Are the Days of the Zero Hours Contract Numbered? - as published in Tolley's Employment Law Newsletter

What do McDonald's, JD Wetherspoon, Sports Direct, the Tate Galleries and Buckingham Palace all have in common? They have all fessed up to using the much maligned zero hours contract. The contracts are used by companies to employ staff, in accordance with demand, but have been slated in recent months by the press, trade unions and the government for exploiting workers, as they do not offer guaranteed work and consequently no stability of income. Zero hours contracts can be a useful business tool and, according to a recent report in the Financial Times, they are used by a quarter of all businesses. However, they are abused by some employers and this has led to criticism and concern. But are they all bad and what does the future hold? 

What is a zero hours contract?

There is no legal definition of a zero hours contract. In simple terms, the worker is retained under a contract where there is no guarantee of work each week. Crucially, if there is no work, then there is no pay.

However, zero hours does not necessarily mean that the employer has absolutely no obligation to the worker. It depends on how the contract is drafted and how it is operated in practice by the business.

At the moment, zero hours contracts come in various shapes and sizes - some even provide the workers with benefits such as a pension or money-off vouchers and, in some cases, full employment rights.

A great deal hinges on whether the worker is required under the contract to accept any shifts offered. If they are, this can lead to mutual obligations between the employer and worker, leading to the likelihood of enhanced employment rights and/or obligations. As with all workers, zero hours workers are entitled to paid statutory holiday under the Working Time Regulations 1998.

Criticism has been made of contracts which do not provide any benefits or rights, where the hours offered are very sporadic, or where they place onerous requirements on the worker - such as not being paid for travel time, etc.

How bad is the problem of zero hours contracts?

The Office for National Statistics recently announced that 200,000 of the 30 million workforce in the UK were employed under zero hours contracts at the end of 2012 (an increase of 50,000 in a year and 174% up since 2005). Recently, we have heard that this number is likely to be incorrect; according to the Chartered Institute of Personnel and Development (CIPD) the more likely figure stands at around one million.

Some employers appear (according to recent comments in the media) to be very sheepish or apologetic about admitting to using zero hours contracts. Others, however, have sought to justify their use - Spirit, which employs nearly all of its 16,000 workforce on zero hours contracts, stated "we operate in a seasonal sector and offer flexible contracts to ensure we meet demand".

The use of zero hours contracts is not a new phenomenon - McDonald's has reportedly been using these types of contracts since 1974. So why are they so popular now? Given the extent and longevity of the recession, employers could not afford permanent staff, and now they are understandably concerned about committing to full or even part-time contracts. Casual workers provide employers with greater flexibility and additional capacity to deal with changes in demand. The economy provides some explanation, but only part of it.

In 2012, the Confederation of British Industry (CBI) reported that there is a correlation between the uptake in use of zero hours contracts and the introduction of the Agency Worker Regulations 2010. Prior to 1 October 2011 when those regulations came into force, agency workers had very few employment rights, so were relatively cheap and risk-free to use. The regulations, brought in at the direction of Europe, sought to regulate this "shady" world and agency workers were given new rights, including:

• the right to the same pay and other "basic working conditions" as equivalent permanent staff after a 12-week qualifying period; and
• access to collective facilities and to information about employment vacancies.

These new rights/requirements arguably make it more expensive, time-consuming and complicated to engage agency workers. However, the demand for cheap and flexible staff continues. It is estimated that one in 12 employers has chosen to shy away from using agencies and many of those now prefer to retain staff on zero hours contracts.

The issue has attracted particular attention because it gives businesses the opportunity only to call on workers when they are needed. The worker is only paid for the hours that they work. There is no obligation for employers to give workers any notice of shifts, nor to give any indication of the number of hours they will be offered over the coming months. One week they may be offered more than 50 hours and the next week none at all. While zero hours contracts may suit some people, such as students who can fit work round their studies, they do not suit those who need a minimum guaranteed income.

Employment tribunal proceedings have recently been issued against sports retailer, SportsDirect.com, in respect of its use of zero hours contracts and challenging the legality of the company's treatment of its part-time workforce. Part-time staff, who reportedly make up 90% of its workforce, are apparently denied paid annual leave and sick pay and are ineligible for its Bonus Share Scheme. The claimant argues that although described as a "casual" worker, the reality of her working arrangement entitled her to be treated no less favourably than full-time staff.

Are the days of the zero hours contract numbered?

While there are advantages and disadvantages to zero hours contracts, it looks like changes may be afoot. In May 2013, Andy Burnham MP urged Labour to pledge that zero hours contracts would be banned as part of their manifesto. In June, the Secretary of State for Business, Innovation and Skills, Vince Cable MP, concerned that employers had been abusing the use of these contracts, announced that there would be a review of the growth in their use and their impact on workers. In August, he indicated that the government might legislate so that zero hours workers cannot be restricted to working for only one employer and a consultation on specific proposals may follow in September, once it has been established how widespread that practice is. However, he appears to have ruled out a complete ban.

There are concerns that unemployment figures are currently under-reported as a result of the use of zero hours contracts and if they were outlawed, unemployment figures would certainly rise. Therefore, some cynics may say that there is little motivation for the government to address the social issues caused by the contracts. Furthermore, the coalition government has pledged to remove or avoid red tape and unnecessary regulation, which has resulted in the watering down of some long-standing employment rights in other areas. This suggests that zero hours contract are here to stay, but it is likely that guidance on their proper use will be provided.

How to reduce the risk of using zero hours contracts

While the use of zero hours contracts is lawful and is a good source of additional manpower, there are a number of potential pitfalls associated with their use.

Casual workers can acquire employment rights (such as unfair dismissal rights and rights to sick pay and maternity and paternity pay), as they may be classed as "employees". All casual workers have the right to be paid statutory holiday and the national minimum wage, irrespective of their employment status.

Furthermore, using zero hours contracts could lead to reputational issues, as more companies are named and shamed in the press.

Companies and practitioners looking to reduce the risks associated with using zero hours contracts should consider the following:

• To avoid employment rights: use a carefully drafted contract, which reflects accurately the relationship between the company and the worker. If there is a divergence between the reality and the con-tract, an employment tribunal is more likely to find in favour of the individual that there is an employee/employer relationship, than not; beware of getting into a pattern of regularly offering casual workers work; do not require the worker to accept each and every assignment (ie, ensure there is no mutuality of obligation); and allow the worker to work elsewhere between assignments.