What is a zero-hours contract?
Zero hours contracts have been headline news recently. In June of this year Business Secretary Vince Cable announced a review to assess whether zero hours contracts were being abused. On 5 August the CIPD, issued a press release revealing that zero-hours contracts were far more wide spread than expected. (http://www.cipd.co.uk/pressoffice/press-releases/zero-hours-contracts-more-widespread-thought-050813.aspx).
Unsurprisingly, the use of zero-hours contracts was criticised by Unison (“The vast majority of workers are only on these contracts because they have no choice….” said Dave Prentis) and defended by the IoD (“Calls to ban Zero Hours Contracts are deeply misguided and any such action would have extremely damaging results”) said Alexander Ehmann, Head of Regulatory Policy at the Institute of Directors.
Whilst this topic appears to be headline news, there is actually no legislative change expected in the near future. Vince Cable will decide in September whether to hold a formal consultation on specific proposals.
But what exactly is a zero-hours contract?
Zero-hours contracts are not defined in any legislation. They are a contractual concept. It may cover a number of situations and each situation needs to be analysed in accordance with the terms of the contract and whether it truly reflects the way the work is being carried out.
However, the principal element of a zero hours contract is the fact that the ‘employer’ does not guarantee to provide the worker with any work and pays the worker only for work actually carried out. The worker is expected to be available for work when or if called on by the ‘employer’.
In the rest of this note we will remove the quotation mark from the word employer. This should not be read to imply that there is a contract of employment between the parties.
For the purists, a zero hours contract differ from a casual workers contract, which is a contract where the employer does not have to offer work and the worker does not have a duty to accept work. However, many commentators will use the same terminology for both.
Zero hours contracts are usually used by employers to be able to operate a flexible workforce with as few employment rights as possible. However, zero hours contracts will not always debar zero hours workers (or indeed casual workers) from bringing claims.
Zero hours contract may be employment contracts:
It is not sufficient to label a contract ‘zero hours’ to avoid claims. The label needs to fit the reality of the situation. In Pulse Healthcare Ltd v Carewatch Care Services Ltd & 6 Others UKEAT/0123/12/BA, four carers were employed over a number of years to provide care on a shift basis for a disabled person requiring 24 hours support. The tribunals decided that the signed documents did not reflect the true nature of the agreement between the parties and decided that the contract was a contract of employment. To avoid this pitfall, zero-hours contracts should only be used by employers who need staff for unforeseen rises in their activity. They should not be used for permanent relationships.
People on zero hours contracts may be workers:
Workers are defined at Section 203 of the Employment Rights Act 1996, as:
“An individual who has entered into or works under:
- a contract of employment; or
- any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.”
Section 83 of the Equality Act 2010 includes in its definition of employment, people employed under a contract personally to do work.
Zero hours workers are generally required to personally provide their services. Even if the contract allows the worker to provide a substitute person, a tribunal may look into the reality of the situation and assess whether this clause corresponds to the reality of the relationship. This means that a large number of zero-hours staff are workers.
Workers have rights and in particular the right to holiday pay:
Unlike employees, workers do not enjoy the protection against unfair dismissal or the right to redundancy pay. However, they do enjoy a number of rights which can be heard in the employment tribunals such as protection against unauthorised deduction from wages, protection for whistle blowing, the right not to be discriminated against, etc…
In practice, the main employment right which arises with workers is the right to holiday pay under the Working Time Regulations. This is a right to 5.6 weeks paid holiday per year. As these types of workers typically work irregular hours, some employers adopted a rolled-up holiday pay system according to which the worker’s holiday entitlement is included in their rate of pay. Unfortunately, whilst this seems to be the simplest way to deal with the holiday issue, it is illegal. https://www.employease.co.uk/uploadedfiles/Rolled%20Up%20Holiday%20Pay.pdf
Government websites recommend that when a worker does not have set hours of work, the holiday entitlement should be calculated in terms of hours and minutes by multiplying the number of hours worked by 12.07% (i.e. 5.6 weeks’ holiday, divided by 46.4 weeks (being 52 weeks – 5.6 weeks) multiplied by 100.)
If you do not pay holiday pay for your zero hours staff, you risk a claim of unauthorised deduction from wages or a claim under the working time regulations. Under an unauthorised deduction from wage the claim could potentially date back from the start of the relationship or 1998 which is when holiday pay was first introduced.
For more specific information or to discuss your requirements please call either Amanda Galashan or Julie Calleux at EmployEase on 0333 939 8741, or email us at info@employease.co.uk. This note does not constitute legal advice on any particular situation you may have.