Zero-hours contracts: exploiting flexible working?

A “zero-hours worker” is not a concept recognised by law. An individual is one of three things: an employee, a worker or self-employed. Employees benefit from the most employment protection and the self-employed benefit the least. Gareth Pritchard, solicitor at Hill Dickinson, examines the differences. 

Workers, a statutory born concept, blur the boundaries and fall into the middle of the spectrum. The zero-hours contract is a concept that has predominantly developed out of employers’ efforts to have access to part of a workforce that does not have “employee” status.

Last week, the Chartered Institute of Personnel and Development (CIPD) suggested that one million people across the UK could be employed on zero-hours contracts, a figure significantly greater than the 250,000 individuals estimated by the Office for National Statistics. Zero-hours contracts are used by fast-food chains and local authorities, and last week’s news that Sports Direct is facing a zero-hours-related employment tribunal claim has presented a platform for debate on the morality of the concept.

Unison has highlighted that zero-hours contracts may provide more flexibility for some, but alleges that the balance of power favours the employers and makes it hard for workers to complain. The major benefit of zero-hours contracts, upon which pro-employer groups focus, is the flexibility they provide to a business. In particular, it is the ability to adjust to peaks and troughs in demand without permanently inflating a wage bill or conducting a costly redundancy exercise. If the individual is a worker, rather than an employee, he or she will not have a right to claim, amongst others, unfair dismissal. A “bank” of zero-hours staff also enables the employer to call upon an individual that it knows can do the job.

The use of a zero-hours contract is not unlawful. The key question in the current debate, as I see it, is whether the use of a zero-hours contract automatically means that an individual working for you is not an employee (and so favouring the employer).

Zero-hours worker or employee?

Much litigation has been pursued on the divining issue of employment status and, often, whether or not an individual is an “employee”. It is a particularly frustrating position for businesses that they do not have criteria to identify individuals with atypical working arrangements as being an employee, without seeking specialist advice. Ultimately, the categorisation of an individual as an employee or not is an objective assessment. A view is taken having balanced all the facts that make up the relationship.

In this regard, what is of central importance to the current debate surrounding zero-hours contractual relationships – which seems to have been missed whilst people become enthused about the morality of the aim of the contract – is that, when categorising an individual’s employment status, how the parties themselves label the relationship is only one factor to consider. It is a relevant but by no means conclusive consideration.

There is an irreducible minimum that indicates whether an individual is an employee:

1. personal service – the individual must complete the work and cannot appoint a substitute;
   
2. control – the individual is at the behest of the company; and
   
3. mutuality of obligation – the employer must provide work and the individual must accept work.

If, on reviewing all of the evidence, a tribunal concludes that the individual is definitely an employee, then it will make that finding. It does not matter that an employer has sought to take advantage of its bargaining power by simply attaching the wrong label to a relationship and treating the individual in accordance with that incorrect label. Recent case law has suggested that the onus will be on an employer that wants to deny the employee status of an individual on the basis of the wording of a document alone. Workers will be able to complain, if they properly are employees, irrespective of what the document states.

So, what might an employer do to try and evidence that the zero-hours contract has not created an employer-employee relationship?

Review the terms of the contract

As stated above, the terms of the contract are not determinative but are relevant. It will be a good start if an employer can point to the substance of a contract building on the “zero-hours” label. For example, do the terms state that there is no obligation on the company to provide work and no obligation on the individual to accept? Do the terms specifically state that the individual is not an employee?

Review the practical day-to-day relationship

Be honest. Do you expect your zero-hours workers to turn up for work at certain points each week? When constructing a weekly rota, do you simply regenerate last week’s rota and expect certain individuals “to work their shifts”? Or, do you not have set work but expect the individual to accept work when you offer it to them? If you are answering yes to these questions, notwithstanding what you may have put in the contractual document, the relationship in question probably leans toward that of employer-employee, rather than something less, such as a worker or self-employed.

So, do zero-hours contracts allow employers to ignore employee rights? No, not in my opinion. If the relationship truly is one of employer-employee then the employer cannot get away from this, no matter what the document itself says. However, if the practical relationship does not evidence an employer-employee relationship then the individual is not being prevented access to employee rights in any event, as they are not an employee.

Employers should be aware that in the light of the CIPD report and the subsequent press received, individuals engaged on zero-hours contracts may be actively seeking the opportunity to assert their actual, practical status. A review of this section of the workforce could be a useful indicator of potential liabilities and opportunity to take the necessary practical steps to either properly codify an employer-employee relationship or move away from that relationship. Simply attaching a zero-hours label is not enough.

Gareth Pritchard is a solicitor at Hill Dickinson

Further information on XpertHR

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