Zero-hours contracts – common pitfalls for employers

Zero-hours contracts can be a positive part of work-life balance if they offer genuine two-way flexibility,” says Matthew Taylor, the government’s lead reviewer of modern working practices.

As our previous article set out, the Taylor Review made recommendations designed to improve the working conditions of individuals working in the gig economy, including zero-hours workers.

Recommendations included:

• Individuals working under zero hours contracts (ZHCs) who have been in post for 12 months should have the right to request a contract that guarantees hours which better reflect the hours worked;
• Companies beyond a certain size should be required to report on how many requests they have received from zero hours workers for fixed hours (and the number agreed to).

Since the publication of the Taylor Review, over one year ago, the number of individuals employed under ZHCs has increased to over one million, which equates to nearly 3% of people in employment in the UK. Matthew Taylor, who led the review, has commented on the increase in use of ZHCs, saying that “flexibility is a good thing, and most people who work in non-standard ways choose to do so. However, as well as promoting flexibility, the system of rules and incentives must also be fair and realistic in terms of other goals such as a sustainable tax base”.

Given the increase in awareness and use of ZHCs following the Taylor Review, it is important that employers are aware of common pitfalls that can be made when putting ZHCs in to action.

Factors to be wary of include:

• Zero-hours contract is not a legal term. The term zero-hours indicates a contract for casual work under which the employer is not obliged to provide a minimum (or any) amount of work, and hence pay, to the worker, and the worker is not under an obligation to accept work if offered (there is no mutuality of obligation). When analysing the relationship between the parties, the employment tribunal will look at the actual ongoing arrangement between the parties, not just the contract in place;

• During the recruitment process, a business should be clear about the types of roles required. The job description should make a clear distinction between permanent and temporary work. In essence, ZHCs allow businesses to put workers on-call permanently; ensuring they are available for work when required but with no obligation on the employer to actually offer work;

• There are often complications where a zero-hours worker wishes to be categorised as an employee to gain greater employment rights (such as statutory sick pay, statutory redundancy pay and protection from unfair dismissal). Be careful not to refer to the relationship as employment or an individual as an employee (a common mistake when drafting contracts similar to those of your employees), use worker instead;

• An implied umbrella contract can be created where it can be demonstrated that there is mutuality of obligation. This can arise if a regular course of dealing leads to an expectation that an individual will be given work weekly, even though there is no contractual obligation for them to be offered any, or to accept it. This may give rise to an implied umbrella contract overriding the more casual worker relationship that may have been intended by the business;

• Exclusivity clauses are void in ZHCs. A business cannot prevent an individual from accepting work from another employer whether that other employer is a direct competitor or not. If an employer dismisses someone for accepting work from another business, this will be automatically unfair regardless of whether they have completed two years’ service or not.

• Restrictive covenants should not be included within ZHCs. To impose restrictions relating to the period after an assignment has ended would mean that the business would be exercising some control over the worker during this period. Introducing such control may cast doubt on whether it can genuinely be said that there is no mutuality of obligation. This is particularly the case if the restrictions apply between assignments, rather than once the ZHC has been terminated.

In conclusion, when employing an individual, the safest option is to carefully consider the nature of the relationship your business requires with a prospective worker, then make sure the contracts and working practices reflect what is appropriate for that particular relationship.