Tina Chander, head of Employment Law at Midlands law firm Wright Hassall, discusses zero-hours contracts.

 

Zero-hours employment contracts have received a lot of negative press over the years, with many claiming they are unfair and offer employees no security in a competitive employment market.

However, some employers find these types of contracts beneficial for managing irregular workloads or seasonal peaks. Similarly, there are those individuals who welcome the flexibility that zero-hour contracts afford them when factoring in study or childcare. So is the controversy merely just a question of misunderstanding precisely what employing people on zero-hour contracts means in practice?

What are zero-hours contracts?

A zero-hours contract is a non-legal term which refers to an agreement between two parties through which one is expected to carry out work for the other but where there isn’t a set minimum number of contractual hours that an individual has to work.

Whilst considered to be ‘atypical’, zero-hour contracts, like more traditional contracts, still need to outline the employment status, rights and obligations of those undertaking the work. They must state what the person will be paid if they undertake work. Also, what they can expect to happen should they turn down any work that is offered to them (if indeed that is an option, as some will always be obliged to accept).

Often the payment arrangements and the benefits they receive will vary from those received by individuals undertaking the same job on a contract with guaranteed hours. But those employed on zero-hours contracts still have many rights under UK law, as was noted during an independent review of Modern Working Practices back in 2017.

What rights do people with zero-hours contracts have?

Individuals working with zero-hours contracts have numerous basic entitlements under UK law, which include:

• Those aged over 23 are entitled to the National Living Wage. Those aged under 23 will be eligible for the National Minimum Wage.
• Many of those on a zero-hours contract will still be entitled to Statutory Sick Pay (SSP) if they meet particular criteria. This includes whether they’ve previously worked for the employer. Also, if they’ve earned at least £120 per week for the past eight weeks.
• They are entitled to the same rest breaks/days as other employees with more traditional contracts.

Furthermore, in 2015, the Small Business, Enterprise and Employment Act announced it was illegal to include exclusivity clauses in zero-hours contracts, meaning that employers can’t stop those with zero-hours contracts from also seeking employment elsewhere. This guarantees that even if staff feel they are not being given sufficient hours on their existing zero-hours contract, they can proactively pursue additional income from another employer.

Most recently, a landmark ruling by the Supreme Court made it clear that any employee or worker in the UK who has a permanent contract but works part of the year, including those on zero-hour contracts, is entitled to 5.6 weeks of annual leave. In addition:

• The amount of leave cannot be pro-rated based on the portion of the year when work is actually done;
• Annual leave must be calculated and paid using the method set out in the Employment Rights Act 1996 (ERA);
• The average earnings of those on zero-hours contracts (over the previous 52-week period) must be used to calculate holiday pay.

When calculating pay for these persons, if there are any weeks within the 52-weeks before the period of leave in which the individual did not work and therefore did not earn, the employer must discount this and calculate the pay based on a full 52-weeks before leave in which the individual worked.

Employment status

There are three core types of employment status – employee, worker and self-employed. In terms of their legal rights, those on zero-hours contracts could be considered as either ’employees’ or ‘workers’. What they actually are will usually depend upon what it states within their contract or how the working relationship works in practice.

For example, you will be termed a ‘worker’ if the work is more irregular and less structured. Or, if you’re not offered regular hours by your employer and you have little obligation to make yourself available. However, ‘employees’ are normally required to work regularly and can reasonably expect regular hours. They also cannot refuse to do the work that is given to them. Because of this, most individuals on zero-hours contracts will likely be classed as workers simply due to there being no mutuality of obligation.

Employers need to be certain about which category their zero-hour contractors belong to, and then consider the rights they will subsequently be entitled to. For example, ‘workers’ are not eligible to request flexible working, receive maternity or paternity leave/pay, or any other type of leave/pay which relates to raising a family (such as shared parental pay), whereas an ‘employee’ would be, along with;

• Time off for dependants
• Time off for public duties
• Redundancy pay after 2 years of continuous service

Most ‘workers’ are not eligible to receive sick pay

However, it should be stated that when considering admissibility for sick pay, the regulations refer to ‘qualifying employees’. This has a much broader definition in this context. As such, a ‘worker’ may indeed qualify for sick pay after all.

‘Workers’, much like ‘employees’, are legally protected against experiencing any ‘detriment’ should they be marginalised or treated unfairly upon reporting any health and safety concerns. They will also have protection against discrimination. However, an ‘employee’ would also be protected against unfair dismissal if they’ve worked for the same employer for at least two years and have resigned as a result of either of the above.

Although zero-hour contracts have become progressively more popular as business owners look to reduce their costs and improve dexterity in an ever-challenging commercial environment, it’s still important to properly consider how working in this way can affect long-term sustainability and stability. After all, they don’t adhere well to succession planning, particularly for small businesses.