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Zero hours contracts: zero impact?

The Small Business, Enterprise and Employment Bill which is before Parliament includes a ban on the use of 'exclusivity clauses' in zero hours…

When launching Government consultation at the end of last year, Vince Cable explained that  “the Government … seeks to maximise the opportunities of zero hours contracts while minimising abuse and setting core standards that protect individuals.” Arguably, these plans have got off to a bad start.

The proposal

The Small Business, Enterprise and Employment Bill which is currently before Parliament includes a ban on the use of ‘exclusivity clauses’ in zero hours contracts. There is little doubt that the Government has taken aim at the correct target. The requirement that workers are precluded from working elsewhere, even though they may not actually get any work under the zero hours contract, is arguably an unacceptable abuse of these flexible arrangements in most circumstances. Unfortunately, the Government may have missed the target by poor drafting.

A deficient definition?

The term “zero hours contract” covers a number of variants which are used in a range of circumstances. The common theme is that there is no obligation to provide work and the worker is only paid for work done. Yet in defining the term for the purposes of the legislation, the Government has formulated a definition that is limited to contracts where “there is no certainty that any … work or services will be made available to the worker.”

So it may have left it open to an employer to guarantee a minimal amount of work (even though this could be as little as an hour guaranteed in an indefinite period) and hence to evade regulation. Given that the whole problem with zero hours contracts is that they are a legitimate method of achieving flexibility which has become subject to abuse, these drafting shortcomings may pose a temptation to those unscrupulous employers that are minded to abuse the system.

The Bill goes on to provide that further, wide ranging provisions may be introduced in relation to zero hours workers, but these would all be subject to the same drafting shortcoming so are likely to be ‘toothless’.

A risk to Restrictive Covenants?

Moreover, whilst imposing the ban on exclusivity, the Government may have ‘thrown the baby out with the bathwater’. Any provision in a zero hours contract which precludes a worker from working elsewhere is unenforceable under the proposed new rules. Whilst the intention was doubtless to free zero hours workers to work elsewhere concurrently, there is no time limitation in the drafting. This means that any post-termination restrictive covenant (which dictates what an employee can or cannot do once they have left employment) might not be enforceable.

This may mean that, where an employer wishes to use restrictive covenants it may have to steer clear of zero-hours contracts. For the moment, employers wishing to rely on a covenant will need to include a ‘guaranteed’ element to avoid rendering the covenant unenforceable.

What will happen next?

The Government has reserved wide ranging powers to tweak and add to the proposed new regulations. It has stated that it may consider additional measures to tackle potential abuse. However it remains to be seen how broadly these powers will be used.

Employment tribunals have already shown themselves to be alert to abuses of the system. A recent example is the decision in Middle West Residential Care Home v Slavikovska that the minimum wage must be paid to care workers on sleepovers. Employers will have to accept that there is a difference between calling workers up for work on an ad hoc basis and calling workers in on standby, at which point they may become entitled to pay even if no work is required of them.

However, deeper lying ‘cultural’ issues are more difficult to address through legislation alone. Zero hours contracts are most commonly used for the ‘complementary workforce’ that responds to the short term ebb and flow in the need for labour, whilst the majority work under more orthodox arrangements. However, in some workplaces, all employees are engaged on zero hours contracts regardless of day to day reality. Such sweeping use of zero hours contracts will rarely be justified – but change may be hard to bring about where such practices are entrenched. 

The verdict

What is clear is that this area remains unsettled with practice and legal regulation both in a state of evolution. However, the current media frenzy may die down if the worst forms of abuse are outlawed.

There is a real risk, as things stand at the moment, that a practice will develop whereby all zero hours contracts will include a guaranteed hour’s work and hence the contract will be excluded from regulation. It is to be hoped that the Government take action during the passage of the draft legislation through Parliament to address this issue.

Used as part of a balanced HR strategy, zero hours contracts have much to offer as an appropriate method of achieving flexibility in the workforce. Handled without care, however, they can be the source of legal and industrial relations trouble. Given the current uncertain environment, seek advice on any difficult zero hours issues.

Michael Ryley is a Partner in Weightmans London office michael.ryley@weightmans.com. If you have any questions or concerns arising from this article please do not hesitate to get in touch.