The UK labour market has changed significantly during the last few decades in respect of the mix of employment arrangements.
In particular, there has been an increase in different forms of flexible working. Of those, arrangements under zero hour contracts have aroused the greatest controversy.
A recent report by the Office of National Statistics1 shows that since the year 2000, the number of people employed on a zero hour contract has nearly quadrupled, from 225,000 to 857,000.
In this article, we explain what the term zero hours contract means and give guidance to employers on their best use.
What is a zero hours contract?
A zero hours contract is a non-legal term (with the exception of a limited statutory definition) that describes a type of employment. It encompasses several variations of causal employment agreements between employers and individuals.
The most distinguishing features of a zero hours contract compared to any other type of employment agreement are:
zero hours workers have no guaranteed minimum number of hours;
workers agree to be available for work at short notice on an ad-hoc basis; and
the employer only pays for the actual number of hours worked.
In some cases, but not all, the worker has to accept the work that is offered.
Definition of zero hours contract
When section 27A was inserted into the Employment Rights Act 1996 ('ERA'), it introduced a statutory definition of a zero hours contract (albeit a limited one).
Under the ERA, the most specific legal definition is:
A 'zero hours contract' means a contract of employment or other worker's contract under which—
(a) the undertaking to do or perform work or services is an undertaking to do so conditionally on the employer making work or services available to the worker, and
(b) there is no certainty that any such work or services will be made available to the worker.
The reason it was defined was to prevent employers requiring exclusivity within the contract, which was common at the time. This was, rightly, deemed unfair if the worker did not have a guaranteed number of minimum hours of work from their employer.
However, the effect of the inclusion was largely circumvented by allowing the worker to work elsewhere, but requiring the individual to seek permission before taking on work from another employer.
Such a clause can now be ignored because it is not enforceable.
Exclusivity clauses or terms in any zero hours contract intended to have the same effect were fully banned by the UK government later under the Small Business, Enterprise and Employment Act. Consequently, employers cannot prohibit their zero hours workers from working or accepting work from another employer.
Popularity of zero hours contracts in the UK
Zero hour contracts are commonly used by companies seeking flexible labour in industries where there is not a constant demand for staff. They are also commonly used by smaller businesses that cannot guarantee set minimum hours.
In the United Kingdom, zero hours arrangements are particularly popular in the catering and retail industries, which often require varying staff levels to adapt to varied or unexpected surges in demand at different times around the year.
The total number of people on zero hours contracts constitutes 2.6% of the employed workforce in the UK. However, despite most people being regular workers on fixed employment contracts, recently there has been increased criticism about zero hour contracts, with some people even endorsing a complete ban on their use.
A common misconception is that zero hours contract workers essentially have no statutory employment rights. However, this is not true.
What are the obligations of zero hours workers?
The insertion of the definition of a zero hours contract in the Employment Rights Act made it abundantly clear that an employer is under no obligation to provide work.
However, it does not describe the obligations of worker working under this type of arrangement.
As a result, a zero hours contract can be drafted in several ways where the worker is:
- expected to be available for work upon it being offered; or
- required to accept work; or
- under no obligation to accept (or may refuse) work.
Employment rights are directly associated with the employment status of an individual. There are three main statuses of employment:
- employees; and
- self-employed persons.
The intention of employment protection legislation is to distinguish between dependent and independent labour. It excludes from employment protection such individuals who are self-employed professionals whose relationship with the employer is actually governed by a contract for services between two businesses.
Rights and obligations that flow from an employment status can be imagined on a spectrum. At one end of the spectrum are are self-employed individuals. At the other end are employees, who have the greatest protection and statutory rights. Somewhere in the middle are workers.
Individuals on zero hours contract will either have the status of a worker or of an employee. However, most zero hours contracts are designed to give worker status to the casual worker.
An individual is considered self-employed when he or she carries on business for a party that is a client or customer. In such arrangements, the individual does not have to provide a personal service and there is no mutuality of obligation.
For an individual to be an employee, he or she must be working under a contract of employment or apprenticeship.
An employment contract exists where there is provision of personal service by an individual, control over the performance of that service by the employer, and mutuality of obligation between the individual and the employer.
Other factors include the dependency of the business on the individual, how much financial risk is born by the individual, and the level of integration into the employer’s business.
All employees are workers, but an employee has extra employment rights. An employee has all of the rights of workers have.
To establish a person as a worker, the following conditions need to be fulfilled:
the individual must be working under a contract, although it does not have to necessarily be a contract of employment;
the individual must have agreed to do work or services personally for a reward;
the employer must not be a client, customer, or business undertaking of the individual; and
the individual has to turn up for work regardless of whether they want to do so on that particular day.
Some of the key employment rights of all workers (including zero hours contract workers) are:
- the right to be paid at least the National Minimum Wage
- protection from unlawful deductions from wages
- the right to the statutory minimum level of paid holidays
- the right to the statutory minimum level of rest breaks
- protection against unlawful discrimination
- the right not to be treated less favourably if they work part-time
- rights to maternity pay, paternity pay, and shared parental pay
An individual working under a zero hours contract for their employer may also be eligible for Statutory Sick Pay, depending on their average weekly earnings.
