Zero-hours contracts have attracted much media attention recently, with the latest development being Vince Cable's announcement last month that the government intends to legislate on this political 'hot potato', and will also provide new guidance.  Julian Hoskins reports on the government's attempts to retain the flexibility that zero-hours contracts offer, whilst ensuring that these arrangements are not abused.      

What is a zero-hours contract?

A key difficulty with this type of contract is the lack of clarity around what it is. There is also, often, a lack of understanding (by both workers and employers) as to their respective rights and obligations. At present, there is no statutory of definition of a 'zero-hours' contract. However, it is generally understood to be a contract where there is no obligation to provide, or to undertake, any set hours of work - but where there is an expectation that the worker will undertake work that is offered. As such, a 'zero-hours contract' may be described as a species of 'casual' contract, albeit that the relationship between the parties may be ongoing, intermittently, for a long period of time. 

What are the issues?

Although zero-hours contracts have had very bad press recently, it is possible that these contracts can work very well for both parties – organisations which have fluctuating demand may benefit; as will individuals who prefer flexible working hours. There is, however, risk of abuse where the flexibility is all on the side of the contracting organisation: where the worker is tied to an exclusivity clause which prevents them from seeking work elsewhere, even when their services are not required. Further difficulties with zero-hours contracts were highlighted in an Acas discussion paper, published in May 2014, in which Acas analysed its helpline calls on zero-hours contracts and found that two broad themes emerged:

  • a lack of clarity over employment status / rights (by both workers and employers); and
  • a sense of unfairness linked to financial insecurity. 

However, many employers find that zero-hours contracts allow them to avoid fixed costs and therefore offer more work than they would be able to otherwise; and exclusivity ensures availability and protects their organisation from competitors.

Proposed solutions 

On 25 June 2014, the government published its response to its consultation on zero-hours contracts and has decided to ban exclusivity clauses in contracts which do not guarantee hours of work.  The change is set out in the Small Business, Enterprise and Employment Bill 2014-15 ('the Bill'), which was introduced to the House of Commons on 25 June 2014 and is expected to become law in early 2015.

For the purposes of the exclusivity ban, section 27A(1) and (2) of the Bill attempts to define a zero-hours contract 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 employer 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. For this purpose, an employer makes work or services available to a worker if the employer requests or requires the worker to do the work or perform the services".

The government has also announced its commitment to improve its information and guidance on zero-hours contracts by the end of 2014.

A further consultation will take place on how to prevent 'rogue employers' evading the exclusivity ban by, for example, offering one-hour fixed-term contracts, and the issue of redress should this law be broken.
The Bill includes a power (not being used for the time being) for further regulations to be made to allow for the ban on exclusivity terms to apply to prescribed categories of worker to whom section 27A does not apply. This has wider implications because it can be extended to cover other individuals who are not working under zero hours contracts. It could include individuals who earn below certain thresholds or work below a certain threshold of guaranteed hours with the aim of avoiding the exclusivity ban. The Bill also contains a power for further enforcement regulations to be made, including the possibility of financial penalties and compensation payable to zero-hours workers. However, whether these further regulations will be made is still under consideration by the government.

Points to note

As highlighted above, zero-hours contracts can provide a useful and pragmatic solution which suits many organisations and workers. The practical reality is that relatively few zero-hours contracts include exclusivity clauses and, of those, fewer still are operated in an unscrupulous manner by the employer.

Some employers may be deterred from offering zero-hours contracts if they feel that the exclusivity ban makes the arrangement unworkable. As a result, it may be that employers will simply stop using zero-hours workers and may use fewer staff or look for other alternatives, such as using agency workers.

We will, no doubt, see satellite litigation around the definition of a zero-hours contract, and the precise meaning of 'exclusivity' clauses, as the wording in the Bill is unclear. Until a body of case law develops on these points, we must hope that the promised government guidance will provide some clarity.

In the meantime, you will need to start considering whether any current arrangements you have in place for zero-hours contracts are in line with the requirements of the Bill. If not, then you may wish to consider alternative arrangements, or amending your contractual documentation to include specific protections, so that you will retain as much flexibility as possible in relation to any zero-hours workers once the restriction on exclusivity comes into force.

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