UK: Zero-Hours Contracts – What’s The Controversy?

Last Updated: 14 October 2013
Article by Alison Downie

The current controversy over the issue of zero-hours contracts is focused on the fact that they leave workers with little stability or security, uncertainty about earnings and vulnerable to exploitation by their employers.

While a generous interpretation of zero-hours contracts may describe the arrangement as one in which the worker is placed on an equal footing with their employer, and so is free to accept or refuse work when offered, in most zero-hours contracts the worker is in fact required to be available when or if called upon and to accept work when offered.

In practice, a significant percentage of workers engaged under zero-hours contracts work regular hours, for the same employer, but with limited access to employment rights, lower wages and no job security.

Zero-hours contracts have been commonly used in the retail and hospitality industries to meet additional demands and seasonal work requirements, for example in the run up to Christmas. However, the increasing use of such contracts as a matter of practice in certain sectors, including the care sector, has accelerated serious concern.

What are zero-hours contracts?

A zero-hours contract is a contract for a casual worker under which the employer does not guarantee to provide the worker with any work and pays the worker only for the work actually carried out. The worker is expected to remain available for work when or if called on by their employer, even at very short notice.

Under this type of contract, the employer is not legally obliged to provide either a guaranteed or minimum number of hours or times of work. Many such contracts now also prevent the worker from working for other organisations.

Although an organisation using such contracts to engage individuals is referred to as the "employer", in fact one main purpose of using these types of contracts is to avoid creating an employer and employee legal relationship. Most zero hours contracts do not have the required mutuality of obligation element essential for an employment relationship.

The individual will usually have the legal status of a worker and not an employee, and so will not have the full legal rights of employees, including protection from unfair dismissal, to receive redundancy payments and maternity and other family leave and pay rights. As workers, individuals do have some rights: to be paid the national minimum wage, to a minimum period of paid annual leave and other rights under the Working Time Regulations. They also have legal protection from discrimination. Unfortunately many workers on zero-hours contracts are not aware of even their limited rights, particularly to paid holiday, and some employers do not comply with their legal obligations in these respects.

Why use them?

Zero-hours contracts are seen by some employers as a very cost-effective way of meeting their short-term staffing needs. They can effectively guarantee that the employer has access to a pool of trained people who are available at short notice as and when needed. They also reduce the legal obligations of the employer towards the worker.

What's the current position?

The use of zero-hours contracts is under increased public and industrial scrutiny, and is now very much on the political agenda. In 2012 the TUC highlighted the increasing problems with them and the Department for Business Innovation and Skills (BIS) undertook a review of the use such contracts.

On 10 September 2013 the leader of the Labour Party Ed Miliband announced three specific Labour policies aimed at preventing abuse of zero-hours contracts which a Labour Government would introduce if elected. These are:

  • Banning employers from insisting that zero-hours workers remain available, irrespective of work levels.
  • Stopping the requirement that workers remain exclusively tied to one business.
  • Ensuring that workers who are employed on a zero-hours contract for regular hours and a sustained period of time, possibly 3 months, are automatically switched to full-time contracts. (This is similar to the change introduced last year for agency workers)

The Coalition Government's standpoint towards zero-hours contracts remains unclear. There is a suggestion that some ministers consider changes to exclusivity provisions as being damaging to the free market.

However, the Business Secretary Vince Cable has also just announced that following its review referred to above, BIS is launching a consultation on tackling any abuses found in the system and to ensure employees are given a fair deal. They will focus on examining four areas of concern arising out of their review:

  • 'exclusivity clauses': contractual provisions that stop workers from working for another company, even though they are not guaranteed a minimum number of hours and may need to supplement their income;
  • lack of transparency: there is no clear legal definition of a zero-hours contract, which can cover a number of working arrangements. BIS found that some zero-hours workers were unaware that they might not be offered work regularly;
  • uncertainty of earnings: the amount of money that a worker earns under a zero-hours contract depends on the number of hours or she works. Thus, people on such contracts can find it hard to calculate earnings, which can lead to concerns about how benefits might be affected; and
  • the balance of power in the employment relationship: the review found that workers perceived that they would be penalised if they did not take hours offered, even if they were offered the hours at very short notice and it did not suit them to work. This could lead to a climate of fear that a person is less likely to be offered regular work in future if he or she fails to accept the hours on offer.

Further details and the launch date for the consultation will be announced shortly. Given the speed of some other recent consultations on employment related matters this could move quite quickly but it remains uncertain whether any changes to zero-hours contracts will be introduced in this Parliament.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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