The Truth About Zero-Hours ContractsPosted in : HR Updates on 14 August 2013 Issues covered:
What is a zero-hours contract?
A zero-hours contract is a contract under which someone undertakes to be available to work for an employer when required, but without any minimum amount of work being guaranteed. Accordingly, pay is made only for hours actually worked. A zero-hours contract is, therefore, a one-sided arrangement, allowing the employer to determine whether and when to offer the individual work, while the employee is not guaranteed any work but must remain on standby and make himself or herself available when called upon.
Why use zero-hours contracts?
The underlying purpose of a zero-hours contract from an employer’s perspective is to manage the engagement of regular casual workers effectively. Some of the benefits are that:
- there is a pool of available workers on whom the employer can call but to whom they do not need to pay full-time or regular salaries
- zero-hours contracts provide considerable flexibility and help the employer deal with seasonal fluctuations in a cost-effective way
- despite the casual nature of zero-hours contracts, the employer can — at least within reason — require workers engaged on them to come to work when asked.
An employer’s use of zero-hours contracts may, however, cause difficulties for its staff. Due to the uncertain and irregular nature of the work, there may be problems for workers in terms of managing their finances, obtaining mortgages and claiming certain benefits. Childcare may also be an issue for some workers, especially if the employer tends to call upon them to attend work with little notice. These factors may mean that the workers lack motivation, commitment and loyalty towards the employer, which is not conducive to effective working.
How zero-hours contracts work
A zero-hours contract can be set up in different ways. It can be an arrangement under which workers are:
- under an obligation to work whenever the employer demands it (subject to certain periods during the year such as agreed holiday periods); or
- on call during certain defined periods during the year and obliged during those periods to come into work when asked; or
- on call, but free within reason to accept or reject any individual offer of work.
- A zero-hours contract may contain a clause requiring the employer to give the worker a minimum period of notice in order for the worker to be obliged to attend work.
Employment status of workers engaged on zero-hours contracts
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”. This is because there will usually be no mutuality of obligation between the parties. The importance 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/paternity rights.
Workers do however have full rights under the Working Time Regulations (Northern Ireland) 1998 and the National Minimum Wage Act 1998. Consequently, their engagement is not without any obligations on the part of the employer.
In some cases, however, it may be possible for an individual engaged on a zero-hours contract to argue employee status. Much will depend on the wording of the contract, but what happens in practice will also be relevant.
Employment tribunals can, and sometimes do, scrutinise the true working relationship when a case challenging employment status is brought before them and the label put on a working relationship by the parties will not alter the true position. Nevertheless, the key issue determining employment status will be mutuality of obligation, ie whether the employer is obliged to offer a reasonable amount of work and whether the individual is, in practice, obliged to do the work personally when asked. Even if a worker engaged on a zero-hours contract is successful in arguing employee status, there may still be difficulties in attempting to assert the right to claim unfair dismissal and/or redundancy pay.
In both cases, there is a minimum requirement of two years’ continuous service. Since people on zero-hours contracts may not always work continuously, the employer may argue that gaps between different periods of working have broken continuity. This may well scupper any prospective claims at the outset, unless the individual can convince an employment tribunal that an overriding or global contract existed during periods when he or she was not working.
It may be possible for an individual to argue that a global contract of employment exists if there is evidence to suggest that the parties have expressly agreed that the individual’s work will be on a regular, defined pattern, or if this is implied as a result of custom and practice. This argument could be successful if the working relationship is a long-standing one in which the working hours and patterns are set and/or regular and if the employer relies on the worker to work at set times and the worker reasonably expects to attend work at those same set times.
Before engaging staff on zero-hours contracts, employers should consider carefully whether this type of working arrangement properly meets their needs and, if so, how the contracts should be set up. Employers should be aware that, depending on how the working arrangements are operated in practice, an individual on a zero-hours contract may be able to argue employee status. Allowing individuals the genuine choice to refuse offers of work (without being penalised) should defeat any such argument as this evidence would show that the contract lacked mutuality of obligation.
The information in this article is provided as part of Legal-Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article.