The pros and cons of zero-hours contracts
WHAT ARE THEY?
Figures from the Office for National Statistics estimate that 905,000 people in the UK were employed on zero-hours contracts (ZHCs) in the final three months of 2016, representing a 13% increase compared with the same period in 2015. A ZHC enables you to engage individuals without guaranteeing them any work, so they’re often used for casual work. There’s no general legal definition of a ZHC but the term is normally used to mean a contract whereby one party engages the other to work in circumstances where there’s no minimum level of work to be provided. In some ZHCs, the individual is generally expected or required to accept any work offered, but in other ZHCs the individual is free to decline any work offered. The employment status of the individual can also vary depending on the contract terms and on the true nature of the relationship.
Pro advice 1. You can use ZHCs to manage peak or seasonal work demands or where the workload is otherwise irregular, as well as to cover unexpected sickness absence. Despite the negative publicity surrounding them, many individuals are happy with the flexible working arrangements that ZHCs offer.
Pro advice 2. Before engaging someone on a ZHC, consider whether it would be easier to use a worker supplied by an employment agency, particularly if you need someone temporarily at short notice. Other alternatives to ZHCs might include increasing staff overtime, recruiting a permanent part-time employee if regular limited hours need to be filled or recruiting a fixed-term employee if the individual is required for a specific period of time.
EMPLOYMENT STATUS
There are three categories of employment status - employee, worker and self-employed. Individuals on ZHCs are most likely to be either workers or employees, because there will normally be a requirement for them to perform their services personally, i.e. with no right of substitution, in circumstances where you’re not a client of a profession or business undertaking carried on by the individual.
Pro advice. If you also exercise a degree of control over the way the individual does the work, and there’s mutuality of obligation between you, i.e. the individual is obliged to accept any work offered, then they’re more likely to be an employee rather than a worker.
Employees enjoy the full range of employment rights. Workers still have some employment law rights and protections, e.g. the right to the national minimum or national living wage, the right to paid annual leave, rest periods and rest breaks, protection from unlawful discrimination, protection from unlawful deduction from wages and whistleblowing protection. They may also be entitled to statutory sick pay (SSP) if their earnings are liable for Class 1 NI.
Pro advice 1. You can’t contract out of these statutory rights, so ZHC workers are entitled to them regardless of what their contract might say.
Pro advice 2. Word ZHCs carefully to minimise the risk that the individual will be deemed to be an employee - it’s better for you if the ZHC is drafted in a way to ensure that the individual is a worker.
CONTRACT DOCUMENTATION
As there’s no general legal definition of a ZHC, and no uniformity in practice between businesses, you shouldn’t automatically assume that an individual will know what “zero hours” means. Therefore, be clear and transparent about the rights and obligations of the individual when drafting a ZHC. Information to include is:
- the individual’s employment status - are they an employee or a worker?
- express confirmation that the contract is a ZHC
- a clause which makes it clear that there’s no guaranteed minimum number of hours of work and that you’re not obliged to provide the individual with any work (see Follow up )
- the procedure for offering any work and what level of obligation there is on the individual to accept any work that is offered
- the types of work that may be offered
- the hourly rate of pay for work done and confirmation that the individual will only be paid for hours actually worked (see Follow up )
- how annual leave and holiday pay will be dealt with - you can’t roll up holiday pay by including it in the hourly rate of pay, so either pay it in lieu at the end of the assignment if it’s short or allow the individual to take paid annual leave during the assignment. Workers accrue annual leave at the rate of 12.07% of hours worked (5.6 weeks divided by 46.4 weeks, which is 52 weeks less 5.6 weeks) and their holiday pay should be calculated on the basis of the average of their previous twelve weeks’ pay, but excluding any weeks in which no pay was received
- how the contract can be ended by either party, e.g. with notice given by either party.
Pro advice. Tribunals can disregard the written contract terms if they don’t accurately reflect the actual relationship between the parties, e.g. if you get into a pattern of regularly providing work which is accepted and there’s an expectation this will continue, there’s a risk the individual may be deemed to be an employee.
BAN ON EXCLUSIVITY CLAUSES
The law was amended on 26 May 2015 to ban the use of exclusivity clauses in ZHCs. This was done by inserting a new s.27A into the Employment Rights Act 1996 . This renders void and unenforceable any provision in a ZHC which prohibits the worker from doing work or performing services for someone else, or which prohibits them from doing so without the employer’s consent. A ZHC is defined, for the purposes of the exclusivity clause ban only, as either an employment contract or any other worker’s contract under which “ the undertaking to do or perform work or services is an undertaking to do so conditionally on the employer making work or services available to the worker” and where “ there is no certainty that any such work or services will be made available to the worker”.
Pro advice. This provision means that workers on ZHCs have the freedom to accept work with more than one employer. So make sure your ZHC also includes a clause confirming that the worker is free to engage in doing work or performing services for others under another contract or under any other arrangement - and that they won’t be penalised if they do so.
The Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015 (SI 2015/2021) came into force on 11 January 2016 and they provide rights of redress for workers with exclusivity clauses by enabling them to bring an unfair dismissal claim (if they’re an employee) or a detriment claim (if they’re an employee or a worker) if they’re dismissed or subjected to a detriment for breaching an exclusivity clause in a ZHC. No minimum period of qualifying employment is required to bring an unfair dismissal claim and the dismissal will be automatically unfair if the reason is that the worker breached an exclusivity clause.
Pro advice. If a worker turns down any work you offer because they’ve already accepted work elsewhere in breach of an exclusivity clause, and you stop offering them further work as a result, that constitutes a detriment. Remove any exclusivity clauses from ZHCs.
The individual can bring their detriment or dismissal claim before a tribunal and, if their claim is successful, you can be required to pay such compensation as the tribunal considers just and equitable, but subject to the limits on the basic and compensatory awards in the case of an unfair dismissal claim (and a detriment claim where the detriment is the termination of the worker’s contract).
Pro advice 1. At the moment, it’s relatively easy to circumvent the ban on exclusivity clauses simply by offering contracts that guarantee only a minimal number of hours of work, but we don’t recommend you do this as it goes against the ethos of the legislation and could attract adverse publicity.
Pro advice 2. The government has produced general guidance for employers on ZHCs which is worth a read (see Follow up ).
Zero-hours contract clause
Additional zero-hours contract provisions
Zero-hours contracts: guidance for employers
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