development.

11.4.                    Hermes recognises the USDAW union which represents the interests of a number of members of staff. Together with the contemplated establishment of a Membership Owned Organisation, referred to in paragraph 11.2, Hermes believes that it is an exemplar of good corporate citizenship. Hermes believes that this is borne out by the fact that unlike many of the companies more usually associated with the phrase “gig economy” Hermes continues to enjoy a respectful, collaborative and mutually rewarding relationship with its couriers.

11.5.                    As an example of this, Hermes has a “You Said, We Did” process with its couriers in which changes to working arrangements or other issues to do with work. To take but three examples, couriers asked for in-car chargers for hand-held scanning devices which have now been made available. Second, Hermes does not require its couriers to wear uniform but there has been a clamour for branded clothing which has now been made available to people across and business. To be clear, the wearing of the branded clothing is completely voluntary. Third, using its bulk buying power Hermes has negotiated discounts for its couriers for fuel and other relevant goods such as tires, providing cards to couriers to enable them to access these deals. There are many more actions which Hermes will be rolling out in the coming months which will result in making its couriers’ work easier and more rewarding to do.

March 2017