What future for zero hours contracts?

Posted by Oliver Sowton, 11th October 2016
Zero hours contracts have rarely been out of the spotlight in the last few years, and the news in September that Sports Direct had pledged to offer guaranteed hours to casual retail staff shows that public pressure does eventually have an effect.

This was followed, shortly afterwards, by announcements from JD Wetherspoon, Greene King and Everyman cinemas that they were also going to drop their use of the controversial contracts (Greene King had already done so, but will now remove them for legacy workers of Spirit Pub company, which Greene King took over last year). What does the future hold for zero hours contracts? Will and should other employers abandon them?

The pressure on Sports Direct has been enormous partly because of its so-called ‘Victorian’ working practices and failure to pay the national minimum wage, not just the number of zero hours staff it engages. The sheer scale and unnecessary use of zero hours contracts at Sports Direct certainly left it vulnerable to criticism, however it is perhaps more likely that it was forced to make changes ultimately because its day-to-day working practices came under the scrutiny of a BIS Select Committee earlier this summer, than solely because it used zero hours contracts.

The announcement by JD Wetherspoon that it is offering guaranteed hours is perhaps not surprising, given that it reportedly has more people on zero hours contracts (24,000) than Sports Direct. What is interesting is that some employers are abandoning zero hours contracts not because staff are complaining, but because the contracts have received such bad press.  The Chief Executive of Everyman cinemas commented, “Our staff had never had problems with zero hours but it has become a bad word and there are employees out there who would not come to us if we’re associated with it”.

Everyman’s announcement was swiftly followed a few days later by a Unite survey confirming that six in ten workers would support the abolition of zero hours contracts, with 55% of Conservative voters and 71% of Labour voters backing the call for a ban. However, the survey was based on the views of workers generally rather than the views of workers on zero hours contracts.

Despite 2-3 years’ bad publicity, the use of zero hours contracts has, according to the Office of National Statistics, actually grown. 903,000 workers are now on zero hours contracts, which is a rise of a fifth in the last year. This is somewhat surprising given that employment levels generally are on the rise and the need for a flexible workforce should be less than it was 2-3 years ago. The ONS also reports that 156,000 over-25s are on the contracts. It could be that the increasing pressure of the National Living Wage, the forthcoming Apprenticeship Levy and other increasing employment costs have pushed more employers to use zero hours contracts.

Is a ban on zero hours contracts the right strategy? They can be a good approach and a win-win for both worker and employer in the right circumstances. Responsible employers with good reason to use them should not feel they have to give up zero hours contracts. Retailers and employers in the hospitality sector often rely on a flexible workforce at certain times of the year, such as Christmas or busy sale periods. They are not always associated with low pay, and some staff, such as students and carers, welcome the opportunity to be able to turn shifts down when it does not suit them. The ONS reported that one third of zero hours workers would work more hours if they could, but this implies that two thirds are, in fact, happy with the number of hours they are offered.

There are two main difficulties with zero hours contracts. The first comes when an individual knows that turning work down means they will not be offered further shifts. Therefore, a contract which appears to grant flexibility actually leaves the individual in a worse position, accepting shifts when they do not want to (and often at short notice), so that they will not be passed over for the offer of further shifts.

The second is when they are used purely to circumvent individuals gaining the rights of ’employees’ as opposed to ‘workers’. Usually this is to prevent individuals from being able to claim unfair dismissal. However, the wording of a zero hours contract alone may not be enough to ensure ‘worker’ status. Employment Tribunals are prepared to look in detail at what happens in practice to determine whether an individual is a worker or an employee. A key question is whether the employer is obliged to offer work, and whether the individual is obliged to accept it if offered. Whatever the wording of the contract, it may be hard for an employer to argue that it has no obligation to offer work to the individual if, in practice, that individual is always offered a regular number of hours each week and this has gone on for a long period.

Employers should check that they are using these types of contracts to fulfil a genuine need for fluctuating business demands and not as a way of avoiding managing the performance and behaviour of staff. With a 2-year qualifying period for unfair dismissal, it should be possible for most employers to determine well within that timeframe whether an individual is performing/behaving satisfactorily or not, and if not deal with them accordingly.

Theresa May has hinted at going further to rein in zero hours contracts with her promise to tackle job insecurity. In light of the difficulty the Coalition Government had in defining zero hours contracts for banning exclusivity clauses, this could be a tricky task. It may be that, as with Sports Direct, it is ultimately public pressure that will make the difference. Unscrupulous employers with similar practices may be forced to follow suit, but it would be a blow, both to certain employers and individuals that benefit from them, if zero hours contracts in general were outlawed.

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