Zero hours contracts: new consultation launched

by DLA Piper
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Alan Chalmers, a Partner in our Manchester office, comments: Regulation of the labour market is always a political issue, and in the protracted run-up to the 2015 General Election the regulation of zero hours contracts seems set to be a particular focus for all the main political parties. In June, the Government announced that it would be taking action to ban the use of exclusivity clauses in zero hours contracts. The proposed ban forms part of the Small Business, Enterprise and Employment Bill and it is intended to protect zero hours contract workers against the situation where they may be contracted to work for one employer, receive no or very little work in any given period but be prohibited from seeking other employment to supplement or provide an income. It is thought that the ban on exclusivity will benefit around 125,000 zero hours contract workers who are estimated to be tied into such exclusivity clauses. The proposed ban comes following a period of widespread concern over the prevalence and misuse of zero hours contracts. Several types of further regulation have been mooted but are not included in the draft Bill, including requiring more transparency from employers about the nature of zero hours roles, a non-binding Code of Practice on the use of zero hours contracts, protection from detriment similar to the protection for fixed term employees and part time workers, entitlement to be notified of a permanent role and prohibitions on the circumstances in which an employer can reduce hours. There is particular concern that some employers may be using reductions in hours as a form of disciplinary sanction, or in order to reduce redundancy costs.

The difficulty with any potential restrictions on zero hours contracts, including the exclusivity ban, is how to ensure enforceability without unduly restricting the labour market.  Any attempt to restrict abuse runs the risk of being either too easily circumvented or so restrictive that it interferes with legitimate use.

 As drafted, the proposed ban on exclusivity will apply to any contract under which there is no certainty that any work will be made available to the worker. This could easily be circumvented by employers offering one hour fixed contracts with additional flexible hours, or by simply failing to provide further work to a zero hours worker who undertakes work for another employer. The Government has now issued a consultation paper seeking views on how to tackle the potential for such avoidance. The consultation paper suggests that this might include imposing financial penalties on employers if employees are treated detrimentally as a result of taking another job.

The abuse of zero hours contracts is a real problem. However, what the draft legislation and consultation paper highlight is that it is very difficult to do anything meaningful about ‘bad’ zero hours contracts without undermining the valuable flexibility provided by ‘good’ zero hours contracts. Zero hours contracts have a valuable role in the labour market, offering significant benefits for both employers and employees when used properly. Employers benefit from a bank of trained staff to respond to fluctuations in demand, and many employees find zero hours contracts useful in helping them to balance work with other commitments such as family or study. There are undoubtedly circumstances in which use of exclusivity clauses where there is no corresponding duty on the employer to provide work causes significant unfairness and hardship to employees. Conversely, however, some employers have good reasons for exclusivity clauses. Workers on zero hours contracts may be highly skilled or trained for a job which has specialist requirements and employers need to ensure that they will be available when needed.

Further regulation of zero hours contracts seems likely given the high political profile which they currently enjoy. Ahead of whatever approach this or any subsequent government decides to take, there are sensible voluntary steps which employers could take to ensure responsible use of zero hours contracts, such as ensuring there are sufficient safeguards in place to prevent managers capriciously changing hours and being clear as to the terms and effect of what a zero hours contract means for the employee before he or she signs up to an arrangement. Employers who take steps to pre-emptively adopt some of these measures may find themselves in a position of being best placed to attract and retain skilled workers who are happy with the flexibility of a zero hours arrangement.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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