Background

In December 2013, following a year of debate on the benefits and pitfalls, the Government launched its consultation on the use of zero-hours contracts. The Government aimed to ‘maximise the opportunities of zero-hours contracts while minimising abuse and setting out core standards that protect individuals’. The consultation looked at the surrounding issues and sought evidence and views on possible Government action and how employers could use zero-hours contracts. The consultation closed on 19 March 2014.

What is a zero-hours contract?

A zero-hours contract is essentially a contract of employment under which an individual has no set or guaranteed hours and the employer is not obliged to provide any work. The individual is not obliged to accept work offered and is paid in relation to hours worked only. These factors would indicate that those engaged on zero-hours contracts may be more akin to ‘workers’, as opposed to ‘employees’. The effect of this is that those engaged on such contracts may be afforded less rights under employment legislation (such as the right to bring claims for unfair dismissal, and statutory redundancy payments). That said, it is clear that zero-hours contracts may be of great utility in certain contexts - for example, they offer flexibility when joining the job market, particularly important for those with family commitments. 

Exclusivity clauses

Although the consultation did not aim to introduce new legislation to deal with zero-hours contracts, banning exclusivity clauses was discussed and, on 25 June 2014, the Business Secretary, Vince Cable, announced his plans to ban exclusivity clauses in zero-hours contracts. Exclusivity clauses prevent individuals from seeking employment with more than one employer, where they are engaged under a zero-hours contract. This can create a stark imbalance in the rights of employer and individual, where the individual’s flexibility and choice of employment may be inherently undermined. 

Other issues in zero-hours contracts

Although Mr Cable acknowledged that zero-hours contracts have a place in today’s labour market, he highlighted that ‘… it has become clear that some unscrupulous employers abuse the flexibility that these contracts offer to the detriment of their workers’. He further stated that ‘… following overwhelming evidence we are now banning the use of exclusivity in zero-hours contracts and committing to increase the availability of information for employees on this contract’. This follows an overwhelming 83% of the 36,000 responses indicating that they were in favour of making exclusivity clauses unlawful. 

The Business Secretary, acknowledging that those engaged on zero-hours contracts require more information about what it means for them, touched on what is arguably one of the most frustrating aspects of zero-hours contracts for individuals: hours are often unpredictable and earnings can be uncertain. It therefore becomes difficult for workers to calculate their earnings and benefit entitlements. Taken in the context of exclusivity clauses, to which it is estimated that approximately 125,000 workers are currently subjected, those on zero-hours contracts can find themselves in ambiguous and frustrating employment situations.

It should also be noted that zero-hours contracts do not entirely favour the employer, as the legal and practical issues involved in zero-hours contracts can be challenging in themselves. For example, to calculate a week’s pay for the purposes of holiday pay, an average of the last 12 working weeks (not counting weeks where there was no work) needs to be taken. How does an employer do this where the worker does not have normal working hours? To complicate matters further, the calculation would also have to include overtime payments and bonuses paid during those 12 working weeks. Given the current auto-enrolment regime, it may cause employers who have many zero-hours contracts on their books a real headache to calculate contributions for those with fluctuating earnings and in particular in relation to those whose pay dates may not coincide with the relevant pay reference period to assess earnings for auto-enrolment.  Moreover, what happens if earnings drop below the qualifying threshold? If there is no contractual basis on which employers are entitled to claw-back pension contributions that have already been made, then employers could potentially face unlawful deduction from wages claims. Clearly, zero-hours contracts demand significant monitoring and assessment of earnings and times worked in order to provide for workers’ rights adequately. 

Are zero-hours contracts all bad news?

CIPD research in 2013 revealed that zero-hours contracts were most common in the hotel, catering and leisure industry (48 per cent), education (35 per cent) and healthcare (27 per cent). Certainly in many industries, such as the leisure industry, business levels and staffing needs can be unpredictable and may fluctuate significantly throughout the year. The flexibility afforded by zero-hours contracts is therefore invaluable to both employer and worker.

What can we take from the consultation?

The step to ban exclusivity clauses in zero-hours contracts is a step in the right direction towards ascertaining some certainty for those engaged under zero-hours contracts and for creating some certainty as to how they can be used by employers. It is clear that whilst the potential benefits and pitfalls have been readily identified by the Government, cautious steps are being taken to regulate them so that employers retain flexibility. 

The outcome of the consultation will no doubt trigger further comments from politicians, national trade unions and the media. Indeed, it remains to be seen whether a ban on exclusivity clauses will be enough to pare down the widespread criticism that zero-hours contracts have attracted since their use has become more common place.