Zero-hour Contracts.

The position of zero-hour contracts in UK’s economy has been extensively discussed within Parliament. Zero-hour contracts lack a legal definition, but are generally identified as contractual agreements under which a worker is not guaranteed work and is paid only for work carried out.[1] Such contracts allow for the existence of a flexible workforce with no weekly contracted number of hours that facilitate the shifting demand faced by employers. On the other hand, the potential for abuse and unfair exploitation was recognised early by the government, in the 1998 White Paper “Fairness at Work.”[2] A concern that was also addressed by the Trades Union Congress (TUC), a federation of 52 trade unions, which supported that “employers use zero-hours contracts to evade employment law obligations.”[3] Perhaps this would be found tolerable if that flexibility was consistent and equal, but often it is not.[4] The main issues regarding zero-hour workers include proving employment status, exclusivity, transparency and preserving the continuity of employment. The only government legal reform being, the Small Business, Enterprise and Employment Bill 2014-15, as introduced after the results of a government consultation into zero-hour contracts with 83% being in favour of banning exclusivity clauses.[5]

Approximately 1.4 million people are engaged on a zero-hour contracts,[6] while the proportion of workplaces that have zero-hour employees has increased from 4% of workplaces in 2004 to 8% in 2011.[7] Business Secretary Vince Cable stated that “zero-hour contracts are a positive feature of the UK.”[8] Tim Thomas, head of employment policy in EEF, the manufacturers’ organisation mentioned that, if properly used, they provide flexible employment in job roles where open-ended contracts are unsuitable.[9] Zero-hour contracts are most useful for infrequent work and can be beneficial to people looking for part-time work as it allows them to fit their job to their personal circumstances. However, as stated by Edward Miliband, there is an imminent need to change the law.[10]

There is no doubt that some zero-hour workers find this pattern of work appealing, most though want some protections.[11] Whether an individual is entitled to employee protections depends on his employment status, which is difficult to establish in an atypical agreement. An employee has been defined in the Employments Rights Act 1996 (ERA 1996) as “an individual who has entered into or works under a contract of employment,”[12] under a contract of service.[13] If the individual is not an employee, he may be a worker instead. A worker is defined as “an individual who works under a contract of employment or any other contract to do or perform personally any work or services for another party to the contract whose status is not that of a client or customer of any profession or business undertaking carried on by the individual.[14]

As the Act does not assist further in assessing employment status, we will have to look into case law. Historically, the test has been one of control. Per Bramwell LJ in Yewens v Noakes,[15] “a servant is a person subject to the command of his master as to the manner in which he shall do his work.” However, the test was hardly appropriate for specialists, as the employer cannot exercise control in that case. Nevertheless, it remained a factor. To bypass the issue of specialists, the emphasis moved to the context of the work leading to the formulation of the integration test in Stevenson, Jordan and Harrison v MacDonald & Evans.[16] The issue being, whether the worker’s work is an integral part of the business or only accessory to it. However, the test run into issues as outsourcing became more popular.

The inadequacies of previous tests led to the development of the economic reality test in Ready Mixed Concrete (South East) Ltd v Minister of Pensions & National Insurance.[17] McKenna J held that there are three conditions for a contract of service. Firstly, that the employee agrees to provide his work in consideration of a wage or other payment, secondly that the employee agrees to be the subject to the other’s control to a sufficient degree to make the other master, and thirdly that other provisions of the contract are consistent with it being a contract of service. Finally, a multi-factor approach was devised in Market Investigations v Minister of Social Security.[18] Cooke J distilled several factors from previous tests, including control, whether the worker provided personal service or whether he had his own tools and equipment. The essential question being, whether the worker performs these services for the business or for his own account.

The individual has to perform the work personally,[19]whereas a contractual right to send a substitute can mean that the agreement is not a contract of employment.[20] The further requirement of mutuality of obligation can be extracted from the judgment in Nethermere v Gardiner,[21] as cited in McLeod v Hellyer Brothers.[22] Per Stephenson LJ, “there must be an irreducible minimum of obligation on each side to create a contract of service.” Furthermore, the case of Carmichael v National Power[23] involved assessing the status of visitor guides at a power station that worked on a casual, as-required basis. The House of Lords held that there was no employment relationship as the employer was not under a responsibility to provide work. Hence, in such arrangements, there has to be sufficiency of control and an obligation to provide and accept work.  Carmichael was followed in Stevedoring and Haulage Services Ltd v Fuller,[24] where no mutual obligation was found as there was an express clause stating that no work was guaranteed.

Based on O’Kelly v Trusthouse Forte Plc, the tests are a matter of law but applying the tests is a question of fact left to the Employment Tribunal. It should be mentioned that self-description is a factor but not decisive.[25] In McLeod, it was held that trawlermen who worked exclusively for the same employer for several years, on separate contracts were not employees due to lack of mutual obligation. Therefore, there was no umbrella contract covering the longer period they were working. Additionally, in comparison to O’Kelly each individual contract in McLeod was found capable of amounting to one of employment.

Per Elias J in St Ives Plymouth Ltd v Haggerty,[26] “a course of dealing, even in circumstances where the casual worker is entitled to refuse any particular shift, may in principle be capable of giving rise to mutual legal obligations for the period that no work is provided.” The test being, whether there is sufficient factual substratum to support such a finding.

