Legal Q&A: Are ‘zero-hours contracts’ an alternative to the use of agency workers?

In a recent survey on employment trends in 2012, the CBI reported that the increased costs and complexity brought about by the Agency Workers Regulations 2010 have resulted in more than half of companies reducing their use of agency workers and one in 12 stopping using agency workers altogether. Employment lawyer Julia Williams looks at “zero-hours contracts” as a potential alternative to the use of agency workers.

Q. What alternatives are businesses resorting to in order to satisfy temporary demands for specific skills or labour?

Approaches have been varied, with many involving greater costs or less flexibility. In the same survey, the CBI reported that almost one-third of businesses have adopted a different approach to temporary staffing (eg the “Swedish derogation” model). In addition, more than one-third of companies are reported to have increased their use of fixed-term contracts, overtime and permanent hires. However, continued economic uncertainty means that temporary, rather than permanent, employment is likely to be preferable for businesses needing to adapt quickly to changing business needs.

Q. What are zero-hours contracts?

Zero-hours contracts afford businesses a high degree of flexibility since they give no guarantee as to a minimum number of hours, so the individual can be used as and when required. The individual is only paid for the hours worked. If a zero-hours contract is appropriately drafted, and accurately reflects the relationship between the engager and worker, the worker need not obtain employment status or build up any continuity of service. If the intention behind engaging someone under a zero-hours contract is that they do not acquire employment status, the individual should not be required to undertake work if offered, there should be no come-back on them should offers be declined and no restriction to working for one company.

Q. Does it mean I have to carry out individual checks myself?

Although engaging individuals directly under zero-hours contracts, rather than through an agency, means that the employer must itself engage in the recruitment process – including checking out the individual’s qualifications, expertise and right to work – they do at least afford the employer the flexibility to satisfy short-term and ad hoc increases in the need for staff during busy periods such as peak retail seasons, and to dispense with the individual’s services when they are no longer required.

Q. Are there any risks associated with zero-hours workers?

Issues can arise when individuals challenge their worker status and seek to assert that they are employees for the purpose of benefitting from the more extensive employment protection rights enjoyed by them.

Q. What are the key requirements for a contract of employment?

The key requirements are (i) personal performance, (ii) “mutuality of obligation” and (iii) control over the manner in which the individual carries out his or her tasks.

Establishing “mutuality of obligation” – an obligation on the engager to offer and pay for work and an obligation on the individual to accept and perform it – is usually the key issue with regard to zero-hours workers. Recent case law suggests that tribunals are more willing to find that even if (i) there is no obligation on the employer to provide work when available and (ii) no requirement for the individual to accept work if offered, if the zero-hours worker is actually carrying out an assignment, then there is mutuality of obligation since there is an agreement to undertake work in return for payment. This is despite the fact that, during the period when the individual is working, he or she can walk off the job without sanctions and the employer can terminate the arrangement at will.

With regard to assessing whether or not there is sufficient “control”, the inherent flexibility in a genuine zero-hours arrangement will be an important factor for a tribunal to take into account.

Q. What can I do to minimise the risk of zero-hours workers acquiring employment status?

  • Give careful consideration and seek legal advice in relation to the drafting of any “zero-hours” contract.
  • Ensure that arrangements with your zero-hours workers do not diverge in practice from the terms of the contract.
  • Do not oblige the individual to accept work whenever offered or to complete an assignment if commenced.
  • Keep a clear distinction between zero-hours workers and your employees. For example, do not label them as employees for internal purposes and avoid offering them an entitlement to the usual benefits afforded to permanent staff.
  • Given that the intention is for there to be no mutuality of obligation between assignments, holiday should not accrue between them. Any holiday that accrues during an assignment tends to be paid in lieu at the end of the assignment.

Julia Williams is an associate in the employment team at Herbert Smith Freehills LLP

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