Legal implications of zero hours contracts

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The reported rise in popularity of zero hours contracts has consistently made headlines in recent months.

The outpouring of media and political interest was prompted by the revelation by the Office for National Statistics (ONS) that 200,000 workers were engaged on these casual contracts in 2012, representing a 174% increase in their use since 2005.

Under such arrangements there are no guaranteed hours and workers are only paid for the hours that they work.

With almost a quarter of Britain's firms now using zero hours contracts, it is clear that some employers are embracing the flexibility and potential cost-saving benefits that a casual arrangement can provide during tough economic times.

In stark contrast, others have claimed that zero hours contracts are exploitative and take advantage of those individuals desperate to accept any role in order to avoid unemployment. Sarah Veale of the TUC has denounced the arrangements, claiming that they reduce people to "industrial fodder", while Labour's Andy Burnham has recently dramatically called for zero hour contracts to be banned entirely.

Despite the controversy it is clear that zero hours contracts are on an upwards trend. It is therefore essential to consider their legal implications and the potential pitfalls for the unwary.

Merits

For employers, having access to a "bank" of ready and willing workers provides them with the flexibility to respond to variable business needs without the pressure and costs of recruiting extra staff during busy periods, only to make redundancies when workload diminishes. This protects the core workforce, while also avoiding the rights and liabilities associated with a traditional employment contract.

Since zero hours contracts are increasing in popularity, this could be attributed to the fact some individuals prefer flexible working arrangements. They can be particularly attractive to those who are unable to commit to a fixed number of hours each week, perhaps due to family commitments or because they are studying or retired but keen to have occasional work. They also allow workers to keep their skills up to date by providing ad-hoc work while they look for a permanent job.

Legal pitfalls

Zero hours do not equate to zero liability and savvy employers should be wary of the legal implications:

Who am I? - Individuals engaged under zero hours contracts will usually be "workers" who do not receive the same level of protection under employment law as "employees" (such as the right not to be unfairly dismissed). However, for an arrangement to be truly zero hours it is essential that there is no obligation for the employer to provide work or for the individual to accept such work. If in reality there is a regular pattern of work being carried out and no one expects the individual to refuse to work, the employer risks inadvertently creating an employment relationship.

Holiday - Casual workers are entitled to 28 days holiday, calculated pro rata. As the number of hours they will work is not known in advance, it can be difficult to calculate their exact entitlement.

Pay - If workers are required to be on standby or on call at or near their place of work they must be paid at least the national minimum wage for that time.

Effectiveness

While traditionally zero hours contracts have been effective in coping with seasonal peaks and troughs in retail and hospitality, other sectors are becoming increasingly attracted to their use. It is now common to see such contracts for medical professionals, supply teachers and journalists.

Clearly, if used appropriately zero hours contracts have the potential to benefit both employers and workers alike. However, the desire for ultimate flexibility could result in unexpected consequences on both sides of the bargain. For workers, the uncertain hours and variable income may make it difficult to manage family and childcare commitments and to budget adequately to cover household bills. Similarly, employers who need to guarantee continuity of service may be unable to find someone with the right skills at short notice to meet a sudden increase in demand, as workers are under no obligation to accept work when it is offered.

In addition, the indiscriminate use of zero hours contracts could impact on the quality of service offered, as casual workers are less likely to feel engaged in the business or valued by the employer and are therefore unwilling to go the extra mile. This is particularly concerning in areas such as the NHS or law enforcement and so employers should ensure that zero hours contracts are monitored carefully in order to safeguard productivity and maintain standards.

The Future

It is unlikely that zero hours contracts will be eradicated completed due to their indisputable popularity, the Government may seek to legislate and regulate their use, similarly to other typical working arrangements (such as agency, part-time and fixed-term workers).

However, in the context of the Government's steady push to erode onerous employment rights, this seems unlikely to happen any time soon. Indeed such casual arrangements would lose their appeal for employers if they were subject to greater regulation, which would result in less opportunities for the unemployed and increased pressure on existing workforces to pick up the slack in busy periods. In light of this and given the fact that they currently only represent 0.7% of the total workforce, it would be excessive to advocate zero tolerance for zero hours.

Syma Spanjers, associate at law firm Charles Russell

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