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Introduction

In 2013 the Business Secretary, Vince Cable, launched a consultation on tackling abuse of zero-hours contracts. This came about following a review by the Department for Business Innovation and Skills into the use of these contracts and by newspaper headlines which suggested that more than 1 million workers could be working on a zero hours basis. As a result the Government has now introduced legislation on how it intends to tackle the abuse of these contracts.

What is a zero-hours contract?

A zero-hours contract is designed for a casual worker where the employer wants to appoint the worker on a genuinely “ad hoc” basis. The employer is not required to give the worker a minimum amount (or indeed any) work and will only pay the worker for the work that he actually carries out. In turn the worker is required to be flexible and be available to work as and when the employer needs him, often at very short notice.

Up to now, there has been no legal definition of a zero hours contract. Some contracts provide the casual worker with greater freedom to refuse work offered by the employer. Others will restrict the workers ability to work for other employers, known as an exclusivity clause. All contracts are commonly used as a way of keeping a workforce ready and willing to work as needed, with no obligation on the employer to pay wages if there is no demand for work.

From an employment law perspective an individual engaged under this form of contract will generally be a “worker” rather than an employee or a self-employed contractor. Although workers have some statutory employment rights, they’re not entitled to bring a claim for unfair dismissal. However, workers are entitled to paid annual leave, the National Minimum wage and protection against discrimination.

What are the benefits and the issues with zero hours contracts?

Undoubtedly the main advantage of a zero-hours contract, from an employer’s point of view, is the flexibility which they provide. During economic uncertainty employers can respond to variations in demand without the cost of paying staff on a full time basis. Similarly during periods of high demand workers on zero-hours contracts can help to ease the pressure on permanent staff.

This flexibility is equally appealing to certain types of worker, who are happy to work as and when they are needed, such as students, or older people who are looking to increase their income and find work that suits their personal circumstances.

The unavoidable result of a working relationship where the employer has total flexibility as to workers hours of work is uncertainty for the workers themselves. Practically speaking, workers on zero-hours contracts may struggle to balance their outgoing expenses against their sporadic income. It can also be very difficult for those with children to organise child care at the last minute and fluctuating pay makes claiming benefits particularly complicated.

There is additional concern that’s been raised that some workers on zero-hours contracts are not being given enough hours each week to maintain a decent standard of living.

As I’ve already said, those on zero-hours contracts will usually be workers rather than employees. As such they don’t enjoy the same level of protection that employees benefit from under UK employment law, for example in relation to unfair dismissal, maternity rights and redundancy rights. It’s this aspect that has led to allegations that some businesses use these contracts to avoid giving workers the status of “employee” and so employment rights.

Proposals for change

Zero-hours contracts are very unpopular with certain sectors including trade unions and the Labour party. The trade union, UNISON, has argued that the balance of power in these contracts favours the employers and makes it very hard for the workers to complain. As a result, UNISON, along with other unions, has called for zero-hours contracts to be banned.

The Government has made it clear that it doesn’t support a ban but instead has considered how it can protect the most vulnerable employees.

On 25 June, the Government published its response to the consultation on zero hours contracts. Given the backing of an overwhelming majority of respondents, (infact 83%), the Government has decided to ban exclusivity clauses in contracts which do not guarantee hours of work. It’s expected that the ban will benefit 125,000 zero hours contract workers who are tied to an exclusivity clause.

The provision introducing the ban on exclusivity is set out in Clause 139 of the Small Business, Enterprise and Employment Bill. This Bill will insert new clauses into the Employment Rights Act 1996 (or ERA). The legal definition of zero hours contracts set out in the bill is very broad, covering all arrangements where there is no certainty that any work or services will be made available to the worker. The new provision to be inserted in the ERA will also hold that any clause in a zero hours contract which prevents the worker from working under another contract or other arrangement or stops him from doing so without the employer’s consent, will be void and unenforceable.

This will allow workers on these contracts, whose current employers are unable to offer them enough work, to boost their income by working elsewhere.

The draft bill also gives wide powers to the secretary of state to make regulations in the future to further protect zero hours workers. These include provisions for modifying other types of contracts, imposing financial penalties on employers, requiring employers to pay compensation to workers or conferring rights on zero hours workers.

The Government has also indicated in its accompanying press release that it will take further steps in relation to such contracts: It plans to consult further on how to prevent rogue employers evading the exclusivity ban. It will also work with business representatives and unions to develop a code of practice on the fair use of zero hours contracts by the end of this year. Finally it wants to improve the guidance available to both employers and employees on using the contracts.

The Bill is currently at committee stage and so we have as yet no firm indication of when the new legislation will come into effect.

What should employers be doing?

At this stage, employers can be assured that zero-hours contracts are perfectly legal. Once the bill comes into effect though any exclusivity clause in such a contract will be void. Allowing a worker to work for another employer may however be an issue in certain businesses, for example the technology industry. A non-competition provision in such a contract may in itself be considered to be void if it has the effect of requiring exclusivity. Employers will therefore have to rely on a well drafted confidentiality clause to protect the company’s interests.

It’s also important for employers who take on workers on zero-hours contracts to be aware of the reality of their working situation. If there is mutuality of obligation between an employer and the zero-hours contract worker, then the worker may actually be an employee and as such have additional employment rights. Regardless of what is written in the contract itself, case law indicates that where a worker is employed on a zero-hours contract and provided with regular work, which is regularly accepted, there is a significant possibility that the contract will be treated as one of employment. Employers need to be alive to this and if they believe that their zero-hours contract worker is more likely to be an employee, it would be sensible to employ them as such, with the correct employment contract in place, and their employment rights recognised.

Another significant thing for employers to remember is that workers on zero-hours contracts fall within the definition of “time workers” under the National Minimum Wage Regulations 1999. The National Minimum Wage must be paid to workers for all hours they are required to be at or near work and available for work even if they are not actually given any work during this time. Employers should ensure that workers who are required to be on ‘standby’ or ‘on-call’ at or near their place of work are adequately compensated during this time.

Clearly the government will be providing further guidance and a code of practice in this area and we’ll keep everyone notified once any such documents are published.

Conclusion

This video is intended to give you a summary of the proposals relating to zero hours contracts, but if you would like any further information or have any questions on any aspects of today’s topic, then please don’t hesitate to contact us.