Zero hour contracts: their rise…and potential fall?

Zero hour contracts have grown in popularity over recent years, and have made the headlines over the last couple of weeks. The Office of National Statistics has estimated that around 200,000 staff are now employed in this way (Estimating Zero-Hour Contracts from the Labour Force Survey, July 2013). However, it is thought that this is an underestimate, with the reality being more like one million (Chartered Institute of Professional Development, 5 August 2013).

Vince Cable thinks they are being abused and has announced a review of their use.

So what are zero hour contracts and why are they used?

Zero hour contracts are generally used to engage individuals on a genuinely ad hoc, as required, basis, where an individual is only paid for the work actually carried out (usually hourly). As the term has no definitive legal meaning it can be interpreted differently in practice. It can be used to describe the arrangement whereby a worker is expected to be available for work if called upon by an employer, but with no corresponding obligation on the employer to provide any work or, alternatively, it can describe an arrangement where a worker is free to accept or refuse work when offered, so that there is no obligation on either party.

The use of zero hour contracts has traditionally been used for lower paid casual jobs such as bar work, retail, hospitality and care in order to cope with the required staffing levels that can be particularly unpredictable. However, recently they have been used by the NHS and educational establishments.

Are they all bad?                                                                   

Zero hour contracts have recently come under a lot of criticism in the press, for being exploitative and taking advantage of workers’ weak bargaining positions.

On one side of the coin, zero hour contracts do not guarantee a minimum number of hours each week which can affect an individual’s ability to plan financially and manage regular outgoings such as rent or mortgage payments.

On the other side, although zero hour contracts may not be able to provide a predictable income, they can provide useful flexibility for some people who want occasional earnings and need flexibility in terms of when they work. For example, zero hour contracts may allow some students, parents and others with care responsibilities to work when they might otherwise not be able to.

Whatever position is taken on the issue, it is important for employers to stop and consider the potential implications of zero hour contracts.

Things to consider…

• There is the question of employment status. Employers might use zero hour contracts thinking that they limit the scope of statutory protection an individual has because      they are not an ‘employee’. If an employer does not have to provide any work, and a worker does not have to accept it, then yes, it is less likely that an individual would be classed an employee, although there is still no guarantee. However, in practice a lot of employees on zero hour contracts are expected to accept the work that is offered to them, and end up working the same regular hours over a long period of time. In these circumstances it is highly likely that an individual would be classed as an employee.
• The use of zero hour contracts could have a detrimental effect on working relationships. A workforce engaged on zero hour workers over a long period of time is more likely to end up feeling dissatisfied and disengaged, with loyalty towards their employer going out of the window and in turn their quality of work deteriorating.
• There is also the reputational risk to consider, especially in light of recent press coverage. Sports Direct, which has come under fire for its use of zero hour contracts for its part time staff, is a good example of this in recent weeks.
• If a zero hour contract is used as it should be, where there is no obligation on either party, it might not meet the needs of a business. An employer that needs to provide continuity of its services may be unable to find someone with the right skills at short notice when faced with a sudden increase in work if workers are under no obligation to accept it.

What Now?

Vince Cable has ruled out a complete ban, but it is likely that zero hour contracts will be regulated in the future once their use has been reviewed.

This stance would appear to recognise that zero hour contracts do have a place in the economy, for example, in situations where work is infrequent and employers need a bank of casual staff who they can call up for irregular periods of work, but that they should not be abused.

For employers going forward, what might be more appropriate, and beneficial for both parties in the long term, is a minimum hour contract, allowing for variations in line with the particular nature of a business but guaranteeing a minimum number of hours.

If you would like further information on this, or any other employment matter, contact Catherine McNulty, Solicitor in our Employment team.

Catherine McNulty
Solicitor
Email: catherine.mcnulty@sintons.co.uk
Tel: 0191 226 3801