Jiten Kotecha John Lewis : The £40m Holiday Pay Error

In 2013, Jiten Kotecha’s legal career included a short spell at John Lewis, the great British temple of Partnership, fairness and reassuringly expensive kettles. It was quite a year to visit. Hundreds of management jobs were disappearing, thousands of outsourced cleaners were discovering where the Partnership stopped, suppliers were complaining about rebates, and then somebody looked at a payslip and John Lewis discovered it had been calculating holiday pay incorrectly for seven fucking years.

John Lewis had spent decades selling Britain one of retail’s great promises: Never Knowingly Undersold. Behind the slogan sat something larger than price matching. John Lewis sold an idea about itself. This was supposedly capitalism done differently, with employees recast as Partners, commercial success shared rather than merely extracted and the business presented as a warmer alternative to the usual high-street machine.

It was an extraordinarily effective story. Warm lighting. Good manners. Employee ownership. Christmas adverts engineered to make half the country cry over a snowman, a bear or whatever woodland creature had been assigned emotional duties that year. The Partnership was not just a corporate structure. It was part of the product.

Then you walk through the staff entrance.

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Jiten Kotecha Goes Shopping

Kotecha’s career history records a short legal placement at John Lewis in 2013, during the early years of an employment-law career that would later take him through KPMG and into senior employment counsel work at Cummins. The available public material gives the year rather than sufficiently precise start and finish dates, so there is no basis for pretending Kotecha was personally sitting beside Payroll when the largest employment problem of the year surfaced.

There is no need to manufacture that connection. The interesting thing is the institution he passed through and the year attached to it. Because 2013 at John Lewis offered practically an entire employment-law syllabus without anybody needing to leave the building.

Redundancy, outsourcing, low pay, employee relations, supplier pressure, Working Time Regulations and the difference between corporate values on a poster and the machinery underneath them were all available for study. For somebody building an employment-law career, John Lewis had rather thoughtfully laid out the fucking course materials.

Partners, Please Report To Consultation

In February 2013, John Lewis announced plans to remove 325 department-manager jobs across 28 stores as it reorganised management structures around changing shopping habits and the growth of online retail. John Lewis was not some wreck already being dragged towards administration. It had enjoyed a strong Christmas and was widely being presented as one of the healthier operators in a miserable retail market.

The timing made the restructuring more interesting because John Lewis was also being promoted as a model of responsible capitalism. Employee ownership was supposed to alter the relationship between workers and the business, but it turned out not to repeal commercial gravity. The Partnership still had structures, costs and layers of management, and when management concluded that fewer managers were required, hundreds of Partners entered consultation like workers anywhere else.

That does not make the restructuring improper. Businesses reorganise. What it does is scrape some varnish from the mythology. The employee-owned shop still had an axe when it needed one. It merely had rather nicer fucking branding on the handle.

Seventeen Per Cent For The Partners

Then came the photogenic bit.

In March 2013, John Lewis announced strong annual results and a 17% Partnership bonus, equivalent to roughly nine weeks’ pay for eligible Partners. This was the model at its most persuasive. Thousands of employees sharing directly in the success of the business they collectively owned, with staff gathering to hear the annual bonus announcement and the Partnership philosophy converted into a very tangible number.

Seventeen per cent is not an abstract corporate value. You can spend it. That was precisely the attraction of the John Lewis model. Unlike the usual executive speech about everyone pulling together before somebody upstairs disappears with the incentive scheme, the Partnership actually distributed a substantial reward across the workforce.

There was just one awkward question.

Who exactly counted as the workforce?

Partnership Stops At The Mop Bucket

Around 3,000 outsourced cleaners working across John Lewis sites sat outside the Partnership structure. They could clean the shops, empty the bins, scrub the floors, work around customers and arrive before the doors opened, but they did not share the 17% Partnership bonus. Campaigners were also pressing John Lewis over the Living Wage, arguing that many of those workers were being paid around minimum-wage levels while the Partners whose workplace they cleaned shared a bonus pot worth roughly £200 million.

That distinction rested on corporate structure rather than geography. The cleaners might spend their working lives inside John Lewis buildings, but legally their employer sat somewhere else. The Partnership could therefore point to the contractor and explain that these were not its Partners. Perfectly comprehensible on an organisational chart. Rather less romantic when the person emptying the John Lewis bins is watching John Lewis employees celebrate nine weeks’ extra pay.

