Zero-hours contracts remain a controversial subject within UK employment law. Introduced with the purpose of giving flexibility and freedom to the workforce, zero-hours contracts have since inherited a more negative reputation. See our brief overview on their current status below.
What is a zero-hours contract?
Although not legally defined, they are generally understood to be a casual contract between an employer and a worker under which the employer is not obliged to provide minimum hours of work and the worker is paid only for work carried out.
Zero-hours contracts typically do not give an individual ‘employee’ status, but instead give ‘worker’ status. This means that the individual working under the contract benefits from statutory rights relating to minimum wage and holidays (for instance), but not employment rights such as continuity of service, the right (in some situations) to a redundancy payment, and the right not to be unfairly dismissed. That said, zero-hours contracts take many forms; some are prepared so that the workers are ‘employees’ (and therefore have all the rights that go with being employees), some are prepared as ‘workers’, and some are simply unclear as to what type of relationship is intended by the parties.
It is important that both parties understand that a zero-hours contract can make their working relationship different to other contract arrangements. It is also important for employers to be aware of the pitfalls that may arise whereby the worker could develop employment rights, as how an employer treats a zero-hours worker practically may take the arrangement outside of the scope of an agreement which purports to make the individual a worker only. For example, an employer may be tempted to punish a zero-hours worker under a disciplinary procedure, making them akin to an employee.
When are they used?
Zero-hours contracts are most commonly used within the hospitality industry, or where employers have a temporary or changeable need for staff. Zero-hours contracts are useful for any company that may require cover for unexpected events, temporary staff shortages, or on-call or bank workers. This is because they create a flexible working arrangement with no guaranteed minimum hours, so an employer can call in a zero-hours worker ‘as or when’ required to meet business needs.
Why are they controversial?
Zero-hours contracts have been subject to media scrutiny since usage became increasingly popular at the start of the 21st century. Such scrutiny has increased and the subject has been subject to policy debate over recent months. The Queen referred to zero-hours contracts in her 2014 speech stating that it should be a priority to “strengthen UK employment law by… cracking down on abuse in zero-hours contracts”.
It has long been recognised that zero-hours contracts lack clarity which can result in difficulties for both parties (such as misunderstandings in relation to the employment status of a zero-hours worker). More pressingly, zero-hours contracts are viewed as exploitative; expecting workers (usually) to exclusively commit to a company without any guarantee of receiving work.
Public opinion on zero-hours contracts is mixed. Some might argue that they result in financial insecurity and exploitation on the part of the employer, however other individuals enjoy the flexibility that such agreements provide. Businesses tend to maintain that zero-hours contracts are invaluable in meeting fluctuating demand, and that they benefit the economy by keeping people in employment.
The government held a formal consultation on the use of zero-hours contracts which closed on 13 March 2014. This focussed on the two key areas of concern – exclusivity and transparency.
An exclusivity clause is a contractual provision which (a) prohibits the worker from doing work or performing services under another contract or under any other arrangement, or (b) prohibits the worker from doing so without the employer’s consent. There is concern within the labour market about the misuse of exclusivity clauses in zero-hours contracts, as it would seem that workers are fearful of turning down work, or accepting work elsewhere for fear of the risk of their contract being terminated or their hours being reduced. It is clear that there is an imbalance of power between the employer and a zero-hours worker in many cases.
Turning to transparency, as there is no clear definition of a zero-hours contract, and because they can take on different forms, there is a lack of clarity about the consequences of an individual entering into a zero-hours working arrangement. Individuals and employers have a concerning lack of awareness about what employment rights may attach to a zero-hours contract, and it appears that employers and workers alike are unsure how to clarify with any certainty what exactly their relationship is.
Proposals
A ban on zero-hours contracts has been called for altogether, however that proposal has not been taken forward as it is the opinion of many that a blanket ban would have a severe and negative impact on the current labour market.
To address the zero-hours problem, the Small Business, Enterprise and Employment Bill was published on 25 June 2014. For the first time, the Bill includes a legal definition of what a zero-hours contract actually is. In addition, a key provision of the Bill is that exclusivity clauses in zero-hours contracts will be unenforceable, meaning that zero-hours workers will be able to have other jobs. How this will work in practice will be tricky for many businesses, as there will likely be issues arising where both ‘employers’ offer the worker some hours on the same day.
The government has also stated that it will work with business and unions to develop a code of practice for employers that wish to use zero-hours contracts. It is said that the code of practice will be ready by the end of this year. It is possible that, as part of the code of practice, the use of zero-hours contracts may be discouraged except where there is consent from the worker who has voluntarily accepted a flexible working arrangement.
The Bill is expected to become law in early 2015 and, together with the proposed code of practice, will for the first time, provide formal rules and guidance on the use of zero-hours contract.
What do you need to do?
For now, zero-hours contracts are very much lawful and represent a high percentage of employment arrangements across the country. You do not, therefore, at present need to make any immediate changes to any zero-hour contracts you may already have in place, and can continue to engage staff on a zero-hours basis moving forwards. If you are considering engaging individuals on a zero-hours basis it is important that you clearly confirm your intentions from the outset. We strongly suggest that you speak to a member of the Employmentor team if you are considering the need to engage individuals on a zero-hours basis to ensure that the arrangement works for your business.
It is likely that there will be much wrangling about the wording of the Bill and the code of practice. We are hopeful that towards the end of 2014 we will have an idea of exactly what laws are expected to come into force, and what that means for zero-hours contracts. Once it is clear how the law will change, employers who use zero-hours contracts should review their use of and the content of their zero-hours contracts to ensure they comply with the new law. Of course we will update you when we know more on the proposals. Watch this space…
If you would like any further advice in relation to zero-hours contracts, please contact a member of the Employmentor team on email hidden; JavaScript is required.
Note: The content of this article is for general information only and does not constitute legal advice. Specific legal advice should be taken in any specific circumstance.
August 2014
