Background

Zero hours contracts are favoured by many employers in the United Kingdom due to their flexible nature, allowing them to respond to fluctuating demands for services. According to the Office of National Statistics, in the period between October and December 2014, the number of people with zero hours contracts for their main job was 697,000, representing some 2.3% of the workforce. Although the UK Government’s findings suggest that the majority of employers use these contracts responsibly, they are open to abuse. There is widespread concern that zero hours contracts do not offer enough financial stability or security to employees as they can tie them to a workplace, whilst providing no guarantee of work or pay, and often also denying rights to holiday and sick pay.

Against this background, Vince Cable, Secretary of State for Business, Innovation and Skills, vowed to crack down on employers who abuse zero hours contracts and he subsequently launched a consultation on zero hours contracts at the end of 2013. 83% of the respondents to that consultation supported a ban on exclusivity clauses. These provisions have the potential consequence that the zero hours worker can be provided with no work by the individual's employer and yet is unable to look for work elsewhere.

A ban on exclusivity clauses will be introduced by the Small Business, Enterprise and Employment Bill (the “Bill”). The Bill contains provisions that will render exclusivity clauses unenforceable, so that individuals are able to accept employment elsewhere if they wish.

Due to concerns that employers could seek to avoid such protection by, for example, offering a bare minimum number of working hours per week, perhaps even as little as one hour, the Government carried out a further period of consultation at the end of last year. This update considers the results of that consultation, which have just been published and how, taking on board the responses to that consultation, the Government intends to tackle avoidance of the ban on exclusivity clauses.

The results of the latest consultation on zero hours contracts

The majority of the respondents to this latest consultation agreed that some employers were likely to attempt to avoid the ban on exclusivity clauses and that the Government should take legislative steps to prevent this.

This has led to the Government publishing draft regulations aimed at preventing employers from trying to find ways of avoiding anti-exclusivity provisions and to punish those that do. The effect of this legislation will be that employees on zero hours contracts will be free to look for work elsewhere and to boost their income, without fear of being penalised for doing so.

New anti-avoidance legislation

The key elements of the draft regulations are as follows:

  • The prohibition on exclusivity clauses will extend beyond zero hours contracts to all contracts under which the individual will earn less than a specified level of weekly income, which is still to be determined. These will be known as “prescribed contracts”.
  • However, there will be an exception for workers who earn over a certain amount per hour (currently proposed at £20). This should ensure that the legislation protects the right group of people.
  • There will be a right for zero hours workers (and those earning below the specified level of weekly income) not to suffer any detriment on the grounds that the worker has performed work under another contract.
  • A worker who suffers such a detriment will be able to complain to an Employment Tribunal. If the complaint is upheld, the Tribunal will be entitled to award compensation to the worker and the amount awarded shall be such as the Tribunal considers just and equitable in all the circumstances. In cases where there have been aggravating features (i.e. repeated breaches by the employer or conduct that is malicious, insulting or oppressive), the employer may also face civil penalties under the Employment Tribunals Act 1996. This should act as a deterrent to those employers who might consider avoiding the exclusivity clause ban.

Next steps

The Bill received its Third Reading in the House of Lords yesterday and was passed. Both the House of Commons and House of Lords must now agree the final form of the Bill before it can proceed to Royal Assent and become law. Therefore, employers should, as a matter of priority, review their use of zero hours contracts generally and in particular consider whether any of the contracts they offer would qualify as “prescribed contracts” (and therefore be caught by this new legislation).

The responses to the consultation suggested that there is a need for more information, advice and guidance with regard to zero hours contracts to ensure that employers understand their responsibilities and workers understand their rights. The Government has indicated that it will encourage the development of industry led, sector specific codes of practice on the use of zero hours contracts as issues vary from sector to sector. However, the Government also proposes to review its own existing guidance.

Read the Government's full consultation on zero hours contracts