Jan 2014
Author: Laura Marchington
Zero-hours contracts have been the subject of much debate over recent months. This includes a lot of press coverage where these types of arrangements have alleged to have been abused. Figures from research carried out by the Chartered Institute of Personnel and Development (CIPD) estimates that around 3% of the workforce are working on a zero-hours contract; that is, approximately one million people.
What is a zero-hours contract?
There is no legal definition of what amounts to a zero-hours contract. There is also no regulation of zero-hours contracts.
It is generally understood to be a contract between an employer and a worker, which means the employer is not obliged to provide the worker with any minimum working hours, and the worker is not obliged to accept any of the hours offered.
Most zero-hours contracts will give the individual “worker” employment status, meaning they have the same employment rights as regular workers, although those working under zero hours contracts may have breaks in their service, which affect rights that may accrue over time. Zero-hours workers are entitled to annual leave, the National Minimum Wage and pay for work related travel in the same way as regular workers.
What are the pros and cons of zero-hours contracts?
Zero hours contract have one main advantage for the employers, in that, they are not committing to paying workers during times when they do not have any work available for them. Another pro for employers is that zero-hours contracts are seen to be drastically reducing the legal obligations of the employer as most contracts give the individual “worker” status.
Some workers will find them beneficial, as they too have more flexibility to reject work offered by the employer. However, others will find it difficult to manage their finances if they do not know how much they will be earning week to week. In addition, it is hard to claim benefits or tax credits if you do not know your hours of work or earnings and those with children may struggle to arrange childcare at such short notice.
Whilst the main argument in favour of zero-hours contracts is flexibility for both parties, the reality is that flexibility provides neither predictability nor stability for the worker. Whilst workers are entitled to refuse work offered, this can also be problematic where an employer favours workers who are more likely to accept the work.
The concern for the Press was those organisations (typically very large corporates) who abuse their workers by using these agreements. While they are open to abuse, these contracts provide a lot of flexibility to smaller employers who increasingly need a flexible workforce to meet fluctuations in demand. The power typically lies with the employer, meaning these arrangements could be abused.
What does the Government think?
In June 2013, the Government started an informal review into zero-hours contracts to assess whether regulation should be introduced. The review generated a number of comments, with the Labour party being particularly scathing about this method of employment. Ed Miliband described it as “exploitation”. Of particular concern is the requirement that workers work exclusively for one business even though they have no guaranteed hours.
New legislation?
In September 2013, following the informal review, the Business Secretary, Vince Cable, announced that the Department for Business, Innovation and Skills would launch a consultation on zero-hours contracts in late 2013. That consultation has started and Vince Cable has indicated that these contracts will not be banned. The consultation will focus on various areas, including:
- “exclusivity clauses” – which prevent workers from working for other employers even though they have no guaranteed hours;
- lack of transparency as there is no legal definition of a zero-hours contract which can lead to a lack of understanding of working arrangements;
- uncertainty of earnings;
- the balance of power in the employment relationship leading to worker concerns that if they do no accept hours offered, even at short notice, they will not be offered regular work in the future.
What should employers do?
It is important for employers to actively monitor their need for zero-hours contracts. In many cases, it may be more effective or appropriate to make use of agency workers or recruit staff on fixed term contracts.
With pressure mounting for a change in the law, employers who still use zero-hours contracts should consider whether they still work for them and what their options are if the law is changed to restrict their use.
If a worker has had no breaks in service and works for any length under a zero hours contract, he/she may be deemed to be an employee and the flexibility of zero hours may be lost.
Please contact the author, Laura Marchington, to discuss the implication of zero-hours contracts on either 01306 502273 or [email protected].
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