Zero hours contracts offer both employers and workers flexibility - but they should not be used as a way of avoiding employment rights

Michael Ryley

Zero hours contracts have suffered a bad press of late, with understandable criticism directed towards certain much publicised abuses and the government tabling draft legislation to take action.

Yet these contracts come in a number of variants and they are used in a range of circumstances; generalised criticism should not be allowed to detract from their usefulness in the appropriate context. Used responsibly they provide an attractive degree of flexibility for employer and worker alike.

The term refers to those contracts in which there is no obligation to provide work and in which the worker is only paid for work done. They are widely used, with some surveys putting the figure as high as 2.7 million in use. 

Yet recent government consultation indicates that use of zero hours contracts in the construction sector is surprisingly low, with just 2.5% of the workforce engaged in this way by contrast with 30% in the distribution and catering sectors.

They suit the construction sector well, given the inherent instability in the demand for labour, but the necessary flexibility has traditionally come from the use of self-employed labour. That is a tactic which has become steadily less effective as employment rights have widened to protect “workers”.

At the same time, self-employment has come under increasing scrutiny from the tax man and from employment tribunals, so zero hours contracts merit consideration as an alternative method of hiring a workforce in response to fluctuating demand.

The core of the criticism concerns employers who engage the bulk of their workforce on such contracts. That will rarely be justified in the case of construction companies and will attract union criticism as a return to the bad old days when workers were forced to hang around outside building sites hoping for casual work and were paid on the lump if and when they were hired.

The core workforce should be employed on orthodox contracts; zero hours contracts are for the complementary workforce, which responds to the short-term ebb and flow in the need for labour.

A notable abuse has been the attempt by employers to lock zero hours workers into an obligation to be available for work, without a like commitment to provide work, in effect tying them exclusively to one employer. Such clauses should be avoided and will, as outlined in June’s Queen’s Speech, shortly be outlawed.

In any event, they miss the point that these arrangements work well where the employer wishes to create a bank of suitable workers for deployment as required, without prior commitment as to just when that will be. They work equally well where the individual members of that labour bank want the freedom to take up work elsewhere or to decline work on an ad hoc basis as suits their other commitments or where better opportunities arise.

Employers may seek to use zero hours contracts to prevent the worker acquiring employment rights, in which case as “workers” they will not have the right to claim unfair dismissal, a redundancy payment or maternity rights. The basis of this strategy is the fact that mutuality of obligation has been identified as a necessary element of any employment relationship - so if there is no requirement to provide work and no obligation to undertake it when offered, there can be no contract of employment.

However, this strategy is vulnerable where the employee is required to be available at all times and where there is a pattern of regular work, in which case mutuality may be inferred. Likewise there is little point in setting up a contract to confer “worker” status but behaving in a manner which is more consistent with an employment relationship. This is a questionable objective for employers and one which can backfire.

if there is no requirement to provide work and no obligation to undertake it when offered, there can be no contract of employment

Both the government and the tribunals are closing in on abuses of the system - a recent example being the decision that the minimum wage must be paid to care workers between calls.

Employers must accept that there is a difference between calling workers up for work on an ad hoc basis and calling workers in on standby, at which point they may become entitled to pay even if no work is forthcoming.

So, used as part of a balanced recruitment strategy, zero hours contracts are an appropriate method of achieving flexibility in the workforce - but, handled without care, they can be the source of legal and industrial relations problems. Legislation has been promised, but it is surrounded by uncertainty at the moment and employers will need to keep the situation under review.

Michael Ryley is a partner at Weightmans