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Zero-hours contracts: exclusivity clauses outlawed
Practical Law UK Articles 8-575-0426 (Approx. 4 pages)
Zero-hours contracts: exclusivity clauses outlawed
by Sarah Ozanne, CMS Cameron McKenna LLP
| Published on 23 Jul 2014 • United Kingdom |
Zero-hours contracts have been the subject of some controversy recently. However, the government has stated that zero-hours contracts have a place in today’s labour market, and it is currently legislating in the Small Business, Enterprise and Employment Bill (the Bill), which was published on 25 June 2014, so that exclusivity clauses in zero-hours contracts will be unenforceable.
Zero-hours contracts have been the subject of some controversy recently and there has been trade union and Labour party support for making their use unlawful (see box "What are zero-hours contracts?"). However, following a review of the issues, the government has stated that these contracts have a place in today’s labour market and it is legislating for them in the Small Business, Enterprise and Employment Bill (the Bill), which was published on 25 June 2014 (see box "When are zero-hours contracts used?" and News brief "Zero-hours contracts consultation: open to suggestion").
Much of the criticism about the use of these contracts has centred on the fact that, although employers do not have to guarantee a minimum number of hours, some employers have been including exclusivity provisions in the contracts that restrict workers from working for other organisations. Research conducted by the government during August 2013 into zero-hours contracts, as well as research undertaken by Acas, found that workers find themselves tied to one employer with little or no work available and that, due to a lack of transparency and information on these types of contracts, individuals are unaware of their rights as workers.
Statutory definition
The Bill provides a first statutory definition of zero-hours contracts as: “a contract of employment or other worker’s contract under which (a) the undertaking to do or perform work or services is an undertaking to do so conditionally on the employer making work or services available to the worker, and (b) there is no certainty that any such work or services will be made available to the worker”.
The definition is wide enough to capture contracts of employment and other forms of worker contract, but will not encompass contracts with independent contractors that do not satisfy the definition of worker.
No exclusivity
Importantly, the Bill provides that exclusivity clauses in zero-hours contracts that prevent the worker from doing work or performing services under another contract or any other arrangement, or that prevent them from doing so without the employer’s consent, will be unenforceable. The government’s stated logic for its position is that these restrictions undermine the choice and flexibility that zero-hours contracts can otherwise bring, and can be an abusive practice.
The government’s approach follows the outcome of its consultation on zero-hours contracts (the consultation) that was published in June 2014. 83% of respondents to the consultation supported a ban on exclusivity clauses. Trade unions have complained that the steps taken by the government in the Bill do not go far enough and that, instead, workers on zero-hours contracts should be guaranteed a minimum number of hours work each week.
The government is still considering measures that might be taken to enforce the ban on exclusivity clauses, including: financial penalties on employers; requiring employers to pay compensation to zero-hours workers; and conferring specific rights on zero-hours workers. It has also stated that it will work with unions and businesses to develop a best practice code of conduct (the proposed code) by the end of 2014 for employers that wish to use these contracts.
However, the regulation of zero-hours contracts is a careful balancing act. While workers need to be protected from abuse, some employers state that the use of this type of contract enables them to be flexible with their workforce, avoid fixed overheads, and so offer work where they might not otherwise be able to do so.
In its response to the consultation, the Institute of Directors (IoD) highlighted that zero-hours contracts are an essential tool for some businesses and that without the potential to use these contracts, the provision of certain services would become commercially unviable.
An IoD survey of its members found that very few of them used exclusivity clauses and, of those that did, they gave as their reasons: the protection of company secrets; the protection of investment in an individual; the protection of intellectual property; to ensure that workers were available when needed; to simplify tax arrangements; to protect clients (by ensuring that a worker is not working for a competitor of a client at another employer); and to monitor a worker’s working hours for the purposes of the national minimum wage legislation.
These issues are likely to play a meaningful part only in respect of workers retained in more senior roles. The question is whether, in light of the new ban on exclusivity clauses, employers can find a satisfactory alternative way to protect these elements of their business; for example, through the use of specific contractual provisions.
Guidance for employers
The Bill is expected to become law in early 2015 and, together with the proposed code, will provide for the first time some formal parameters and guidance for employers on the use of zero-hours contracts. Employers that use these contracts should take this opportunity to review the form and content of the contract that they use to ensure that it is in line with the new requirements.
Employers should also review what internal guidance they provide to their business on the use of workers engaged under these contracts, including how work is allocated and what records they keep about their use. Employers need to be live to the more general risks associated with the use of zero-hours contracts; such as a worker being determined to be an employee if he is provided with regular hours, and the risk of discrimination claims if work is not allocated on a fair and transparent basis.
Sarah Ozanne is a partner at CMS Cameron McKenna LLP.
What are zero-hours contracts?
To date, zero-hours contracts have not been defined in legislation but are generally understood to be a form of casual contract that gives worker status to the member of staff concerned, and therefore qualifies that person to the relevant entitlements and protections commensurate with worker status; for example, rest breaks and the minimum wage. However, under a zero-hours contract, the employer is not obliged to provide the worker with a minimum number of working hours and the worker is not obliged to accept any of the working hours offered. As a worker, an individual under a zero-hours contract does not have the benefit of the protections or benefits afforded to an employee, such as the right not to be unfairly dismissed.
When are zero-hours contracts used?
Zero-hours contracts are frequently used when there is a requirement for a flexible workforce; for example, where workers are required at short notice or the level of work is uncertain. They are recognised as giving work opportunities to young and older people that might not otherwise exist. Figures released by the Office of National Statistics in April 2014 showed that companies in the UK use approximately 1.4 million contracts that do not guarantee a minimum number of hours of work, with approximately 583,000 individuals considering that they were engaged specifically on a zero-hours contract. Their use has been particularly popular in the retail and hospitality sectors, as well as in public and voluntary sector organisations.