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Zero-hours contracts: use them wisely

01 November 2013 #Employment

The Office for National Statistics has launched an investigation into how it measures the number of British workers employed on zero hours contracts. It seems that nobody really knows how many there are. Last week, the business secretary, Vince Cable, last week wrote to the ONS to raise his concerns about "the lack of reliable statistics that are available on zero-hours contracts".

The topic hit the news over the summer when it emerged that many well-known employers have substantial proportions of their staff on zero-hours contracts, including retailer Sports Direct, Cineworld, McDonald`s and Buckingham Palace. A campaign is in train by unions and the Labour Party who have condemned zero-hours contracts as exploitative.

The ONS has increase its estimate of zero-hours workers` numbers from  200,000 to 250,000. However, the CIPD  say the number could be as high as one million. A UNITE survey claims that as many as 5.5 million Britons could be subject to contracts that promise them less than three hours of work a week.

However, business has strongly defended the use of zero-hours contracts. Tim Martin – the founder of the Wetherspoon pub group, which has grown to more than 800 pubs and employs a large proportion of staff on zero-hours contracts – said: "Zero-hours is quite an emotional term. It was first coined to mean no maternity pay, no holiday pay and fewer rights. In our company – and in many others – staff do have those rights."

Perhaps the terminology “zero hours” needs to be rebranded, it does have a negative connotation and employers risk being tarred with the same brush where it is likely that there is a wide diversity of practice in terms of how zero-hours workers are rewarded.

Neil Carberry, Director Employment and Skills at the CBI, said: "The vital role played by the UK`s flexible labour market in minimising job losses during the recession has been acknowledged by unions and all political parties. Putting up barriers to the types of contracts firms can offer will undermine employment at time when the recovery is fragile." The CBI also make the point that zero hours contracts have been vital in helping to keep unemployment figures down during recession, estimating that without flexible working the unemployment figures would have topped 3 million rather than 2.5 million.

There is no legal definition of what amounts to a zero-hours contract. There is also no regulation of zero-hours contracts in the UK at present and, unlike some other EU countries, such as Belgium, France and Spain, no restriction on an employer agreeing to a zero-hours arrangement with its employees.

What is a zero-hours contract?

A zero-hours contract refers to a contract under which an individual has no set hours, and is paid only in relation to the hours worked. Often, there will be an umbrella contract for services involved that offers no continuity of service between short-term employment assignments.

The key feature is that the contract does not oblige the employer to provide any work to the individual. This gives the employer the benefit of a flexible workforce, which can be an invaluable advantage in certain industries, such as hospitality and retail, where business levels and staffing needs can be unpredictable and may fluctuate significantly throughout the year.

Key issues

Employment status. Many employers engage zero hours staff on employment contracts with the potential benefits and legal protections that follow. However, it is unfortunate when an employer unwittingly confers employment status on staff without realising it and hence are landed with the adverse  consequences that can follow when employment rights are ignored.

That fact that an individual is not entitled to be offered work by the employer can be a decisive factor in determining that he or she is a worker, not an employee. In other words, that there is no mutuality of obligation between the parties to indicate that the individual is an employee. However, the test of employment status and the approach of the courts is notoriously complex and no employer should assume that in labelling its staff “zero-hours workers” under zero hours contracts that do not guarantee work in the same way as for permanent employees with regular hours, that this automatically eliminates the possibility that the individual is not actually working under an employment contract. Such contracts can be inferred from all the circumstances, not just the terms of the contract, although how the contract is drafted can make a huge difference.

Employers should be particularly careful where individuals are given work on a regular basis over an extensive period of time.

Holiday. A headache for employers is working out the statutory holiday pay for zero-hours workers, given their irregular and unpredictable hours. A week`s pay for the purposes of holiday pay will be calculated by taking an average of all the amounts paid over the previous 12 working weeks (and any weeks when the worker received no pay cannot be used in this calculation). Unlike workers with normal working hours, the holiday pay calculation includes overtime payments and bonuses paid during these 12 working weeks.

Pension.  Tricky issues can arise as to whether a zero hours employee is entitled to join the company’s occupational pension scheme. However, with the advent of pensions auto enrolment and statutory protection for workers,  there is now the issue of fluctuating earnings. It may become difficult to determine when a worker reaches the qualifying earnings threshold to trigger the auto-enrolment obligation.

Once the worker is auto-enrolled, it is possible that their earnings will drop below the qualifying threshold. If there is no contractual basis on which employers are entitled to deduct such pension contributions, then employers may face unlawful deductions claims.

Discrimination. Individuals on zero-hours contracts do not enjoy any specific protection from discrimination simply by virtue of their zero hours status.

However, caution should be exercised when considering whether or not different benefits should be given to zero-hours employees, as they may fall into the statutory definition of part-time employees and so any less favourable treatment may need to be justified so as not to fall foul of the Part- Time Workers (Prevention of Less Favourable Treatment) Regulations 2000.  However, the European Court of Justice has held that a zero-hours worker who had the ability to refuse work assigned to her could not compare herself to a full-time worker who was required to work a fixed number of hours per week with no option to refuse work.

There is also the possibility of indirect discrimination claims where the majority of the zero-hours workforce share a protected characteristic. It has been suggested that women and young people feature disproportionately in zero-hours or flexible workforces.

DWP consultation

  • So what are the government’s concerns in the DWP’s consultation that is about to be launched:
  • Exclusivity clauses and the potential for employers to abuse such provisions.
  • Transparency and the lack of a clear or legal definition of a zero-hours contract, which can lead to a lack of clarity for the workers.
  • The uncertainty of earnings and the unpredictable hours required (and pay earned) under a zero-hours contract may make it hard for workers to calculate earnings and their benefit entitlements.
  • The balance of power in the employment relationship. Individuals may feel that they would be penalised if they do not take the hours offered, even if the hours are offered at very short notice and are unsuitable.
Clarkslegal, specialist Employment lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Employment matter please contact Clarkslegal's employment team by email at by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.
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