Zero-hours contracts: Consultation on its way…

zero hours - hand holding timer showing zeroWhat’s the fuss?

As you may have noticed, there has been a lot of controversy recently over the use of zero-hours contracts. In the Summer, the Government announced its review of the growth of zero-hours contracts due to the number of organisations thought to be using such contracts and the ‘worrying level’ of insecurity for workers. Indeed, a recent poll by the CIPD suggests that more than 1 million British workers could be engaged under zero-hours contracts.

As a consequence of this controversy and accompanying media coverage, high-profile employers are now facing scrutiny because of their use of such agreements. For example, it has been widely reported that an employee of the retail chain Sports Direct is bringing a Tribunal claim, to challenge the legality of her own zero-hours contract. If her claim is successful this could have very large financial implications for the company.

Now, the results of the Government’s review have prompted the Business Secretary, Vince Cable, to announce that the Government will launch a consultation on zero-hours contracts later this year. The four key areas of concern for the Government are:

  • Exclusivity: Workers are not guaranteed a minimum number of hours and some contracts also prevent them from working for other employers.
  • Transparency: There is no legal definition for zero-hours contracts and no clarity that it may cover a number of working arrangements.
  • Uncertainty of earnings for workers
  • Balance of power in employment relationship. Many employees felt that they would be penalised if they do not accept the hours offered by the employer.

Labour leader, Ed Miliband, has also announced at the Labour party conference that his party plans to crack down on the ‘exploitative use’ of zero-hours contracts. Labour proposes:

  • to ban employers from insisting that zero-hours staff remain available for work even when there is no guarantee of work;
  • to end contracts that require zero-hours workers to work exclusively for one business; and
  • to ban the misuse of such contracts where the employees are actually working regular hours, over a sustained period, but without the same rights or benefits as full-time workers.

What are ‘zero-hours’ contracts?

Zero-hours contracts are, at present, perfectly legal. They are contracts for casual working whereby the employer does not guarantee to provide work and only pays for work actually done. Under some arrangements, the worker may be free to accept or refuse work when offered, but the agreement may require that the worker is expected to make him or herself available for work at any time. The person employed may be either a ‘worker’ or an ‘employee’ depending on the circumstances and contents of the contract.

What are the rights of those working under zero-hours contracts?

This will depend upon each particular individual’s employment status, i.e. whether they are classed as a ‘worker’ or an ‘employee’. Genuine zero-hours contracts will not usually create a “mutuality of obligation” – in other words, the employer will not be obliged to provide work to the individual and the employee will not be required to carry out the work offered. As a consequence, the individuals working under these agreements will often be deemed to be mere ‘workers’ rather than employees.

A zero-hours worker will benefit from various statutory rights, including protection from discrimination, the right to receive paid holiday, the right to receive the National Minimum Wage and (in certain situations) a right to receive statutory sick pay.

A zero-hours employee will benefit from a much higher level of protection than ‘workers’ (depending on their period of service). As well as all of the rights listed above, they will enjoy additional rights including the right not to be unfairly dismissed, an entitlement to statutory redundancy payments and an entitlement to maternity and other family leave/pay.

What are the pros and cons?

Flexibility

The main advantage for both employers and workers is that a zero-hours arrangement can provide valuable flexibility.

For employers: flexibility means taking a “pay as you go” approach to part of the workforce – adapting the workforce to meet demands and in certain circumstances not being tied into an employment relationship. This frees employers from the obligations to pay staff when there is no work to give them, avoids paid holiday and sick pay, the costs of recruitment, training and potential Tribunal claims. Employers find that zero-hours contracts are particularly useful in certain sectors, such as catering, retail and leisure, where demand for staff fluctuates significantly and work is simply not required during certain periods.

However, employers who use zero-hours contracts may encounter practical difficulties in ensuring that their workforces are consistent, reliable, and available when needed. Employers can overcome such uncertainty by ensuring that the terms of the agreement require the individual to undertake any work offered, but this may leave the employer open to potential problems of exclusivity, which the Government and the Labour Party have criticised and seemingly aim to bring to an end.

For staff: a zero-hours contract can mean having the ability to choose the hours you work – whether this is so that they can undertake additional part-time work in order to supplement income from an existing job, or simply to fit their work around home life.

However, the apparent “flexibility” for zero-hours workers is questionable, as the relative bargaining positions of employer and worker mean that it’s unrealistic to view workers as really having the flexibility to refuse work. In reality, many workers are likely to fear that rejecting work will result in them being offered less or no work in future.

Legal Status

Engaging workers rather than employees will often be beneficial to a business, as the higher level of employee legal protection will not apply. If an employer wants to make use of this advantage it should ensure that it avoids an employment relationship arising. Importantly it must ensure that there is no “mutuality of obligation” – in other words, the employer will not be obliged to provide work to the individual and the employee will not be required to carry out the work offered.

Employers should ensure that they have properly drafted contracts in place which reflect the true nature of the relationship. The contract should at least contain a clause which expressly states that there is no mutuality of obligation as described above. However, risks can never be entirely eliminated and it is therefore important for the employer to continually assess the relationship and take steps to ensure that there is no mutuality of obligation in practice, despite the wording of the contract. This is particularly important given that the approach that is taken by Tribunals in deciding employment status is to look to the reality of the situation and whether it does, in practice, reflect the wording of the contract.

Financial

There are fears that zero-hours contracts can be used to exploit workers by requiring them to be available and ‘on standby’ for work with no guarantee given that there will be any work for them. Further, such workers are often required to be on standby at home, rather than at the employers’ premises, thereby enabling the employers to avoid liability to pay the National Minimum Wage for time on call.

Business Secretary Vince Cable has voiced concerns over the potential for exploitation of workers, noting that, in some cases, workers are being told that they need to be available for work whilst also being told that they are not allowed to work for anyone else. This then causes financial instability, as the workers end up not being able to work enough hours to support themselves financially.

In fact, statistics from the Resolution Foundation show that those employed on zero-hours contracts receive lower than average gross weekly pay (£236 per week compared to £482 per week) and tend to work lower than average weekly hours (21 hours per week compared to 31 hours per week).

On the other hand, despite the above, the CIPD’s survey of 148 workers on zero-hours contracts reported that just 14% of them felt that their employer often or very often failed to provide them with sufficient hours to have a basic standard of living, whilst 52% claimed that this was very rare.

What are the implications for employers?

Employers may be uncomfortable about exposing themselves to the current media controversy, especially as there has even been talk of demonstrations outside the premises of employers who adopt such contracts.

Whilst employers should remain mindful to these criticisms, such disadvantages can be minimised by:

  • ensuring that you only use zero-hours contracts where genuinely needed;
  • not restricting a zero-hours worker’s ability to work elsewhere; and
  • ensuring that the contracts are properly drafted to reflect the actual relationship between the parties.

Employers can also take comfort from the fact that the Government does not seem keen to ban the use of zero-hours contracts completely, recognising the vital role they play in labour market flexibility.

Employers should continue to watch this space for more news on the content of the Consultation once the Government publishes it, and its progress, conclusions and any legislative changes made as a result.