Last reviewed 11 July 2018

Stuart Chamberlain, author and employment law specialist, examines zero-hours contracts and their future development.

Zero-hours contracts, a type of contract whereby individuals have no guaranteed hours and agree potentially to be available for work, are seldom out of the news. Recently, the Employment Appeal Tribunal (EAT) in Roddis v Sheffield Hallam University (UKEAT/0299/17) decided that Mr Roddis, who was on a zero-hours contract, could compare himself to a full-time colleague and bring a claim for less favourable treatment under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000. The Office for National Statistics (ONS) reported that the use of zero-hours contracts in the UK is actually increasing: during 2017 they rose by 100,000 and the total number of zero-hours contract workers now stands at 1.8 million. Additionally, 25% of these, according to the ONS, — despite the well-documented drawbacks and criticisms (see below) — wanted to work more hours.

What are zero-hours contracts?

The expression “zero-hours contract” (also known as “casual contracts”) is a colloquial term for a contract of service under which the worker is not guaranteed work and is paid only for work carried out. The individual usually has to be available as and when the employer needs them.

The Small Business, Enterprise and Employment Act 2015 provides a legal definition: section 27(1) defines “zero-hours contract” as a contract of employment or other worker’s contract under which:

  • the undertaking to do or perform work or services is an undertaking to do so conditionally on the employer making work or services available to the worker

  • there is no certainty that any such work or services will be made available to the worker.

Therefore, a zero-hours contract is one in which the employer does not guarantee the individual any hours of work. The employer offers the individual work when it arises, and the individual can either accept the work offered or decide not to take up the offer of work on that occasion.

What are the advantages of zero-hours contracts?

A major benefit for an employer using these types of contract is that the workers are unlikely to be classed as workers and the employer will have fewer legal obligations towards them — see below.

Some types of work are driven by external factors that are out of the employer’s control and this can happen in a range of sectors including, for example, hospitality, leisure and catering. The following are examples (derived from the guidance on zero-hours contracts from the Department of Business, Energy and Industrial Strategy (BEIS)) of when a zero-hours contract might be appropriate.

  • New businesses to manage fluctuating and unpredictable demands.

  • Seasonal work or peaks in demand — such as retail sales at Christmas time or providing a cleaning service, following a festival or a New Year celebration.

  • Unexpected sickness — employers may need to be ready to cover periods of unexpected staff sickness.

  • Special events — for example, at a wedding venue or function, restaurant or a bar.

  • Testing a service — a need to hire staff on an ad hoc basis before deciding about rolling out the service.

In addition to the flexibility that these contracts supply to employers, individuals on the contracts (such as students and those looking for occasional work) may also welcome the flexibility that the zero-hours contract brings for them. It can allow them to take on work without having to give up on their other commitments.

And the disadvantages?

  • For the employer, it may prove difficult to find someone to undertake the work at the precise time required — an individual is under no obligation to accept the work from the employer.

  • Overreliance on zero-hours staff may lead to lack of continuity and quality in service delivery — different individuals may be doing the same job at different times.

  • There is no job security (or certainty of employment). Lack of a fixed income undoubtedly makes it difficult for those on a zero-hours contract to plan ahead and to obtain loans and mortgages.

Who uses zero-hours contracts?

Zero-hours contracts can be useful when there is “piece work” or “on call” work. These contracts are most commonly found in the accommodation and food services sector, retail, health and social care and leisure.

Recent research also shows that the majority of those on zero-hours contracts are likely to be women and to be aged under 25 or over 65.

Employment status and employment rights

The employment status of an individual on a zero-hours contract has important legal consequences. In most cases, individuals engaged on zero-hours contracts will not be regarded as employees of the organisation; instead, their status will be that of “worker”. The significance of this distinction is that workers enjoy far fewer employment rights than employees and, in particular, are excluded from the right to claim unfair dismissal, redundancy pay and maternity and paternity rights. Workers are protected, however, against unlawful discrimination under the Equality Act 2010 and have full rights under the Working Time Regulations 1998 and the National Minimum Wage Act 1998. Consequently, their engagement is not without any obligations on the part of the employer.

In general, it will be difficult for an individual engaged on a zero-hours contract to argue employee status, although there have been a small number of successful cases. There will usually have to be a pattern of regular work that was regularly accepted by the individual — the important test of mutuality of obligation in defining employment status.

Nevertheless, even if a worker engaged on a zero-hours contract is successful in arguing employee status, it is unlikely that they will have built up the required two years’ continuous service necessary to bring a claim of unfair dismissal and/or for a redundancy payment. The employer can argue that gaps between different periods of working have broken any continuity.

What are exclusivity clauses?

Legislation that came into force in 2016 prohibits the use of exclusivity clauses or terms in any zero-hours contract.

  • A zero-hours worker is not bound by any provision in their contract which prevents them from doing work or performing services for another employer or requires the employer’s consent for such work. This means an employer must allow the individual to take work elsewhere to earn an income if they themselves do not offer sufficient hours.

  • If an employer includes an exclusivity clause in a zero-hours contract, the individual cannot be bound by it; the law states the individual can ignore it.

These are day one rights enforceable in an employment tribunal.

What are the present Government proposals for zero-hours contracts?

In July 2017, The Taylor Review on Modern Working Practices made several recommendations on the use of zero-hours contracts. The review recognised the importance of flexibility and accepted that businesses should still have the ability to offer zero-hours contracts, but it concluded that the Government needs to do more in this area to ensure that flexibility is not at the unreasonable expense of workers and is genuinely a mutually beneficial arrangement.

The Government accepted all but one of the review’s recommendations. Its Good Work Plan established a consultation on workers’ rights, including the proposal for all workers (including those on zero-hours contracts) to request (although not an automatic right) a more predictable and stable contract. The consultation, which ended on 16 May 2018, also proposed further day one rights and the new right of a payslip for all workers.

The real question, however, is whether any of these proposals are likely to go anywhere. The Government has clearly got other priorities — particularly those of Brexit and immigration.

Any tips for employers on the use of zero-hours contracts?

  • Employers should always consider whether a zero-hours contract is the best fit for the particular business need; it may be that increasing overtime for existing staff, a part-time or a fixed-term post or an agency worker is more appropriate to fill a short-term need.

  • If a zero-hours contract is offered to an individual, the terms of the engagement should be made clearly and as transparently as possible.

  • The individual should be told that hours are not guaranteed and that work could cease if there is a fall in demand.

  • The worker should also be informed of accompanying employment protection rights.

  • Watch out for any proposed legislation about the use of these contracts — see the previous question.

As already noted, the Department of Business, Innovation and Skills produced some guidance in 2015 for employers on the use of zero-hours contracts — see the BEIS website. The guidance stresses that zero-hours contracts should not be considered as an alternative to proper business planning and should not be used as a permanent arrangement if it is not justifiable. They are not appropriate if the job entails regular hours over a prolonged period. In such circumstances, it may be more appropriate to offer that individual a permanent part-time contract or even a fixed-term contract.

Conclusions

Zero-hours contracts remain controversial. Trade unions have consistently campaigned for their abolition. Critics argue that they deprive people of security and employment rights. It remains to be seen whether the Government has the parliamentary time to introduce any real changes. And the Roddis case is a reminder to employers to ensure that they do not treat zero-hours contract workers less favourably than full-time employees where their roles are broadly similar, unless this treatment can be objectively justified.