Zero-Hours Contracts

Posted by Amanda Okill

Senior Associate

Recent press reports have highlighted growing concerns over the use of zero-hours contracts. A review is currently underway, led by Business Secretary Vince Cable and there is talk of potentially implementing legislation to limit their scope.

It is difficult to estimate the number of workers on zero-hours contracts. The Chartered Institute of Personnel and Development suggested that up to a million workers could be engaged on this basis. The contracts offer a degree of flexibility to both businesses and workers, which makes them attractive, particularly in certain industries where business fluctuates throughout the year. For both workers and businesses, however, they can create problems if they are not understood and used properly.
What are they?

Zero-hours contract are standard agreements entered into between businesses and casual staff under which there is no minimum guarantee of work. The worker, however, is expected to accept any work on offer. By structuring the contracts in this way, with no minimum guarantee of work, there is no ‘mutuality of obligations’ between the two parties. As a consequence, the worker acquires none of the statutory rights afforded to employees including protection against unfair dismissal, redundancy entitlement and rights to notice of termination.  Furthermore, the worker has no right to maternity, paternity, adoption and parental leave.

Pitfalls and benefits for workers:

A worker contracted under a zero-hours contract has limited protection in employment law, as pointed out above.

There is no guarantee of a minimum income as the hours worked will vary. In this way the zero hours contract provides little economic stability.

In addition, the agreed working arrangement lends itself to misuse by management with mangers having the option of awarding hours to certain workers on the basis of preference and at the expense of others who they perceive as more challenging. Dave Prentis, general secretary of Unison has talked of the balance of power favouring the employer, making it difficult for the worker to complain. Of course if a worker complains about anything, and management disagree, it could be relatively easy to withdraw work.

It would be wrong, however, to believe that workers have no rights at all. This too is a trap which many employers fall into. Workers have a right to the national minimum wage, working time, and paid annual leave. Furthermore, they enjoy statutory protection against unlawful discrimination under the Equality Act 2010.

There are advantages for some workers. For those who require flexibility and for whom financial security is not key, the zero-hours contract can work well. Many universities offer them to students, who then work the hours of availability around their studies. People who have other commitments and who require flexibility in their working lives often work successfully under a zero-hours contract.  For anyone who requires regular earnings, however, they are less than ideal. 

Pitfalls and benefits for the employer:

Zero-hours contracts lend themselves well to certain types of businesses where the demand for work fluctuates. They are prevalent in seasonal businesses, such as agriculture, the leisure industry, tourism and construction etc.

They are of course more cost efficient for a business owner than a permanent employment contracts as the workers are only paid for the number of hours that they are needed to work.

Employers, however, should be wary of being lured into the false sense of security offered by these contracts. A worker may have a zero-hours contract, expressly stating that there is no minimum guarantee of work.  The written contract is rarely, however, indicative of employment status. Much time is spent by employment tribunals called to determine this issue. Tribunals only give limited weight to parties’ understanding of their contractual relationship. In the case of a dispute they will look behind the written documentation to the true nature of the working relationship. Where workers are contacted on a regular basis and particularly where a ‘pattern’ emerges, where they have a direct reporting line and are subject to the rules of the organisation with whom they have contracted, where personal service is required (i.e they are expected to carry out the work themselves and cannot appoint a substitute), employment rights are likely to exist irrespective of the contract.

An employer should also be mindful of the statutory rights that their workers have, such as the right to paid time off. Unfortunately, these are often overlooked. For employers who rely heavily on zero-hours contract workers and who ignore these rights, the consequences could be painful. More than ever in this time of economic strain, and particularly while these issues remain in the spotlight, workers are increasingly becoming aware of their rights and prepared to act on them.

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