Government Consultation on Zero Hours Contracts

ZeroHours

On 19 December 2013, the Government launched a consultation paper on zero hours contracts in order to fully assess the benefits and consider how to address the difficulties of such agreements. In particular, the Government anticipates that the consultation will help improve the transparency around the use of zero hours contracts for both employers and workers.

Use of Zero Hours Contracts

Many employers are increasingly using zero hours contracts, including employers such as McDonalds, Sports Direct, Boots and even Buckingham Palace. It is estimated that there are around one million individuals currently working under these arrangements.

There is no specific definition of a zero hours contracts – under some zero hours contracts, the worker will not be obliged to accept shifts that are offered to them, which can give them flexibility (for example, students and those with childcare responsibilities can pick and choose shifts that fit around their other duties). However, the problem with this aspect in practice is that some employers may ‘punish’ workers who turn down shifts by offering them fewer hours in the future. In other contracts, the employer can state that the worker must take on the work when it is offered, leaving the worker with no flexibility at all.

Pam Sidhu, Associate Solicitor in the Employment department comments: “The fact that more and more employers are relying on ‘zero hours contracts’ is a sign of the pressures businesses are facing in the current economic situation. The nature of most of these contracts tends to be that there is no obligation on the employer to provide a set amount of work for the employee. Where this applies, the worker does not have ‘employee’ status, and is instead only considered a ‘worker’ or even self-employed. This means that zero hours workers do not usually have the same rights under employment law and, for instance, cannot claim unfair dismissal or statutory redundancy payments. Further, an employer does not have to give a ’worker’ any notice to terminate the contract, whereas employees do have this right. Having said that, workers earning over a certain threshold will most likely have rights under pensions auto enrolment legislation and holiday pay legislation, as well as discrimination legislation. Zero hours contracts can therefore give rise to some complicated issues from both a practical and legal perspective for employers”.

Zero hours contracts have come into the spotlight recently due to research conducted over the Summer last year, as well as a legal challenge in the Employment Tribunal against the major sports retailer, Sports Direct, over its use of zero hours contracts. The Government has now launched a formal consultation into the use of these arrangements.

What is the Likely Outcome of the Government Consultation?

There is currently no legal provision that prohibits the use of zero-hour contracts or regulates their use. In our view, it is doubtful the Government consultation will result in significant changes to the current position. In fact the Government states in the consultation that it wishes to “maximise the opportunities of zero hours contracts while minimising abuse”. It also warns against undermining the Government’s vision of “a labour market that is flexible, effective and fair”. Consequently, a complete ban on zero-hours contracts has been ruled out by the Government, as the use of these contracts can be justified in industries where business demand is unpredictable, such as hospitality and construction where ‘casual workers’ have been used for many years.

However, it is likely that we will see some new recommendations for employers introduced following the consultation. This could possibly include the removal of clauses that require a worker to work exclusively for one business, which currently means they cannot take on any other work even if none is offered by their employer. The use of exclusivity clauses is one of the key concerns around zero hours contracts raised by the consultation, the other being lack of transparency in that workers and employers may not be clear on the terms of zero hours contracts and corresponding legal rights.

Lisa Outram, Assistant Solicitor in the Employment department comments: “Proposals have been made to potentially introduce a code of practice on the fair use of zero hours contracts. This could cover, amongst other things, guidelines for employers on advertising roles and explaining to job applicants what terms their contracts are likely to include. Another proposal is to produce model clauses for zero hours contracts, together with some simplified guidelines for individuals to help them understand the contract terms and their legal rights. The Government’s suggestions should help businesses make the most of using these contracts whilst ensuring that they are fully informed as to the obligations owed to workers and vice versa. It will be interesting to see how the Government responds to the consultation which closes on 13 March 2014.”

If you would like to discuss any issue or query arising from this update please contact Pam Sidhu or Lisa Outram of the Employment team or email us at employmentlaw@wilkes.co.uk .