Earlier this year, the use of exclusivity clauses in zero hours contracts was made unlawful, with any such clauses declared void. However, the controversy surrounding the use of these contracts has not gone away and retailers such as Sports Direct have continued to receive criticism for their use. Other countries have also been reviewing such agreements, most recently Eire where new labour market reforms being considered include a ban on offering less than three continuous hours of work to employees.

Who is a zero hours worker?

An employee or other worker who works under a zero hours contract, individuals who work under a non-contractual zero hours arrangement, or individuals who work under worker’s contracts of a kind specified by regulations, having regard to the income, rate of pay or working hours of such workers. (section 27B(2) and (3) ERA)

Although as yet no such regulations have been made, the intent is that this power could be used in the future to, for example, protect those who earn below a certain amount or work below a certain threshold of guaranteed hours.

What is a zero hours contract?

A zero hours contract is “a contract of employment or other worker’s contract under which (a) the undertaking to do or perform work or services is an undertaking to do so conditionally on the employer making work or services available to the worker, and (b) that there is no certainty that any such work or services will be made available to the worker” (section 27A(1) ERA)

Now, the UK government has taken the protection of zero hours workers one step further by introducing new draft regulations which, if passed, would mean individuals are protected from detriment or dismissal for breach of an exclusivity clause in their contract.

Exclusivity clauses

On 26 May this year, section 153 of the Small Business, Enterprise and Employment Act 2015 came into force (Small Business, Enterprise and Employment Act 2015). The Act made a number of amendments to employment law but amongst them, it added a new s27A(3) into the Employment Rights Act 1996, which states that any provision in a zero hours contract which prohibits a worker from either:

  • doing work or performing services under another contract or another arrangement, or
  • doing work or performing services under another contract or any other arrangement, without the employer’s consent

should be void and unenforceable. The section applied to all zero hours contracts whether entered into before or after the law came into force. Individuals must be able to take work elsewhere in order to earn an income, and an employer cannot stop (or require that the individual must seek their permission first) any person from looking for work or accepting work from another employer.

At the time, concerns were raised that it would be easy for employers to avoid these provisions by offering contracts with, for example, a guarantee of only one hour of work per week. Furthermore, if employers were under no obligation to offer work to employees, would they effectively hold their workers to exclusivity clauses simply by declining to offer any work to those individuals who were working elsewhere?

The Small Business, Enterprise and Employment Act included a power allowing the Secretary of State for Business, Information and Skills to make new regulations as necessary “for the purpose of securing that zero hours workers, or any description of zero hours workers, are not restricted by any provision or purported provision of their contracts or arrangements with their employers from doing any work otherwise than under those contracts or arrangements” (section 27B(1) of the Employment Rights Act, inserted by SBEEA).

New draft regulations, the Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015, have been published, aiming to prevent employers avoiding the exclusivity ban. They provide that:

  • Employees working under a zero hours contract have the right not to be unfairly dismissed if the principal reason for their dismissal is that they have breached an exclusivity clause in their contract.
  • A worker who works under a zero hours contract has the right not to be subjected to any detriment by, or as a result of, any act or deliberate failure to act by an employer because they have breached an exclusivity clause in their contract.

New guidance for employers

The new Zero Hours Contracts: Guidance for Employers reminds employers that (except for those who are genuinely self-employed under a zero hours arrangement), all those employed under a zero hours contracts are either workers or employees, and whilst their precise legal entitlements will differ depending upon their status, all are entitled to the minimum wage, paid annual leave, rest breaks and protection from discrimination.

When is it appropriate to use a zero hours contract?

The guidance explains that there can be benefits to both parties if a zero hours contract is appropriately used, such as where work demands are irregular, or where demand for staff varies, or where it suits an individual to have greater flexibility at work. Some types of work are driven by external factors out of the employer’s control.

Click here to view the table.

Examples given of where zero hours contracts might be appropriate (although, as the guidance points out, they are not the only option) include:

What’s the alternative?

As the guidance points out, even if it is appropriate to use a zero hours contract, it doesn’t mean it is the only option available. Depending on the business need, these include:

  • offering overtime to permanent staff to ensure experienced staff deal with temporary fluctuations in demand
  • recruiting a part time employee or someone on a fixed term contract if regular hours need to be worked to adapt to a change in the business needs
  • offering annualised hours contracts if peaks in demand are known across a year
  • using agency staff if staff are needed temporarily or at short notice

What now for zero hours contracts?

Zero hours contracts remain a hot topic for workers, unions and businesses. In Scotland, new statutory guidance for public sector bids will require companies tendering for work to commit not to use zero hours contracts. Unions still want greater limits on the use of the contracts, but the current government has committed only (as part of its vow to avoid excessive regulation) to the review of the effectiveness of these anti-avoidance measures in a published report not less than once every five years.