Jun 25, 2013

Zero Hours Contracts

What you need to know...

There has been a growing awareness and interest in Zero Hours contracts sometimes referred to as Bank Staff of Null Hours contracts. Historically these contracts have been used by employers to have  a ‘bank’ of staff that can be called upon at short notice on a regular basis to cover periods of sickness absence, holidays or fluctuations in work.  They have historically been used in retail, catering, care / nursing to assist for example with staffing levels over Christmas.  Zero hours contracts have in recent years become increasingly popular with even the House of Lords staff being put on them.  So, why are they becoming so popular and what should employers look out for.?

A zero hours contract means that an employer only needs to pay an employee when they work.

A zero hour’s contract means that an employer only needs to pay an employee when they work.  If there is no work and they are not asked to attend work then the employer does not pay the employee.   This naturally gives greater flexibility to an employer at a time when workloads can be unpredictable and can benefit many different types of people; students, people with caring responsibilities who seek greater flexibility when working, those unable to commit to regular days / hours etc.

However, this employer benefit can be to the disadvantage of the employee and there is anecdotal evidence that some employees are being exploited.  In an interview on 12th June 2013 with The Independent, Vince Cable, Business Secretary, announced that the government is to review ‘the use of controversial zero hours contracts’.  The article states that it is unlikely that the government will ban them but they could give employees greater protection or restrict their use.  Not surprisingly the TUC are seeking a ban on all zero hours contracts or at the very least improving regulations.

As someone on a Zero hours contract is classed as employed they do not feature in unemployment statistics and nor may they be eligible to claim benefits.  One option up for discussion is the possibility of reviewing tax credits for when employees are not working.

For some smaller employer who does not have the luxury of a Human Resources team might believe zero hour’s contracts are an easy option.  But employers must be very careful when it comes to zero hours contracts and should not confuse them with casual contracts.  It is easy to mix the two up and some employers have thought they can take staff on under a zero hour’s contract and as a result ‘hire and fire’ at will.

One of the key factors in a Zero hours contract is the ‘mutuality of obligation’.  Although not guaranteeing a minimum amount of work, if an employer offers work when it is available and the employee is expected to undertake the work then this is known as ‘mutuality of obligation’ and in this instance the worker would be classed as an ‘employee’.

If, there is no mutuality of obligation there can be no contract of employment.   This may be the case where the employer is not obliged to offer the worker work and the worker, in turn, is fully entitled to decline any work when it is offered without suffering adverse consequences.  In this instance the contract would need to state ‘you are not obliged to accept the hours of work offered and the Company has no obligation to offer you work on an ongoing basis’.  In this instance the contract would be similar to a self-employed, contract for services and not a contract of employment.

However, there is no point in having this ‘casual’ type of contract in place just to avoid the worker from being entitled to ‘employee’ status if the reality differs.  The expectations and true intentions of the parties and what happens in practice are important.  Should any case come before a tribunal it is the reality of the situation that the judge will focus on.  So be careful, if your contract says one thing and you treat the worker differently as you may end up with someone working on a casual contract but due to the nature of the relationship they could in fact be classed as an employee and therefore be eligible for all the protected rights that are inferred on employee status and company benefits e.g. redundancy pay, pension contributions, etc

In a recent tribunal, Pulse Healthcare Limited v Care Watch Care Services Limited and six others EAT 2012, six individuals engaged on ‘zero hours’ contracts stated that they were eligible for TUPE.  The employment tribunal decided that the written contract of employment did not reflect the true agreement between the parties.  It found that the claimants were personally required to perform services, were obliged to carry out the work offered to them and that Care Watch undertook to offer work.  Accordingly, there was sufficient mutuality of obligation for the Claimants to be employees.  The Company also argued that the Claimants were engaged on a succession of individual contracts and therefore did not have sufficient continuity of service to bring a claim for unfair dismissal.  The Employment Tribunal disagreed stating, ‘to find otherwise would be unrealistic’.  The case was upheld at appeal.

This case highlights that an Employment Tribunal will look at the substance of the relationship between the parties; workers engaged on zero hours contracts may be employees even if there are clear contractual provisions stating that no mutuality of obligation exists.

Under a true ‘zero’ hours (casual) contract if an individual is working, he or she can walk off the job without sanctions and the employer can terminate the arrangement at will.

Under a true ‘zero’ hours (casual) contract if an individual is working, he or she can walk off the job without sanctions and the employer can terminate the arrangement at will.  The inherent flexibility in a genuine ‘zero’ hours arrangement will be an important factor should this ever come before a tribunal judge.

Some things to consider which will minimise the risk of confusion between zero hours and casual ‘zero’ hours workers acquiring employment status:

  • The wording of the contract needs to be relevant
  • Ensure that what you say in the contract is what you do – do not diverge in practice from the terms of the contract
  • If you have someone on a casual ‘zero’ hours contract do not oblige individuals to accept work whenever offered or to complete an assignment if commenced.
  • Keep a clear distinction between staff on casual contracts and employees.  For example, do not label them as employees for internal purposes and avoid offering them any entitlement to the usual benefits afforded to permanent staff.
  • For casual ‘zero’ hour’s contracts the intention is for there to be no obligation between assignments, therefore holiday should not accrue between them.  Any holiday that accrues during an assignment tends to be paid in lieu at the end of the assignment.

To summarise, you can have someone on a ‘zero hours’ contract as an employee and they will have all the protected employment rights like any other employee.   And you can have an individual working on a casual ‘zero hours’ contract who has far greater flexibility with regards to accepting the work but in reality could still at the end of the day be considered by a tribunal as an ‘employee’ and  as a consequence have the same protected rights as an employee.

It will be interesting to see what the governments review recommends and how they manage to strike the right balance between protecting the employee while giving employers the flexibility they desperately seek in what many are still finding a challenging market.

By Deirdre Allen – Human Resources

To find out more email us: d.allen@bbirisksolutions.com