The dispute was not a one-day campaign attached opportunistically to the bonus announcement. Cleaners at the Oxford Street flagship had already protested and taken strike action in 2012 over wages, proposed redundancies and reductions in hours. The Industrial Workers of the World described it as the first strike in John Lewis history, which is quite an institutional achievement for workers supposedly peripheral enough to sit outside the famous ownership model.

By 2013, the issue had reached Parliament. John McDonnell raised the position of low-paid cleaners and later returned specifically to the contradiction at John Lewis, pointing out that Britain liked to celebrate the business as a wonderful mutual while outsourced cleaners remained outside the mutual structure and outside the London Living Wage.

The Partnership could stretch across an enormous department store.

It just struggled to reach the fucking mop bucket.

Then The Suppliers Asked About Partnership

March produced another little test of the terminology. Soon after John Lewis announced its strong results and 17% employee bonus, the retailer faced criticism over a rebate arrangement affecting suppliers, with payments reaching as high as 5.25% depending on sales growth.

Small-business representatives were furious, and the British Independent Retailers Association supplied a line so perfectly formed that there is little point trying to improve it: “Partnership doesn’t seem to include their supply partners.” The Forum of Private Business went further and accused John Lewis of greed, particularly given the proximity of the demand to the Partnership’s healthy results and staff bonus.

John Lewis defended the commercial arrangements and said suppliers could discuss their individual circumstances. Fair enough. But by this point the word Partnership had begun behaving like one of those elastic luggage straps that looks reassuring until somebody actually puts weight on it.

Employees were Partners. Cleaners were contractors. Suppliers were counterparties. Three hundred and twenty-five managers were discovering that Partnership did not guarantee continued employment.

And somewhere underneath all that warm corporate language, Payroll was preparing the main event.

Then A Bloke Looked At His Payslip

John Lewis employed tens of thousands of people, operated one of Britain’s most studied corporate structures and possessed all the professional machinery expected of a major national retailer. Finance departments, personnel teams, payroll specialists, managers, lawyers, auditors and advisers all existed somewhere within or around that machine.

Then a bloke looked at his payslip.

Contemporary reporting said a relatively new employee noticed that premiums for Sunday and bank-holiday working were not being reflected in his holiday pay in the way they had been with his previous employer. John Lewis said it had already been reviewing the policy, but the employee’s question helped bring the issue properly into view.

That tiny human detail is more humiliating than any elaborate metaphor. A sophisticated company can build committees, processes, policies and systems across an enormous workforce, yet sometimes the thing that finally matters is one worker looking at a number and asking why it does not look right.

Seven years. Around 69,000 workers. Tens of millions of pounds.

Sometimes governance arrives wearing a lanyard and carrying a presentation.

Sometimes it just asks where the fucking money went.

August: £40 Million

On 22 August 2013, John Lewis announced the problem publicly. Partners who received premiums for Sunday and bank-holiday working had not had those additions correctly reflected in their holiday pay under the Working Time Regulations.

The problem went back to 2006.

Approximately 69,000 employees were affected out of a workforce of around 85,500. John Lewis expected approximately £40 million in payments and associated costs, while its interim accounts subsequently recorded a total exceptional charge of £47.3 million once an additional £7.3 million effect on pension liabilities was included.

At that scale, “payroll error” begins to sound like describing a flood as an enthusiastic puddle.

The average payment was expected to be around £350, although individual amounts varied according to working patterns. More than half of the affected Partners were expected to receive less than £120, while others stood to receive considerably larger sums. The eventual arithmetic was complicated, but the central fact was beautifully simple: holiday pay had been calculated incorrectly for years across most of the fucking workforce.

The Regulations Had Been There The Whole Time

The underlying issue was almost offensively ordinary. Employees working Sundays and bank holidays could receive additional premiums, and those premiums needed to be treated correctly when holiday pay was calculated. John Lewis had not been doing that.

There was no rogue executive carrying suitcases of cash through a service entrance, no cyberattack and no mysterious algorithm apparently developed by a teenager in California. The law existed, the premiums existed and the calculation was wrong.

Once the problem was established, John Lewis changed its systems, calculated corrections and estimated that getting holiday pay right in future would increase annual payroll costs by around half a per cent. Seven years of incorrect calculations across tens of thousands of workers ended, in practical terms, with somebody changing how Payroll did the maths.

The Regulations had been there the whole fucking time.

