The truth about zero hours contracts

In recent months, so-called 'zero hours contracts' have attracted almost as much negative media attention as Top Gear, with the 'fracas' largely focussed on the apparent abuse of zero hours contracts by some employers, particularly the use of exclusivity clauses. As a result, the government launched two consultations and part of the resulting legislation is expected to complete its passage through Parliament by the end of this month. Sarah Maddock sorts the facts from fiction and summarises the new 'zero hours' regime.

Background

Following significant media coverage, the government launched two consultations on zero hours contracts, looking at

• the use of exclusivity clauses (where workers are required to work for one employer, irrespective of the number of hours offered) and potential lack of transparency in zero hours arrangements; and
• potential loop holes / anti-avoidance measures.

Given the support of an overwhelming majority of respondents to the first consultation (82%), the government decided to ban exclusivity clauses in contracts that do not guarantee hours of work.

What's in a name?

One of the key issues with the debate around zero hours contracts is the lack of clarity on what the phrase 'zero hours contract' really means – it has had no specific legal definition and has been thought of as a type of casual contract, in which there is no obligation to guarantee a set number of hours. 

That is, however, all set to change as, for the purposes of the exclusivity ban (see below), a new section 27A of the Employment Rights Act 1996, will define a zero hours contract as:

"A contract of employment or 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
• there is no certainty that any such work or services will be made available to the worker."

This is the first time that there has been a specific legal definition of a zero hours workers, albeit that it only applies for the purposes of the exclusivity ban and would not apply more generally. 

Exclusivity clauses unenforceable

As Vince Cable (who led the review into fixed term contracts) commented when announcing plans to ban exclusivity clauses in zero hours contracts,

“[z]ero hours contracts have a place in today’s labour market…for students, older people and other people looking to top up their income and find work that suits their personal circumstances." 

Indeed, the Office for National Statistics (ONS) reported in February 2015 that the use of zero hours contracts had risen by nearly 20% over a year – possibly because of increased awareness in the wake of media attention. And, although the press reports on zero hours contracts focussed on exclusivity clauses,  none of the businesses the ONS contacted as part of their follow-up research used exclusivity clauses and only a third of workers questioned were seeking more hours in any event.

Nonetheless, the government has decided to go ahead with making exclusivity clauses in contracts unenforceable; but stopped short of banning zero hours contracts altogether.

A new section 27A(3) of the Employment Rights Act 1996 (ERA) will render unenforceable any provision in a zero hours contract which prohibits the worker from:

• doing work or performing services under another contract or under any other arrangement;
• doing work or performing services under another contract or under any other arrangement without the employer's consent.

This provision will apply to existing zero hours contracts, as well as those which are entered into after the new section comes into force.

There was an amendment to this section proposed which would have meant that a zero hours contract would automatically convert into a fixed hours contract where a zero hours worker has worked regular hours for a continuous period of 26 weeks, but this was resisted by the government.  Instead, it was suggested that workers who wished to convert from a zero hours contract to a 'fixed' hours contract, could do so via the Flexible Working Regulations 2014, as the employer can only refuse if they have sound business reasons for doing so.   

Other protections for zero hours workers

During the consultation process, it became clear that there was widespread concern about employers easily avoiding restrictions on zero hours contracts - either by offering a very low number of guaranteed hours or offering no work or fewer opportunities to individuals who also undertook work elsewhere. 

In order to deal with this concern, the government has decided it will

• include a right for zero hours workers not to suffer a detriment on the grounds that they have worked under another contract or arrangement
• provide for compensation and fines for breaches of the rights of zero hours workers
• extend the exclusivity ban to contracts for very low paid workers.

Most of these changes are provided for in the draft Zero Hours Workers (Exclusivity Terms) Regulations 2015, whilst other provisions will be implemented via powers which already exist in the ERA.

Note that, aside from the new specific protections proposed for zero hours contracts, such workers may also be protected by the Equality Act 2010, the Part Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 and, if they make a request (as the government suggests above), the Flexible Working Regulations 2014. Indeed, recently settled litigation against Sport Direct concerned the rights of 200 zero hours workers, which was brought on the basis of existing legislation.

Future developments

Following the second consultation on zero hours contracts, the government reiterated its intention to provide industry-led sector-specific codes of practice on the fair use of zero hours contracts. However, it has provided no details of how and when these codes of practices will be developed.

The government has also said it will review and improve existing guidance and will include issues raised in the zero hours consultations in its current review of employment status, which is due to be completed this Spring.

Acas has also said that it plans to develop further guidance on the use of zero hours contracts for employers and workers in the course of this year, with the aim of reducing uncertainly and confusion around zero hours contracts.

There is no implementation date as yet for the draft Zero Hours Workers (Exclusivity Terms) Regulations 2015. The Small Business Enterprise and Employment Bill (which contains the exclusivity ban) is passed on the 26th of March 2015 but the commencement date for the zero hours contracts provisions is not yet known.