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Do you use zero hours contracts?

There has been a lot of emphasis on zero hour contracts in the media lately, with commentators and politicians wading in to say that they are a necessary tool for managing an effective business, or, alternatively, that they are the root of all evil. What we do know is that there has been a massive rise in their use in recent years (there are an estimated 1.4 million people covered by these contracts), and that they throw up important questions for employers and employees about what happens to the employment relationship and the rights of employees under a zero hours contract.

Flexibility

The main reason for using these types of contract is to cope with fluctuations in staffing requirements. Because of this they are particularly prevalent in industries which have a seasonal element – tourism, hospitality and retail businesses can all benefit from having a bank of people to call on when they hit busy periods. Equally, it makes sense not to pay people to stand around doing nothing when business is slower. Under a zero hours contract a business will have an arrangement with an individual and offer a number of hours of work as when it is required. This can be ideal for someone looking to earn a bit of money on a casual basis, but who has other commitments, such as family or study, which make regular employment untenable.

Exploitation

Difficulties can arise for individuals who actually rely on their earnings to pay their mortgage or living expenses, but can’t predict when they will or won’t be required to work. In addition they may be given very short notice, with some people actually travelling to the workplace only to be sent away, because it turns out the business is not busy that day. There is also some evidence that workers are afraid of looking for work elsewhere, or questioning their employment rights in case work is withdrawn or reduced, which can lead to a feeling of being trapped.

Employees or workers?

As ever HMRC and the Employment Tribunal will make their own decision as to whether an employment relationship exists, regardless of the label put onto it by the parties. The key features which indicate that someone would be regarded as an employee are

  • The organisation exerts a high level of control
  • In practice the person works fixed hours
  • The person is not permitted to work for anyone else

Employees

An employee who happens to be on a zero hours contract will be entitled to all of the usual employment rights – such as protection from unfair dismissal after two years’ service and statutory minimum notice periods. The fluctuating earnings of zero hour employees and possible breaks in employment might make some rights harder to calculate, but won’t necessarily eliminate them.

Workers

Some employment legislation covers all workers, not just those who qualify for full employment rights. All workers are entitled to the minimum wage, and are protected from certain types of discrimination. It is worth noting that that the under 25s, over 65s and women are all more likely to be engaged on zero hour contracts, raising the possibility that some type of indirect age or sex discrimination may be taking place in some organisations.

Working Time Regulations

All full-time workers are entitled to 5.6 weeks’ paid leave. For part-time and casual workers there has to be a pro rata calculation – roughly speaking this means a holiday entitlement based on 12.07% of hours worked. Where the hours worked each week vary this means the employer has responsibility to keep track of how much holiday entitlement is accruing.

Statutory Sick Pay

Zero hour contractors are unlikely to qualify for contractual sick pay, but may meet the requirements for SSP. If they are classed as employees, have earned at least £111 (before tax) per week and are sick for four consecutive days, they may have an entitlement to SSP.

Pensions auto enrolment

Because the earnings of zero hour workers go up and down they may dip in and out of the qualifying earnings threshold for auto-enrolment. This potentially gives employers a headache in terms of monitoring and assessing these workers in each pay reference period. One answer may be to create a contractual enrolment scheme, but workers are free to opt out of this and the requirement to monitor and assess then can’t be avoided.

Redundancy and TUPE

The zero hours contract which belies an actual employment relationship is of particular concern in redundancy and TUPE situations. Employees are treated very differently from workers in these situations. In Pulse Healthcare Limited v Carewatch Care Services Limited, the contracts purported to be zero hours contracts under which the workers were not employees. The Tribunal was not prepared to accept this interpretation on the facts and TUPE therefore applied.

Proposals

With less than a year to go to a general election, and with the recent consultation on zero hours contracts by the Department for Business, Innovation & Skills, the main proposals which have been put forward include

  • a possible ban, or restrictions on the use of exclusivity clauses
  • a right to request fixed hours (possibly after a qualifying period)
  • restrictions against being required to be available for excessive periods
  • loss of benefits for jobseekers who turn down a zero hours contact
  • measures to make sure tax credits / benefits adjust automatically with fluctuating earnings

Best practice

In the meantime employers who value the flexibility that zero hours contracts offer, but don’t want their reputation tarnished by a political bunfight, can take a look at the way they use these contracts and consider the following:

  • Are they meeting a genuine requirement or are certain workers needed for regular hours?
  • Consider carefully the need for an exclusivity clause – these are one of the most controversial aspects
  • Be reasonable about when you expect workers to be available
  • Offer work of reasonable value to the worker – it’s probably not fair to expect someone to be available 24/7 and then offer them a one hour shift
  • Make sure the contract is clear and transparent
  • Ensure compliance with Minimum Wage and Working Time Regulations – put a system in place to calculate holiday entitlement / pay
  • Make sure you have a fair system for allocating and offering shifts

If you have any other questions about zero hours contracts, or you would like someone to look at the clauses yours currently contain, get in touch with a member of the Askews Legal team on 024 7623 1000.

 

Askews Legal LLP – Solicitors in Coventry.