Zero-hour contracts: Where are we now?

28 September 2022

The government has recently confirmed it will support legislation obligating employers to allocate all tips to workers. Many service workers in retail and hospitality rely on tips to supplement their incomes, but there is evidence that a large number of businesses that add a discretionary ‘service charge’ to their bills keep the money instead of giving it to their staff. 

Zero-hour contracts have received significant media coverage in recent years with the rise of the gig economy. There is an argument that they fail to support vulnerable, low-income workers because they provide no job security or guaranteed income. 

Back in 2015, this view resulted in a ban on exclusivity clauses in zero-hour contracts. This ban prevents businesses from requiring zero-hour workers to work exclusively for them, whilst not offering workers guaranteed or regular work. The ban on exclusivity clauses was recently extended to all workers with a guaranteed income below or equivalent to the Lower Earnings Limit

Zero-hour contracts can bring positive flexibility to the labour market. This is supported by a report published by the Chartered Institute of Personnel and Development (CIPD) in August 2022. CIPD also found that some zero-hour workers are, overall, as satisfied with their jobs as other workers are, and report a better work-life balance and general wellbeing than other workers. 

However, the CIPD report also found that zero-hour workers may still be exploited. There were cases reported where flexibility often remains one-sided in favour of the business, and many organisations cancel shifts on short notice with no compensation. There is also evidence that working patterns of many zero-hour workers vary very little each week, raising the argument that some zero-hour workers should be on permanent contracts.

We look at some of the CIPD report’s recommendations. We also examine the regulatory obligations employers should consider when hiring zero-hour workers, and how employers should manage both regulatory compliance and the engagement of zero-hour workers.

Why use zero-hour workers?

Zero-hour contracts are appropriate for working arrangements where there is no guaranteed minimum number of hours that must be worked. They are typically used where labour demand tends to fluctuate, eg the hospitality and care sectors.

What employment rights do zero-hour workers have?  

Zero-hour workers will usually be categorised as ‘workers’ for employment legal rights purposes, although it is possible to engage zero-hours personnel as employees. 

In any event, workers will benefit from most employment legal rights, including: 

  • holiday pay; 
  • the National Minimum Wage rate; 
  • Statutory Sick Pay; 
  • automatic enrolment into a pension scheme (subject to meeting the minimum eligibility requirements); and 
  • protected characteristic discrimination rights. 

If they meet the statutory requirements, zero-hour personnel engaged as employees will also be entitled to: 

  • family related leave (such as maternity, paternity or shared parental leave); and 
  • unfair dismissal rights and statutory redundancy pay (provided they have the required two-year minimum of continuous service).  

CIPD recommendations for the future of zero-hour contracts 

  1. The CIPD report makes four recommendations for the future regulation of zero-hour workers, some of which are expected to be implemented by the government in a future Employment Bill (although there is currently no government commitment on its timescales): 
  2. Introduce a right for variable hours workers to request a more stable contract or working arrangement after they’ve been employed for six months. 
  3. Create a statutory code of practice on the responsible management of zero-hour workers, including a requirement to pay compensation if workers’ shifts are cancelled at short notice.  
  4. Improve labour market enforcement, including through the creation of a single enforcement body and a stronger focus on supporting employer compliance. 
  5. Abolish ‘worker’ status to help clarify and enhance employment rights for zero-hour workers and more widely. Note, however, that in July 2022 the government confirmed that it would not be reforming legislation in this area or aligning the employment law and employment tax status tests. Instead, it published new guidance designed to improve clarity around employment status

Actions employers engaging zero-hour workers should be taking now 

  • Review whether it is appropriate to use a zero-hour worker. If someone is likely to be working for you on a regular basis, it may be more appropriate to have a fixed-term or part-time employee contract in place.  
  • Consider putting protocols in place to provide zero-hour workers with adequate notice of shifts so they can plan their work schedules. Protocols to avoid last-minute shift cancellations, or perhaps compensation payments when this is unavoidable, are also worth considering. 
  • If you are engaging a zero-hour worker, make sure there is no exclusivity clause in the contract that stops the worker working elsewhere. 
  • Check that you have appropriate contracts in place for zero-hour workers. Since April 2020, workers (including zero-hour workers) have a legal right to receive the same minimum terms of employment as employees by no later than the first day of their engagement. 
  • If you engage a zero-hour worker on a permanent contract, be aware of how holiday pay should be calculated for them following the Supreme Court decision in Harpur Trust v Brazel, which held that the 12.07% method for calculating holiday pay for workers with irregular hours is unlawful. We discuss this in further detail in this article here

If you are an employer who has any queries regarding the issues covered here, please contact Jennifer Mansoor.