Zero hours contracts - what could the future hold?

It is likely that in the short term we will not see a ban of the use of zero hours contracts, but further regulation is likely. The options for regulations are varied, but will pose not only a hurdle for employers to overcome but also an opportunity.

According to the Office for National Statistics, Q4 of 2012 saw the number of reported zero hours contracts increase to 208,000, larger than the population of Portsmouth. The real number of actual zero hours employees is likely to be higher still. The concern over their increasing use led Vince Cable to order a review of such arrangements, particularly as their use in sectors such as healthcare has significantly increased. 

The Labour party are committed to including further regulation of zero hours contracts in their next election manifesto, but it was notable that last week Nicola Smith, the head of the economic and social affairs department at the TUC, indicated that the TUC “were unlikely to call for an outright ban”. A ban would, in any event, be an unusual step for the UK, which still has one of the least regulated labour markets in the world according to the OECD. It was also notable that no Conservative MPs attended the recent debate on zero hours contracts. Notwithstanding this lack of involvement, it is likely regulation will be considered.

A ban also causes significant problems for employers who need to have a bank of suitable staff to hand; for example a care home provider that needs to know it has a flexible bank of staff that are qualified and have passed disclosure and barring service (DBS) checks. Query whether if employment businesses developed suitably specialised temporary offerings, the market would reduce the need for zero hours employees in any event.

Instead regulation over these contracts could take one or more of the following options:

Consumer style protections of contract forms

Anecdotally there are employers who have moved staff onto zero hours contracts from more usual permanent employment with the employees being unaware they were giving up security. It is likely that requiring employers to be clear that the role is a zero hours one and what this means would be a restriction suggested to allow transparency into the relationship. This may or may not be backed up by a mandated summary of rights being given to or made available to employees on zero hours contracts.

Chance of happening: 8/10

Detrimental impact on employers if implemented: 2/10

Code of Practice / Guidance on Zero Hours

A few years ago codes of practice were very much the vogue. It is still possible that ACAS could be asked to generate such guidance imposing obligations on employers and providing information to employees.  Equally, BIS may produce its own guidance which would most likely be non-binding.

Chance of happening: 8/10

Detrimental impact on employers if implemented: 3/10 ACAS, 1/10 if BIS

Statutory Detriment Protection

Protections for fixed-term contract workers and part-time workers were based around the same concept; such workers should not be treated detrimentally on the grounds of their status as such workers. If such a worker is subjected to a detriment they can bring their claim to the Employment Tribunal. It is wholly possible this model would be adopted for zero hours. To do so would give zero hours workers some protection against capricious cutting of hours although employees might find it difficult to prove the link. Such an approach would also be broad enough to potentially deal with some of the other mischief unscrupulous employers use.

Chance of happening: 5/10

Detrimental impact on employers if implemented: 4/10

Higher Minimum Wage / Pay Equivalence

One of the suggestions, largely from Andy Burnham (Shadow Health Secretary speaking as to the healthcare sector) is to increase the minimum wage rate for zero hours contract employees. This could be enforced through existing national minimum wage frameworks, but in the current climate is unlikely to be pushed through.

A different suggestion is to give zero hours workers some rights towards equivalence with non zero hours workers in respect of pay rates. There is little evidence, however, that zero hours employees are paid less than usual employees at the same level. One large employer even pointed to the pay rate for their zero hours workers being higher than usual equivalents, although this is likely to be an isolated case. The concern is not often the rate of pay, but the ability of the employer to withdraw hours.

Chance of happening: 5/10

Detrimental impact on employers if implemented: 4/10

Entitlement to be notified of a permanent role

The Agency Workers Regulations established the concept that agency workers should have the right to be notified of any permanent roles at the organisation to which they provide their services. A concern with zero hours employees is that such individuals are trapped in their uncertain work patterns and often cannot risk taking time to look for alternative roles. This is easy to comply with and gives employees who are trapped on zero hours contracts an ability to become a more standard employee. An employer’s obligations can also be relatively easily discharged although it is also true that some employers with zero hours staff have no permanent employees at particular sites, for example at care homes, other than for senior site managers.

It is far more unlikely that we would see the imposition that a zero hours worker was entitled to any full time vacancy as there are a significant number of workers who appear to desire a zero hours relationship.

Chance of happening 7/10

Detrimental impact on employers if implemented: 2/10

Prohibition on zeroing down ahead of redundancy

The concern is that unscrupulous employers use zero hours contracts in order to frustrate certain employment rights of individuals. Most often, employees on zero hours contracts who are to be made redundant are “zeroed down” ahead of any redundancy which minimises any payout to those employees. As the redundancy payments made to such employees are relatively small, it is likely that a statutory adjustment to the calculation of termination payments will be imposed. 

Chance of happening 6/10

Detrimental impact on employers if implemented: 2/10

Restrictions on reductions for non-business reasons

One of the key complaints is that employers can reduce the number of hours zero hours employees are asked to work as a reprimand to employees, for example, where an employee is unwilling or unable to work certain hours. This abuse gives an unscrupulous employer significant power over an employee to capriciously withhold hours. Notwithstanding the Employment Appeal Tribunal’s judgment in Pulse Healthcare Ltd v Carewatch Care Services Ltd & 6 others where it was held the employer was obliged to offer work if it was available, employers still have considerable latitude as to how and to which zero hours employees that work is allocated.

The problem is that restrictions in this regard are either impossible to enforce without direct evidence as to the employers actions. Any restriction that pushes an obligation to the employer to justify the reduction in hours potentially goes against the inherently flexible nature of the zero hours contract model. It should also be noted that, as according to a survey by the Work Foundation, over a quarter of zero hours workers are students and over 80% of all zero hours workers are not looking for another job. For some workers, such a contract model is clearly advantageous.

Chance of happening: 3/10

Detrimental impact on employers if implemented: 7/10

Expansion of Constructive Dismissal Laws

It is possible that the law could be clarified so that any reduction in hours could explicitly give the employee the right to resign from the role and claim constructive unfair dismissal. Such an approach looks superficially attractive; the system becomes arguably self policing as the employer needs to balance any reduction in hours and communicate that in such a manner as to preserve the duty of trust and confidence with the zero hours employee. While it might drive certain behaviours by employers, the fact unfair dismissal as a remedy requires greater than two years’ service, means very many zero hours employees (with statistically short lengths of service) will be unable to bring this claim. Further, employers will simply be able to reduce hours before the employee reaches two years’ service.

This would need to be linked to a removal of the service requirement to bring an unfair dismissal claim to be a viable solution. Removing such requirement would, however, not only be extremely unlikely in the current climate, but it would offer protection to zero hours workers in excess of that enjoyed by zero hours employees.

Chance of happening: 1/10

Detrimental impact on employers if implemented: 8/10

Ahead of whatever approach this or any subsequent government decides to take, there are sensible steps an employer could take; ensuring there are sufficient safeguards in place to prevent managers capriciously changing hours is the obvious one. Equally, being crystal clear as to the terms and effect of what a zero hours contract means for the employee before he or she signs up to an arrangement is the other example.

What is clear is that those employers for whom it continues to make sense to use zero hours workers who can pre-emptively adopt some of the above, will find themselves in a position of being best placed to attract and retain those workers who want to have the flexibility of a zero hours arrangement. This should drive a higher degree of engagement, productivity and cut costs by reducing staff attrition.


This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.