However, workers usually are not entitled to:
- a minimum notice period to end their employment
- protection against unfair dismissal (although they will have the right not to be unfairly dismissed or subject to a detriment for not complying with an exclusivity clause)
- redundancy payments
National Minimum Wage
Zero hours contract workers are entitled to be paid the National Living Wage (also known as the National Minimum Wage) provided that they are present at their work premises. This applies even if they are waiting to be allocated work and not actually working.
The National Minimum Wage, of course, varies depending on the age of the worker.
When work is allocated, whatever that work might be, they must be paid the same hourly rate as other employees doing that work. In other words, an employer cannot discriminate against zero hours contract workers by paying them less than staff on differing employment contracts. If they do, they risk discrimination claims and being taken to an employment tribunal.
Tax and National Insurance contributions are deducted through the Pay As You Earn ('PAYE') scheme, in the same way as for other workers.
Protection from unlawful deductions
Unlawful deductions are those to which the worker has not agreed, or which the employer cannot make by law.
Paid annual leave
Zero hour contract workers have the same right to 28 days' annual leave (including bank holidays) as permanent workers. However, annual holiday entitlements are pro rata to the average number of days per week that they work.
Just like any employee, zero hours contract workers have the right to rest breaks - at least a 20 minute rest break during every six hours worked, and then 11 hours' uninterrupted rest during every 24 hour period and 24 uninterrupted hours in every seven day period.
Additionally, they cannot be forced to work more than 48 hours per week, unless they have contracted out of the requirement of the Working Time Regulations.
Protection from unlawful discrimination
Discrimination laws protect zero hours workers just as they protect permanent workers.
If zero hours workers together have a particular age, gender or race or any other protected characteristic, it is sound advice for employers to ensure that any additional contractual rights enjoyed by permanent workers are also given to these workers in order to reduce the risk of discrimination claims.
Because zero hour workers are not employees, they have reduced rights compared to employees in relation to:
- paid statutory sick pay
- statutory maternity, paternity, adoption and shared parental leave and pay (workers only are entitled to pay and are not entitled to leave)
- statutory minimum notice periods to end their employment
- protection against unfair dismissal
- the right to request flexible hours
- time off for emergencies
- statutory redundancy pay
However, often, some of these rights require a minimum length of continuous employment before an employee can qualify for them. This may be stated in the employment contract.
Paid Statutory Sick Pay
They must also be paid statutory sick pay from the fourth day of their sickness absence, if they have been ill for at least four days and their average weekly earnings over the previous eight weeks are less than the lower earnings limit (£120 per week in 2021/22) in the last eight weeks.
Appropriate use of zero hours contracts
Hiring staff on zero hours contracts can help employers when demand for work is irregular or where there is not a constant demand for staff.
A flexible supply of workers allows a business to manage surges in demand, particularly where it is not possible to predict the exact levels of staffing required in advance because of external factors. For example, demand for 'on call' work such as care work may vary greatly day to day.
A pool of flexible workers is a cheaper alternative to using fixed-contract employees or agency workers.
Despite the negative reporting in the press about them, there are plenty of studies that conclude that they suit workers as well as employers (to the extent that some workers prefer to be employed on zero hour contracts).
Examples of where zero hour contracts are appropriate to use include:
Start-ups and young businesses
New businesses need to build up a customer base before having a regular volume of work to employ full-time employees.
Initially, it may be a good idea for a new business to have permanent employees (such as specialist staff) on hand for necessary work to get the business going and to hire staff on zero hours contracts to cater to unpredictable fluctuations in demand.
Seasonal work or special events
In industries such as hospitality, catering, and leisure, there is increased demand for causal workers to help during busy or peak periods.
Unexpected absence of staff
Employers need to cover periods of unexpected absences of specialist staff due to sickness or other emergencies. In such cases, it can help the employers to be able to call on experienced staffed to cover such sudden situations.
Inappropriate use of zero hours contracts
While zero hours arrangements offer flexibility to the employers and individuals, their use should be avoided as an alternative to proper business planning and permanent arrangements.
Zero hours contracts should not be used where the individual will be working regular hours or the work or services he or she does are core to the business. Further, they should not be used where there is a better alternative available, including:
- employing an individual on a part time or full time fixed term contract if regular hours need to be worked;
- offering overtime to existing permanent workers;
- offering contracts that meet your business needs; and
- using agency staff for a temporary or short-notice basis.
Terminating a zero hours contract
Most zero hour contracts grant worker status to the staff member. As a result, a worker under a zero hour contract does not have a statutory right to be given a notice period or to claim unfair dismissal.
Zero hours contracts often contain a clause that permits the employer to terminate the zero hour contract by giving notice in writing if the employer reasonably believes that the worker has committed any serious breach of the terms of the contract or has committed gross misconduct.
A worker under a zero hour contract can also terminate the agreement by giving written notice to the employer that they wish to cease to be a casual worker.
You may wish to read about how statutory sick pay is calculated for zero hours workers.
Net Lawman offers a wide range of employment contract templates, including a zero hours contract template that covers all legal requirements and provides full protection to the employer for employing a worker under this types of an employment contract.