Do zero hours contracts mean zero benefits?

In the last few weeks zero hours contracts have been in the focus of the media following the publication of various statistics which demonstrated that they are far more widely used than previously thought.  In particular, statistics were released showing that workers on zero hours contracts earn, on average, £6 an hour less and that there are more than a million workers on zero hours contracts. Here Howard Robson, Employment team Partner, reviews those statistics and what employers and employees have to be mindful of when implementing zero hours contracts.

Younger workers seem to be the most affected with the number of 16 to 24 year old working under this type of contract having doubled since the economic downturn, from 35,000 in 2008 to 76,000 in 2012. It will be interesting to see if this in turn leads to an increase of age discrimination claims on the basis that, had the worker been older, they would have been offered a contract with a set number of hours.

This has resulted in assertions that those working on zero ours contracts are being exploited, which in turn has sparked the interest of both the Labour Party, who are calling for a consultation to look into the use of zero hours contracts, and the trade unions who are calling for ban. Vince Cable, Business Secretary, has now called for a review of the use of zero hours contracts.

So what are zero hours contracts?  They are contracts that can be used for both employees and casual workers with no set working hours and no obligation on the employer to provide work and, usually, no obligation on the worker to accept work. Therefore, the worker only gets paid for the hours that they work, will only receive statutory sick pay if they had accepted the work and are then sick and accrued holiday pro rata depending on how many hours they have worked (12.07% of the time that they work if it is the statutory minimum holiday).

Such contracts are ideally suited to businesses and organisations with a genuine fluctuation in work which mean it is not possible to know in advance how much work will be available for their workers or employees, particularly if the normal requirement would be a few hours a week. If a contract with set hours were used for such a role, whether it be a full time or part time contract, and there was insufficient work for the specified number of hours, the worker or employee would still (subject to the statutory right to “lay off”) be entitled to be paid their contracted hours which would be an unnecessary cost for the employer.

Many occasional workers, particularly professionals, would like to be self-employed but HMRC will often insist that the relationship is one of employment and they should be taxed under PAYE. The zero hours contract is really the only one suitable for such people.

Zero hours contracts are often wrongly used by employers for employees who regularly work the same hours as they are perceived to be a means of avoiding timely, and sometimes costly, dismissal procedures. If an employer wants to dismiss an employee who has sufficient service to be protected from unfair dismissal, they have to do so for one of five recognised, potentially fair reasons and follow a fair and reasonable procedure. In the absence of misconduct, this leaves an employer with options of dismissing due to a reduction in work, redundancy, or, if the employee is performing poorly, capability. Both are associated with lengthy and difficult procedures and many employers perceive the advantage of a zero hours contract to be that they can simply opt to not give the employee work and effectively force them out. However, if the employee is protected from unfair dismissal, they are similarly protected from constructive unfair dismissal and could therefore claim regardless.

Furthermore, avoiding unfair dismissal claims should not be as much of a concern for employers who have recently taken on employees because those who started on the 6 April 2012 onwards have to accrue two year’s service before the benefit from this protection. Therefore an employer can simply dismiss on notice with no procedure whatsoever in the first two years if they are dissatisfied with an employee’s performance or experience a downturn in work.

One area of abuse of zero hours contracts that has been subject to recent comment is contracts that forbid the employee to do any other work. Another is requiring the employee to be available for work when required.

Employers who use zero hours contracts but offer the employee the same number of hours each week should also be wary of impliedly varying the zero hours contract by way of custom and practice, as a result of consistently offering the same hours, such that the employee will thereafter be entitled to these hours and will need to consent to any subsequent variation. Any redundancy, notice, sick or holiday pay would then need to be calculated on the basis of the hours that the worker or employee has regularly worked in order to avoid a claim.

So what is the solution? As with many things, a broad-brush approach such as a ban on zero hours contract would just not be appropriate in the current employment arena where flexibility is regularly encouraged by the government through the introduction of various family friendly rights, such as flexible working.  Furthermore, there are many roles and organisations which genuinely require flexibility and this can be an equally desirable feature for an employee with, for example, caring responsibilities.

Instead, I would suggest that we adopt an approach that is similar to the way we currently handle the misuse of successive fixed term contracts in an effort to avoid an individual accruing employment rights. One way would be to allow an employee who has worked set hours for a set period of consecutive weeks or for a set number of weeks in a specified number of weeks to automatically move on to a contract for the hours that they have been working, unless the employer can justify them not doing so. Equally, employees should have the right to make an application to the tribunal who would have the power to declare the same. So, for example, if an employee worked 13 consecutive weeks at 30 hours or 13 weeks in a 26 week period, they would move to a 30 hour contract. This would prevent employers reducing hours for one week every so often in an attempt to avoid the new rules.

Of course contracts requiring workers to be always available, or prohibiting them working for others should also be outlawed other than in very special circumstances.

We will have to await the outcome of the government’s review into the use of zero hours contracts to see what the future holds for them, however, I think there is a place for them if used for a role with genuinely fluctuating hours and which cannot be characterised as self employment.

If you are an employer and would like advice on implementing zero hours contracts in your business, or you’re an employee and concerned about your contract, contact the Employment Team on 02380 717717 or visit the Employer pages of the website here, or Employee pages here.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.