Former Partners Meet Another Boundary

John Lewis also decided that some former employees would receive corrective payments. Those who had left through redundancy, illness or retirement were included, while people who had left voluntarily were not.

That produces a particularly strange little edge to a story about money people should have received while they were working. Two employees could have spent years working the same premium shifts under the same defective holiday-pay calculation, only for their treatment afterwards to depend partly on how they eventually left.

One retires and receives a correction. Another resigns for a better job and does not.

John Lewis said it had considered its legal and moral obligations alongside the practical and financial consequences of extending the exercise further. Legal. Moral. Practical. Financial. Four excellent words to have available when the mistake has already acquired eight figures.

Quite A Year For An Employment Lawyer

This is where Kotecha’s 2013 placement becomes interesting without needing to invent anything about his involvement. The public record gives us the year but not dates precise enough to place him personally alongside individual announcements or meetings.

What it does establish is that his career passed through John Lewis during an extraordinary employment-law period. Hundreds of management roles were undergoing restructuring, outsourced cleaners were campaigning over pay and exclusion from the Partnership model, Parliamentarians were talking about their treatment, suppliers were challenging the commercial meaning of “Partnership” and around 69,000 employees required holiday-pay corrections after a seven-year problem.

For an employment lawyer, that is not quiet background scenery. It is practically a practical training course with tills.

Redundancy sat in one aisle. Outsourcing sat in another. Working time, remuneration, employee relations and reputational risk were stacked neatly towards the back.

The Partnership was offering the full fucking syllabus.

The Payroll Had One More Trick

The holiday-pay problem was not the only employment-pay issue eventually found inside systems operating during this period. In 2017, John Lewis disclosed a separate problem involving pay averaging, an arrangement introduced in 2006 to give Partners more consistent monthly basic pay despite variations in the hours they worked.

The intention was sensible. Workers received smoother monthly income rather than wages jumping around with the rota. Minimum-wage legislation, however, cares about particular pay reference periods rather than standing back at the end of the year and admiring the average.

John Lewis concluded that while annual earnings were generally sufficient, the averaging arrangement could leave some hourly paid employees technically below the National Minimum Wage in individual months when they worked above-average hours. The Partnership initially booked a £36 million provision to cover potential rectification and associated costs.

That £36 million was not ultimately the amount handed to workers. After John Lewis agreed a methodology with HMRC, rectification payments were made to more than 33,000 Partners, 90% of whom received less than £100, and the company later released £30.3 million of the unused provision.

The important point is narrower and cleaner. Another pay-compliance issue was eventually identified in a system that had been operating throughout 2013, the year of Kotecha’s placement.

Apparently 2006 had been a fucking vintage for John Lewis payroll design.

The Brochure And The Building

John Lewis has always wanted to be understood as more than another retailer shifting sofas, televisions and saucepans. The Partnership model gave the company a moral architecture. Employees owned the business. Success was shared. Work was supposed to have value beyond the wage packet.

That ideal is exactly what makes the contradictions worth examining. An ordinary retailer outsourcing cleaners is ordinary capitalism. An employee-owned Partnership outsourcing thousands of cleaners who then campaign for the Living Wage while Partners collect a 17% bonus has a very different texture.

The same applies to restructuring. A conventional retailer cutting 325 management roles is another business story. A company repeatedly invoked as an example of responsible capitalism doing the same thing forces the reader back towards the claims made about what makes the company different.

Then around 69,000 employees discover that their holiday pay has been calculated incorrectly for years.

At that point the distance between the brochure and the building becomes worth measuring.

Never Knowingly Underpaid

By the end of 2013, John Lewis’s famous slogan was carrying rather more weight than its advertising department had probably intended.

Never Knowingly Undersold.

Customers knew it. Competitors knew it. Britain knew it. Meanwhile, outsourced cleaners remained outside the Partnership model, hundreds of managers had faced restructuring, suppliers had publicly questioned how far “Partnership” extended and tens of thousands of employees required holiday-pay corrections reaching back years.

Jiten Kotecha’s legal career passed through John Lewis during that same year. A short placement, a famous institution and one extraordinary employment-law habitat.

John Lewis promised customers it would never knowingly undersell them. For approximately 69,000 workers checking what should have been included in their holiday pay, another version of the slogan was begging to be printed.

Never knowingly underpaid?

One bloke looked at his payslip.

Turns out it was a fucking useful question.

Lee Thompson – Founder, The Cummins Accountability Project

Jiten’s Jobs : John Lewis – Never Knowingly Underpaid