HM Insights

Still zero hours contracts but an end to zero choice?

For businesses, zero hours contracts is a topic that won't go away. It's been a focus of the General Election campaign, with promises being made by different parties about how they are to be dealt with in the future, and calls for such contracts to be banned in their entirety. However, in the heat of the election battle, it should not be forgotten that there are already proposed measures in legislation before Parliament, recommended by the Department for Business, Innovation and Skills (BIS).

These may yet survive in their current form, irrespective of who wins the election, or may form the basis of any future legislation, meaning that it is valuable to consider the current set of proposals.

What is a Zero Hours Contract?

A zero hours contract is a contract for a worker or employee which gives no guarantee to the minimum number of hours which are to be worked. Depending on the wording, however, the individual subject to the contract may be under an obligation to accept any work offered to him. Furthermore, many zero hours contracts contain standard contractual terms, specifically restrictive covenants. These can prevent the individual from working under a contract of employment with another employer or, indeed, performing services for them. It is this element of zero hour contracts that is widely seen as unfair by the public and that BIS is seeking to address.

The proposed legislative changes

These measures form part of the Small Business, Enterprise and Employment Bill draft legislation currently before Parliament, which will further address recent concerns and bad press surrounding the use of zero hours contracts. The proposed legislation follows the conclusion of the Banning Exclusivity Clauses: Tackling Avoidance consultation, which was conducted by BIS.

Following the consultation BIS has proposed legislation which will implement the following:

  • A ban on exclusivity of employment as contained within restrictive covenants within zero hours contracts;
  • The right for zero hours workers to not suffer detriment on the grounds that the worker has done work or performed services under another contract of employment. The zero hours worker will be able to make a complaint to an Employment Tribunal if they consider they have suffered such a detriment. In such instances, the Employment Tribunal may award compensation to the individual;
  • Proposal to allow implementation of civil penalties for breach of a worker's rights as outlined above, similar to as is currently available in instances where employers breach National Minimum Wage Regulations; and
  • An extension on the prohibition on exclusivity clauses beyond zero hours contracts in order to address attempts at avoidance. The Regulations would define "a prescribed contract" so that any contract that does not guarantee the worker a specified minimum income would be covered by the exclusivity clauses ban. However, there will be an exception to this if the rate of pay for each hour worked under the contract is at least £20.

What does this mean for employers?

For the moment, this legislation remains in draft form. If these changes or similar legislation were to be enacted, it is likely that individuals under a zero hours contract, or those under any other contracts where there is not a guarantee for a specified minimum income, will be provided with new legal rights protecting them from detriment and providing a remedy at the Employment Tribunal were the employer to breach those rights. Any claims brought to an Employment Tribunal would likely be a costly experience for an employer in terms of both a financial outlay and also the potential reputational damage of allowing the matter to be dealt with in a public forum.

In the introduction to the proposal for these legislative changes, BIS stressed its over-arching aim of achieving a labour market that is flexible, effective and fair. These measures are seen as addressing the public's concern about the unfair restrictions imposed upon workers by the misuse of zero hours contracts or similar arrangements, but maintaining the availability of these types of agreements to allow employers continued flexibility when engaging with the labour market.

Employers who do utilise zero hours contracts, or contracts that do not guarantee an individual a specified minimum income, should ensure that exclusivity clauses or similar restrictive covenants do not form part of the terms and conditions with the individuals under those contracts.