Zero Hours Contracts: Friend or Foe?

September 19, 2013

Vince Cable’s recent criticism of zero hours contracts “abuses” has added to the growing clamour for the reform of such contracts. It seems that zero hours contracts have been very much
misunderstood.

A zero hours contract is an agreement with an individual to provide work without the guarantee of set hours or regular work. The number of people employed on such contracts has been grossly underestimated. CIPD figures indicate that nearly a million people are employed on zero hours contracts – over 4 times the government estimate. For instance, Sports Direct employs 20,000 out of its 23,000 workers on zero hours contracts while staff on such contracts in Amazon claim they only received a 30minute break during a ten hour shift as well as 307,000 workers in the care system engaged on zero hours contracts, this criticism is perhaps unsurprising. The NHS has almost 100,000 workers on zero hours contracts which the BMA has described as a real risk to patient safety.

Many politicians are now advocating against the use of zero hours contracts with Deputy Prime Minister Nick Clegg stating that zero hours contracts have created a ‘worrying level of insecurity’ although he still continues to back the requirement for flexibility in the labour market. Labour MP Tom Watson joined the recent protest by GMB outside the London headquarters for McDonalds over the use of zero hours contracts and described them as an ‘uncivilised way’ to treat employees. Vince Cable has undertaken a review of zero hours contracts and the findings of this review are due to be released shortly. There have also been calls for a voluntary Code of Practice on zero hours contracts to ensure better practice and treatment of staff on these agreements. Mr Cable is particularly unhappy with the use of “exclusivity” clauses in these contracts and the combined impact of workers being paid at minimum national wage levels.

Zero hours contracts are most useful for intermittent work. The use of such contracts can be beneficial in various areas such as hospitality, retail and catering. Hotels often plan large events and require additional staff; however they could not sustain these additional workers on a permanent basis. Similarly retailers during the Christmas period may require additional workers. The use of zero hours contracts allows these companies to have a bank of workers upon who they can call upon when required. Those staff on a zero hours contract are not required to accept the work offered. This means that employers may have a pool of workers that they may call upon when needed however they are under no obligation to accept the work.

Zero hours contracts benefit those people looking for part-time work to enhance their household income and allows a worker to fit their job around their personal circumstances. This is particularly true of young people. A survey conducted by The Office for National Statistics found those aged between 18 and 24 were twice as likely to be employed on zero hours contracts. This employment arrangement allows them to work while studying or following other career opportunities.

Recent media reports have claimed that those under such contracts are not entitled to paid holidays or paid sick leave. ‘Zero hours’ staff are not considered to be employees, but workers (provided the contract is used in the correct way, see below). They are however entitled to paid holidays and statutory sick pay, calculated according to the actual hours worked.

Nonetheless, while flexibility is often beneficial, having a bank of workers’ with no obligation to accept the work offered is not necessarily a reliable workforce. Some employers require that staff employed on zero hour contracts must accept work when offered. According to the latest UK skills and employment survey people feel more pressured and less secure at work than anytime in the past 20 years. Ed Milliband recently said during his TUC address that he wants to outlaw such contracts. These are not genuine zero hours contracts and they run a substantial risk of workers gaining full employment status and greater of employment rights. In the case of Carmichael and another v National Power Plc, the House of Lords emphasized that mutuality of obligation is essential to be considered an employee. Therefore, if an employer inserts a mutuality of obligation clause into a zero hours contract the courts consider the parities under the contract a full employee, rather than a worker. It is therefore important that employers use the zero-hour contracts for their intended purpose. This point is currently being argued in an employment Tribunal against Sports Direct.

A spokesperson from the Institute of Directors has argued that in the current economic climate zero hours contracts make sense as it allows for flexibility and adaptability. It has also been argued that in the current economic downturn people have had no choice but to accept work under a zero hours contracts, even though they may require a more stable contract. There is no doubt that zero hours contracts can be misused but it is equally important to understand that if used in the correct manner, they are very beneficial to business. It is important for employers to ensure that all employees, including those on zero hours contracts, still feel part of the overall organisational culture. Those on zero hours contracts may feel cut-off from or not as valued as those on a full-time or more permanent contract.

Many high street stores like McDonalds, Burger King, Boots and Cineworld, use zero hours contracts. It is important for employers to use zero hours contracts in the correct way otherwise they run the risk of creating employment rights if demanding exclusivity and reducing flexibility. While perceived abuses by employers of zero hours contracts will fuel the calls for a ban on their use but clearly a complete prohibition will create a more inflexible labour market.

Please note: The content of this article is for information purposes only and further advice should be sought from a professional advisor before any action is taken.