The Rise and Fall of Zero Hour Contracts

In the run up to the election, I have been keeping a close eye on the employment law proposals of the major political parties. Unusually, there is consensus amongst the parties in that all of them commit to addressing the issue of zero hour contracts.

As a concept, the zero hours contract has recently become a byword for bad employment practice by employers who must be exploiting their staff. A cursory look at the news would leave any reader thinking that zero hours contracts are the work of the devil and must be outlawed without delay. However, is it really that the concept is bad or that certain employers have exploited the concept?

The Government has produced a guidance on zero hours contracts.

Zero hour contracts – what are they?

In brief, they are contracts of employment which provide no guaranteed minimum number of working hours for the worker. Workers have certain employment rights, such as paid annual leave and the national minimum wage, but the crucial issue is that no minimum amount of work (and therefore pay) is guaranteed.

Employers have a huge amount of control and flexibility in terms of their workforce. If no work is given then no wages have to be paid.

The election and zero hour contracts

It is noteworthy that all of the major political parties are saying that they intend to address the issue of the abuse of zero hours contracts. Labour has said that they will:

• abolish “exploitative” zero hours contracts;
• ban employers from requiring zero hours workers to be available on the off chance that they will be needed;
• stop employees from being required to work exclusively for one employer if they are on a zero hours contract; and
• ensure that zero hours workers who have their shifts cancelled at short notice will receive compensation from their employer.

The Conservatives say that they will take further steps to eradicate the abuse of workers including exclusivity in zero hours contracts.
UKIP also addresses the issue of zero hours contracts and also say that they will ban exclusivity clauses. UKIP also says that:

• a minimum notice period of 12 hours will have to be given by an employer if it needs a worker to carry out a shift; and
• after a year, a zero hours contract will become a fixed hours or permanent post.

The Liberal Democrats have said there will be a consultation on allowing employees on zero hours contracts to request a fixed contract.

Whoever wins the election, or whatever coalition we see after 7 May 2015, it appears that there will be legislative changes and the freedom employers currently have in relation to zero hours contracts will be reduced.

Who will this affect?

The obvious answer to this question is any employer who is currently using zero hours contracts, and there are quite a few. This is alleged to include well-known high street names. I have picked up these figures from the internet so I cannot verify them myself. However, it is reported that:

• Sports Direct has the majority of its workers on zero hours contracts.
• Many employees working in well known fast food outlets are employed on zero hours contracts.

If the figures relating to major employers are correct then my view is that there has been a wide scale misuse of zero hours contracts. Why does a retailer need to use zero hours contracts as their default contract?

In the retail sector, an employer will know precisely when the shop is going to be open and will have a good idea of when the busy and slow times will be. A retail employer or fast food outlet should easily be able to plan its work force and offer regular hours to its employees. Consequently, if the figures are correct in relation to the widespread use of zero hours contracts by retailers, then it can be understood why the words “exploitative” are being used by political parties.

I have over the years acted for numerous retailers who have used normal contracts of employment with regular hours. In busy times, employees could be asked to work extra hours and would be paid at the rate stated in the contract (premium rate or not).

Do zero hour contracts have any good points?

In short, the answer to this is yes. However, in this answer, I refer to the notion of a casual worker contract where the employer needs to have available to it a flexible and casual workforce.

Over the years I have been advising employers, I have had employer clients who have used zero hours contracts (or similar) to the benefit of both the company and the workforce. This has often been in areas where the workers were described as casual workers (often still employees) and the work has been genuinely casual work.

For example, in the sports world, sports clubs often have very different needs for staff depending upon the time of the year or the event in question. Having a bank of casual workers to work at events was perfect for the sports club and worked to the advantage of both sides. The casual worker knew that the work would come and go and didn’t rely on it as the only or main source of income. In the hospitality industry, a similar thing would happen.

An employer would often have one employment contract for its permanent employees and one casual worker contract which governed the use of casual labour. The casual worker contracts came in a number of guises but one way of drafting them was to have a contract of employment which provided for continuous employment but offered no guaranteed hours. Other contracts could offer employment on an event by event basis. Either way, in the right arena, this type of contract has worked well.

Another plus point for zero hours contracts came around the financial crash in 2008 (although this may well have contributed to their continued use today when the same financial pressures are not felt). In 2008, the Employment Team at Paris Smith were dealing with mass redundancies on a constant basis and employers were cutting their workforce to the bone. Employer clients were often reluctant to offer permanent contracts to employees but were more willing to offer contracts which did not tie them into providing a fixed level of work and pay to the employee. The employer could test the water and see how the employee panned out, and how the level of business was looking, before making a decision to hire on a more permanent basis.

So is it a bad concept or bad use?

My view is that the answer to this is the latter. Not all employees want the same thing and there will always be a large number of people looking for flexible work. However, the widespread use of zero hours contracts as a default method of employing workers is the root cause of the problem which has grabbed so many headlines. Such contracts have been used for years and did not attract a bad press. However, the tipping point has been reached due to the number of employers going down the zero hours route.

In summary, zero hour contracts as they currently exist appear to be on borrowed time. After the election, it appears inevitable that there will be legislation which aims to stop or curb the abuse of zero hours contracts. Whether this works remains to be seen. The ability to have a genuine casual worker relationship will hopefully be unaffected and large-scale abuse will be addressed. This has to be a good thing provided (as always) the legislation does not go too far and does not act as a deterrent to employers taking on new members of staff in the first place.

Contact a member of the Employment team if you have any zero hour contract issues.