Zero-hours contracts are here to stay for the foreseeable future. Tom Watkins looks at the key considerations for employers when weighing up their pros and cons
26 March 2015 | By Tom Watkins
The debate on zero-hours contracts continues; figures published last month by the Office for National Statistics showed that 2.3 per cent of the workforce, or 697,000 people are on such contracts.
This is an increase of 450,000 since 2012, sparking condemnation from employee groups and a vigorous defence from employer bodies.
The Labour Party has called for them to be banned. Conversely, the Institute of Directors has lauded the use of such contracts and the flexibility they bring as a key component of the UK's success in bucking the trend of the much higher unemployment levels elsewhere in Europe.
What are zero-hours contracts?
The Small Business, Enterprise and Employment Bill 2014-15 gives the first legal definition of the term zero-hours contracts. It defines such arrangements as a contract of employment or a worker's contract under which a worker undertakes to perform work when that work is offered by an employer, but there is no certainty of work.
From an employer's perspective there are two key benefits. First, flexibility as such contracts give them the option of bringing in workers at very short notice to deal with last-minute or urgent events, temporary work shortages or to cover absences.
Second, limited rights for those working under such contracts as most zero-hours contracts give the person working under them only 'worker' rather than 'employee' status. In practice this means while a worker is entitled to annual leave and the national minimum wage, they do not have the same rights as employees such as protection against unfair dismissal, maternity rights, redundancy rights and rights under the Transfer of Undertakings (Protection of Employment) Regulations 2006.
From a worker's perspective, the primary benefit is a basic one, namely that of paid work. In the absence of the flexibility such contracts bring it is questionable whether employers, nervous about over-committing, would have the confidence to recruit.
Are people working under them workers or employees? On paper, almost all have 'worker' status. Appropriately drafted zero-hours contracts do not outwardly provide the mutuality required for contracts of employment, as on the face of it the people working under them are normally not obliged to work, nor is the employer obliged to provide paid work.
Is the wording of the contract definitive?
No. An employment tribunal will always look to establish the reality of a day-to-day working arrangement. It can and will disregard written terms should it consider it appropriate to do so, taking into account the fact that parties to an employment contract are not of equal bargaining power and the employer is often in a position to dictate terms.
For example, in the case of Pulse Healthcare v Carewatch Care Services Ltd, despite the claimants working under a contract entitled 'zero-hours' which clearly set out that the employer was not required to offer any work, the Employment Appeal Tribunal held that they were in fact employees. This conclusion was reached on a number of factors to include a finding that once the work rota had been prepared the claimants were required to work and the employer was required to provide that work; that the claimants were subject to control and discipline, had to provide personal services, were given uniforms and equipment, were paid on a PAYE basis and had worked regularly over a number of years and had only taken time off for holidays or sickness, for which they received payment.
Such an approach also applies to the consideration of 'substitution clauses'. Such clauses, often contained within zero-hours contracts, allow the worker to send a substitute in their place to discharge the role. They therefore suggest self-employed status but will only be effective if a tribunal is satisfied that there was a realistic expectation by the parties that it may actually be used.
Therefore, where a worker is employed on a zero-hours contract and provided with regular work, regularly accepted, it is possible the contract will be deemed one of employment even if the wording suggests otherwise. This means the person working under it would have the status of employee - with all of the associated protections and entitlements.
Misjudging the situation could leave an employer facing an unfair dismissal claim.
Employers relying upon such contracts should ensure that there are written terms of agreement which attribute appropriate status to the worker and which are regularly reviewed. The employer should then consider whether the day-to-day reality of the working relationship could give rise to its zero-hours workers attaining employee status, e.g. how long have the workers worked under the contract, how are they paid, do they receive sick pay, have they ever refused work, how regularly are they offered work, have they ever been disciplined?
Employers should keep a clear distinction between those working under zero-hours contracts and genuine employees; it would be unwise, for example, to refer to the aforementioned for internal purposes as employees or provide the same benefits as given to employees.
Employers should be mindful of the impending ban on exclusivity clauses within zero-hours contracts (stopping the worker from working for other employers), as detailed in the Small Business, Enterprise and Employment Bill and should update their contractual documentation accordingly.
Tom Watkins is an associate at Shulmans LLP solicitors specialising in employment and HR