The zero hours contract
Introduction
One of the key take aways from Keir Starmer's conference speech was the promise to 'ban zero hours contracts'. This appears in the Labour Party’s Green Paper as one of a range of measures entitled A New Deal for Working People. It is of course a popular policy with voters since the concept of a zero hours contract has become synonymous with abusive corporate practices inflicted on low-paid workers with little or no bargaining power.
As a specialist employment law firm we have experience of how these contracts are used in practice. Set out below is a brief overview of where this type of contract comes from and its various uses in the job market today. We also set out below some of the difficulties a government might face in banning its use completely versus imposing further restrictions on its use.
Where does the zero hours contract come from and how is it used?
The zero hours contract has been around for decades, but it is not the creation of statute or case law, rather a type of contract created through business practices. As such it is difficult to define in a strict sense. We must instead piece together a definition based on the way these contracts have come to be used in practice.
The use of zero hours contracts increased significantly from the early 2000s. As large tech firms such as Amazon and Uber grew and became more and more dependent on casual workers, so too did the use of zero hours contracts. Other sectors such as hospitality and health care have also readily adopted their use. Sports Direct came under heavy scrutiny in 2013 when a Guardian exposé shone a light on 90% of its 23,000 staff being on zero hours contracts. In essence, these contracts were favoured by businesses heavily reliant on large numbers of low paid staff with a significant amount ebb and flow in the work required of them. They delivered minimum protection for the worker and maximum value for the company.
In and around this time the coupling of zero hours contracts with exclusivity clauses started to become prevalent. So not only was an individual unable to rely on working hours from week to week, but they were not able to sign up and work for other companies and spread their hours across different organisations. This in turn gave rise to the Small Business Enterprise and Employment Act 2015. This Act, incidentally, became the first attempt to define these contracts as a part of imposing restrictions on the use of exclusivity clauses within a zero hours contract. In its definition of a zero hours contract this Act made specific reference to there being no certainty as to what work or services are available to the worker - hence ‘zero hours’.
At the same time, it is worth contrasting this position with those higher paid individuals who work on what could be termed zero hours contracts. We were asked as a firm recently to draft a contract for a senior lawyer who would work for a large and profitable firm with no defined hours. The charge out rate was equivalent to a partner at a large law firm and both individual and company favoured the flexibility in terms of hours. The company wasn’t sure of the hours that they would be needed for, and the lawyer was at a time in their career where they wanted the flexibility to turn work away and didn’t need the financial security of guaranteed hours. We have also seen these kinds of contracts work for other types of workers in need to flexible hours and minimal commitment such as student workers who are combining flexible work with their studies.
It is therefore important to note that in some areas the zero hours contract can be a very attractive tool. A total legislative ban might impose an arguably unnecessary restriction on businesses and their staff in terms of how they both wish to contract with each other.
How do you ban or restrict the zero hours contract?
Here’s the rub: how do you ban something when it’s not clear exactly what it is? In many respects a zero hours contract is a sub set of a self-employed or worker contract. In banning a zero hours contract, how do we distinguish it from other self-employed or worker contracts? And to add to this, one doesn’t want to throw the baby out with the bath water. In banning the zero hours contract, do we inadvertently prohibit the perfectly legitimate use of a form of contract between individual and company with similar bargaining powers who are looking for a high degree of flexibility in their contracted hours?
Firstly, let’s look at the restrictions already imposed on zero hours contracts and assess their effectiveness. The 2015 Act renders unenforceable an exclusivity clause in a zero hours contract (as defined). It also creates an unfair dismissal or detriment claim if someone is dismissed or caused detriment for failing to comply with the exclusivity clause. This is all well and good, but it is relatively easy for an employer to circumvent the effect of the Act by inserting a low level minimum number of hours into the contract, and in doing so taking it outside of the definition of a zero hours contract for the purposes of the Act.
Looking at the ways other jurisdictions have dealt with this issue: very few other countries have banned zero hours contracts completely. Germany is probably the only country that has imposed a genuine ban and in doing so it has stipulated a default minimum number of hours if a contract does not include a minimum. Albeit that an employer can request 20% less or 25% more than the agreed contractual hours to cope with some level of fluctuation. Such an approach makes it very important to ensure that your definition of a zero hourscontract cannot be easily circumvented. Something the UK’s 2015 Act has not achieved. To add to this, a complete ban on the zero hours contract will considerably limit the principle of freedom of contract. As such it will prohibit perfectly valid contracts from being entered into between a company and an individual of equal bargaining power of the kind set out above.
A much more common approach internationally is to impose more effective restrictions on the application of the zero hours contract. Probably the most effective model is the one adopted by the Netherlands. They use a retrospective reference period to calculate average hours. So after 26 weeks an employee can claim for salary based on the average hours over that reference period, and after 12 months an employer must make an offer for a fixed number of hours based on this retrospective 12 month period. Yes, that illusive definition of a zero hours contract still needs to be drafted, but this approach does have the benefit of allowing for a level of flexibility in its application. In our above example there is no obligation on the individual to claim for average salary over the 26 week period, nor to accept the offer of fixed hours after 12 months. But at the same time it does give rise to a more effective level of protection for those workers who are keen to establish a level of certainty in terms of hours worked after a reasonable time period working for a company.
Ways forward
The promise to ‘ban zero hours contracts’ is of course a vote winner, but putting the promise into effect requires more careful consideration. Care needs to be taken in seeking to define the concept of a zero hours contract, particularly if a total prohibition on their use is imposed.
As can be seen by a comparison with other jurisdictions, making use of more onerous restrictions on their use might be a more effective approach. Another element of Labour’s proposed reforms suggests they might be leaning towards this approach, namely the right after 12 weeks to a fixed contract based on hours normally worked. The way this reform is implemented will depend heavily on the political climate at the time: the level of trade union influence, the size of the Labour majority and the state of the British economy. But if Labour do come to power in the next election it is likely that reform in this area will form a key part of employment law reforms. It is something businesses that might be effected by this reform ought to be thinking about now.