Zero hours contracts continue to be much-maligned, often considered the ‘unacceptable under-belly’ of employment practice.
They are a form of employment contract under which a worker has no set hours and is paid only in relation to the hours they work.
Their use is prevalent in the public sector, with 28% of UK organisations reporting that they use people on the form of contract – according to the latest Chartered Institute of Personnel and Development (CIPD) statistics.
In the local authority landscape, the use of zero hours contracts has been a response to the Coalition Government’s austerity measures. Used across council departments from adult and community services to children and young people, from finance and resources to electoral services, the contracts have provided a means to sustain service levels in the context of budget reductions.
Zero hours contracts – albeit a contentious subject – have given councils the flexibility to address the financial challenges they face.
The form of contract, although a catalyst for current debate, isn’t all bad news; and with George Osborne’s January announcement of £25bn more public spending cuts needed after the next general election to cut the deficit, local authorities may find themselves using zero hours contracts more and more.
The contracts are here to stay; business secretary Vince Cable confirmed there were no plans to ban them, as he announced the start of a 12-week Government consultation on their use in December.
However, the form of contract does not just give local authorities flexibility, with new CIPD research also showing they can provide the flexibility many workers desire as well.
This research confirms around one million people (3.1% of the UK workforce) are on zero hours contracts. While the ethicality continues to be the subject of debate, the CIPD’s research has painted the first ‘reality check’ of zero hour worker satisfaction.
It highlights workers who are just as satisfied with their jobs as the average UK employee (60% versus 59%) and happier with their work-life balance (65% versus 58%). Almost half (47%) said they were satisfied having no minimum set contracted hours, with 44% of those saying this was because flexible working suited their circumstances.
CIPD chief executive Peter Cheese insists zero hours contracts have been underestimated and unfairly demonised. The research findings suggest if used in the right way they can provide flexibility for workers and employers alike.
Transparency is the lynchpin of the issue; if best practice underpins their use, zero hours contracts can have a positive place for rural and urban authorities alike.
There are key points for employers to consider if they are to use the form of contract ethically:
• Balance of power: Do not abuse the balance of power to gain advantage from the contractual relationship.
• Communication: Communicate zero hours contract workers’ rights so the contracts are entered into with mutual agreement.
• Exclusivity: Limit the use of these clauses, which prevent staff working for other employers when you have no work available.
• Holidays: Calculating zero hours workers’ statutory holiday pay can be an administrative difficulty, given irregular and unpredictable hours. Holiday accrual is also determined by whether workers are under a global contract – also known as an ‘umbrella contract’ – or on a series of short contracts. Those working under an umbrella contract continue to accrue holiday even while not working. If the worker is employed on a series of short contracts, they will be entitled to a payment in lieu of holiday each time their assignment comes to an end and no holiday will accrue between contracts.
• Pensions auto-enrolment: A recent issue to arise. It may be difficult to determine when a zero hours worker reaches the qualifying earnings threshold to trigger auto-enrolment obligation into a company pension scheme. Once auto-enrolled, be aware that if earnings drop below the qualifying threshold, employers may face unlawful deductions claims.
• Mutuality of obligation: A key feature to highlight relates to the point at which a zero hours contract relationship becomes employment, initiating unfair dismissal rights, statutory redundancy payments and statutory employment rights such as maternity and other family leave.
As with all cases considering employment status, courts and tribunals will not only look at the written contract but will look at how the contract has been performed in practice. If the reality is that regular work has been provided by the employer it means there is sufficient mutuality of obligation to provide work and for the employee to undertake the work.
• Active/inactive employment relation-ship: In the case of short contracts, during assignments there is a worker relationship but between assignments there is an inactive relationship, during which time there is no mutuality of obligation to provide work or for the worker to accept any.
The Government’s consultation on zero hours contracts will explore and tackle any abuses, particularly around exclusivity, to ensure fairness and transparency. For councils, zero hours contracts provide a means to balance service provision and social responsibility: they present a route to continue provision of work opportunities for residents in their localities, in the context of the impact of austerity measures.
In reaching its conclusions, the Government must weigh the positives relating to the use of zero hours contracts alongside the controversial aspects of the practice. The outcome of its consultation must truly reflect the contractual relationship.
If the consultation can establish the right balance, positive steps in the regulation of zero hours contracts should follow, making them a more popular way of agreeing working terms and ensuring their fair and proper use in the public sector.
Maria Farnell is head of legal at Avensure.
