Zero-hours contracts: evil or just misunderstood?

Zero-hour worker contracts have been the subject of a large amount of media and political comment in recent years, not least with the rise of the so-called “gig-economy” and the accompanying scrutiny of the employment status of those who work in it.

Often condemned, by trade unions in particular, as giving employers all the power whilst exploiting those who have “no choice”, in 2015 the government introduced a ban on “exclusivity clauses” (a clause which prohibits employers seeking to exclude their zero-hour workers from working for a third party) to try to redress the balance. But where do things currently stand? I have sought to highlight below some of the common issues concerning the use of zero-hour contracts and provided a view on what might come next.

What is a zero-hour contract?

It used to be the case that there was no statutory definition of zero-hour contracts. However, in 2015, the government provided the first statutory legal definition of zero-hour contracts in the Small Business, Enterprise and Employment Act 2015. Section 27A (1) defines zero-hour contracts as:

“a contract of employment or other worker’s contract under which –

(a)  the undertaking to do or perform work or services is an undertaking to do so conditionally on the business making work or services available to the worker, and

(b)  there is no certainty that any such work or services will be made available to the worker.”

In the main, the statutory definition does not depart from what was previously generally understood about zero-hour contracts – ie a contract in which the relevant “employer” is not obliged to offer a minimum number of hours of work and the relevant worker is not obliged to accept any hours that are offered to them. The most striking aspect of the statutory definition however is the one-sided language; it is clear that there is no obligation on an employer to provide work, but it does not shed any light on what the obligations of the individual working under it are – in a move criticised by some, that is left for the parties to determine.

Common issues

The political and media controversy about zero-hour contracts often focuses on the power imbalance created in favour of “employers” by such contracts and their apparent exploitation of that imbalance. However, there is also controversy in a number of other more specific areas:

1. Zero-hour workers will not usually acquire the same employment rights as permanent (or even longer-term fixed-term) employees. This is because the worker will not normally be able to claim that their employment continued during the breaks between assignments. This means they are often not able to amass sufficient continuous employment to benefit from the more important employee rights (for example, employees need two years' service to be entitled to a statutory redundancy payment if made redundant and before they assume unfair dismissal rights).
2. There have been examples of "employers" not, for example, paying zero-hour workers their holiday pay entitlement (anyone with worker status is entitled to paid holiday – it is generally accepted zero-hour workers should receive holiday pay based on their average pay (including overtime and any relevant bonuses) in the twelve working weeks prior to their period of leave).
3. Despite the government’s ban on exclusivity clauses, the only remedy currently available to zero-hours workers is extremely limited and rarely exercised with much success.
4. Some contracts continue to lack transparency and do not make it clear in plain English that no minimum hours are guaranteed.
5. The use of zero-hour contracts are said to continue to push the balance of power towards the "employer" as workers will be reluctant to complain if they think it will result in their hours being cut or in no hours being offered at all.
6. By definition, the contracts provide workers with uncertain levels of earnings.

What next?

At the end of 2018, the government finally published its detailed response to the Taylor Review into Modern Working Practices in the form of its Good Work Plan. Despite the hopes of some that it would contain concrete action to tackle the perceived one-sided flexibility of zero-hours contracts, the government chose not to ban such contracts on the basis that the flexibility they offer does benefit some workers and a ban would “impact more people than it would help”. Instead, the Good Work Plan proposed a right for those on such contracts to request a more fixed working pattern after 26 weeks of service. To date however, there is no information on the potential timescale for this change, nor on what the potential enforcement mechanism might look like.

The government’s Good Work Plan also proposed some additional rights which will benefit zero-hour workers. The first is the right introduced on 6 April 2019 for all workers, including zero-hour workers, to receive an itemised payslip. This will be required to show the number of hours paid for, where a worker was paid on an hourly basis. From April 2020, zero-hours workers will also be entitled to receive a written statement of terms (which complies with section 1 of the Employment Rights Act 1996) on or before the first day or work.

Nevertheless, zero-hour contracts continue to court controversy. In February 2019, the TUC renewed its calls for a ban on zero-hour contracts after its research found that people on zero-hour contracts were more than twice as likely to work night shifts and be paid less an hour than other workers. It maintained that zero-hour contracts were “only good for employers”, stating that two thirds of zero-hour workers would prefer jobs with guaranteed hours. The research also showed that people on zero-hour contracts were more likely to fall into one or more of four categories: young, part time, women or in full time education.

Zero-hours contracts continue to prove a difficult circle to square. When used correctly, they can serve a valuable purpose and provide often welcome flexibility for both parties. However, without further clarity from the government on some of the employment issues associated with zero-hours contracts (such as how to calculate holiday pay or continuity of employment between assignments), and greater regulations dealing with the avoidance of the anti-exclusivity ban, it is likely to be a while before zero-hour contracts shake off their reputation for being exploitative and one-sided.

If you require further information about anything covered in this briefing note, please contact Amy Wren, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, May 2019