Zero-hours contracts have been in the news a lot recently. We take a look at their legal status, and consider the pros and cons of their use for both employers and workers.

Recent Press Coverage

Speaking at a press conference in London last month, Deputy Prime Minister Nick Clegg said that, while he continues to advocate flexibility in the labour market, he recognises that zero-hours contracts create a “worrying level of insecurity”. On the other side of the debate, of course, many employers find that zero-hours contracts are a useful tool in dealing with fluctuating demand where the requirement for staff is uncertain, and find that the flexibility offered by such contracts, if used properly, is welcomed by workers.

A recent poll by the Chartered Institute of Personnel and Development suggests that more than 1 million British workers could in fact be engaged under zero-hours contracts. As a consequence of this press coverage, high-profile employers are now facing scrutiny because of their use of such agreements. It has also been reported that an employee of the retail chain Sports Direct is also bringing a claim in the Employment Tribunal, to challenge the legality of her own zero-hours contract.

Against a backdrop of continuing economic uncertainty, use of zero-hours contracts looks set to provoke further controversy, although at present these contracts are perfectly legal and can be beneficial for both employers and their workforces.

The Legal Background

What Are Zero-hours Contracts?

Zero-hours contracts are contracts for casual working whereby the employer does not guarantee to provide work and only pays for work actually done. Under some arrangements, the worker may be free to accept or refuse work when offered, but the agreement may provide that the worker is expected to make himself/herself available for work at any time.

What Rights/Protections Do ‘Zero-hours Workers’ Enjoy?

This will depend upon each particular individual’s employment status, i.e., whether they are classed as a worker or an employee. Genuine zero-hours contracts will not usually create a “mutuality of obligation” – in other words, the employer will not be obliged to provide work to the individual and the employee will not be required to carry out the work offered. As a consequence, the individuals working under these agreements will often be deemed to be workers rather than employees. However, it is important to note that, where there is an expectation that the employee will be given work (and that the employee will do the work offered), for example arising out of a usual practice that has developed over time, an employment relationship may nevertheless exist for legal purposes.

A zero-hours worker will benefit from various statutory rights, including protection from discrimination, the right to receive paid holiday, the right to receive the National Minimum Wage and (in certain situations) a right to receive statutory sick pay.

Zero-hours employees will benefit from a much higher level of protection than workers (depending on their period of service). As well as all of the rights listed above, they will enjoy additional rights including the right not to be unfairly dismissed, an entitlement to statutory redundancy payments, and an entitlement to maternity and other family leave/pay.

Pros and Cons of Zero-hours Contracts for Employers

Media Scrutiny

The recent media coverage of zero-hours contracts points to a number of concerns about their use, suggesting in particular that such contracts do not offer enough financial stability to individuals, and that they may be wrongly used as a heavy-handed management tool (allowing employers to offer fewer hours to troublesome employees). Employers may be uncomfortable about exposing themselves to such media controversy, especially as there has even been talk of demonstrations outside the premises of employers who adopt such contracts.

Whilst employers should remain mindful to these criticisms, such disadvantages can be minimised by careful and responsible use of zero-hours contracts – for example by not restricting a zero-hours worker’s ability to work elsewhere, and only using such contracts when genuinely appropriate.

Flexibility vs Certainty

The principal advantage of zero-hours contracts is the flexibility they offer. Employers find that zero-hours contracts are particularly useful in certain sectors, such as catering, retail and leisure, whereby demand fluctuates significantly and workers are simply not required during certain periods. Such flexibility is often equally attractive for workers – a contract which provides that the individual is not obliged to take on the work he/she is offered will allow greater freedom to fit work around a personal/family life.

However, employers who use zero-hours contracts may encounter practical difficulties in ensuring that their workforces are consistent and reliable, and available when needed. Employers can overcome such uncertainty by ensuring that the terms of the agreement require the individual to undertake any work offered, but this may leave the employer open to criticisms such as those mentioned in the media.

Legal Status

It is often not entirely clear whether a person on a zero-hours contract is an employee or a worker. This can lead to disputes over statutory entitlements, and/or an employer having a two-tier workforce. An employer can mitigate such risks by ensuring that it has a properly-drafted contract which reflects the true nature of the relationship, but such risks can never be entirely eliminated.

Engaging workers rather than employees will often be beneficial to a business, as the higher level of employee statutory protection will not apply. It is important for an employer to continually assess the relationship it has with its zero-hours workers and, if it wishes to avoid an employment relationship arising, take steps to ensure that there is no mutuality of obligation in practice, despite the wording of the contract.

Zero-Hours Contracts – Use, but Use with Care

Employers who currently use zero-hours contracts can take comfort from the fact that the government does not seem keen to ban their use completely, recognising the vital role such contracts play in labour market flexibility.

Such employers should note the recent media controversy though, and the government’s subsequent plans to carry out a full review of the use of such arrangements, as this may mean there are changes in store which will affect how such contracts can be used.

In the meantime, employers who wish to avoid media scrutiny and worker dissatisfaction should ensure that their zero-hours contracts are used only where genuinely needed, and are properly drafted to reflect the actual relationship between the parties. Both employers and workers can benefit from such arrangements, if this advice is followed.