Regarding zero-hour contracts, the difficulty in finding employment status lies in the requirement of mutual obligation. In Autoclenz Ltd v Belcher,[27] the Supreme Court held that a group of car valeters were actually employees although the contract stated “self-employed” and there was lack of exclusivity. The reasoning being that there was an obligation for the valeters to carry out the work personally, illustrating that the Tribunal can ignore express terms that do not reflect the true legal relationship. Furthermore, in Pulse Healthcare Ltd v Carewatch Care Services,[28] the claimants were on zero-hour contracts but worked regularly for many years. It was held, that the regular work provided by the claimants amounted to sufficient mutuality of obligation to find them employees under an umbrella contract, as the written documents did not reflect the true agreement. Equally, in Drake v Ipsos Mori UK,[29] the arrangement was similar to zero-hour contracts.  The Appeal Tribunal held that there was a contract in regards to individual assignments undertaken and therefore the necessary degree of mutuality existed. These Tribunal Decisions portray that individuals may still acquire employee rights, even if engaged on zero-hour contracts.

Although employment status is sufficient for some protection, there is still need for continuous employment for the qualification of many important employment rights, such as unfair dismissal, and the quantification of those rights. [30] Continuity is calculated from the day on which the employee starts work,[31] the focus being on the contractual start date.[32] From then on, any week during the whole or part of which an employee’s relations with his employer are governed by a contract of employment count as continuity.[33]A ‘week’ under this scope ends with Saturday,[34] whereas a week that does not count breaks continuity.[35]

Lack of mutuality precluded employment status and continuity in Carmichael. Still, a zero-hours contract is capable of building continuity of employment if an umbrella contract of employment is established. For instance, in Colley v Corkindale,[36] an employee who only worked a few hours every alternate Friday was held to have continuous employment as her contract remained existent during the non-working days. However, changes of employer break continuity,[37] and therefore zero-hour workers that perform work for more than one employer would not be able to accrue continuous employment.

Certain gaps between periods of employment can be covered by bridging rules.[38] There are three types of ‘bridges’ where continuity is preserved.[39] Firstly, when an employee is incapable of work through sickness or injury.[40]  Secondly absences due to a temporary cessation of work,[41] whereas the term ‘temporary’ has been defined as “lasting only for a relatively short time” per Lord Diplock in Ford v Warwickshire County Council.[42] For some zero-hour workers employee status will only arise in respect of individual assignments like in Drake. In those cases, continuity may be preserved under temporary cessation as each amounts to an individual contract, assuming that the intervening gaps are temporary. The last ‘bridge’ being absence from work by custom arrangements.[43] Custom arrangements might assist zero-hour workers that have to be available between shifts in preserving continuity by custom or arrangement in the employment relationship, under the purpose of remaining available.

 

Exclusivity Clauses

Exclusivity clauses in zero-hour contracts prevent a worker from taking work with another company. The issue being, that simultaneously there is no guaranteed work by the employer seeking exclusivity.[44] Consequently, workers find themselves tied to an employer with little to no work available due to the lack of transparency and information.[45] Most workers are not aware of the terms and conditions and many employers do not understand or fulfil their responsibilities.[46] Lastly, approximately 9% of zero-hour workers have been prevented from working with other employers when there was no work by the primary employer.[47]

Exclusivity has been characterised as “the single, biggest and most unjustifiable abuse” by MP Matthew Hancock[48] and is the only issue addressed so far, under the Small Business, Enterprise and Employment Bill 2014-15 after overwhelming evidence of abuse.[49] The government intention being, to prevent abuse and maintain a flexible and fair labour market.[50] The bill provides a statutory definition to zero-hour 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.”[51]  Clause 139 of the bill in question, will amend the ERA 1996 by inserting a new part 2A containing new sections, section 27A that will make exclusivity clauses unenforceable[52] and s.27B that will enable the Secretary of State to issue regulations dealing with anti-avoidance issues.[53]

Section 27A introduces a wide definition, which together with a new government consultation on ways to eliminate exclusivity clauses[54] seem to be the reasons of section’s 27B existence. It appears that presently, an employer can easily bypass the ban by offering a fixed 1-hour contract instead, while the ban will be of no assistance to workers who are not subject to an exclusivity clause but fear reprisals if they do take other work. Moreover, only 125,000 zero-hour workers appear to be under exclusivity clauses,[55] and as the bill does not give any enforceable rights, it seems that it will not have an effect on most zero-hour workers. Furthermore, although zero-hour contracts are used throughout the income distribution,[56] they are associated with low pay and insecurity of income. Those employed under zero-hour contracts earn less on average than those on full-time contracts, £236 versus £ 482 per week.[57] The insecurity of income reaching such an extent, that several landlords refuse to take them as tenants.[58]

Further plans for reforms are considered by the government, including financial penalties on employers, compensation pay to zero-hour workers[59] and the creation of an industry-led code of practice on the fair use of zero-hour contracts that will be under the supervision of an independent adjudicator.[60]

 

Conclusion

It appears that the government reform addresses only one of the issues experienced by zero-hour workers. The difficulty in establishing the necessary employment status and continuity to entitle them to important employment rights will remain, and by extension, so will the lack of transparency and insecurity of income. Additionally, s.27A affects only a limited number of workers and the bill’s effectiveness will essentially depend on section 27B, as it’s necessary to close any loopholes. Lastly, more reforms will probably be necessary to tackle the remaining issues. Hence, it seems that the right balance between allowing for flexibility to employers and avoiding the unfair exploitation of vulnerable workers, will not be achieved.

[1] D Pyper & F McGuiness, Zero-hour Contracts, SN/BT/6553 , 07 Oct 2014 & H Colins, “Employment Rights of Casual Workers“, Ind Law J (2000) 29 (1)

[2] “Many employers ensure the contracts are used sensibly, but they have the potential to be abused.”J Lourie, Research Paper 98/99, Fairness at Work, 1998

[3] TUC, Response to BIS Consultation, Ending the abuse of zero-hours contracts, 2014

[4] D Clayton, In Practice: Legal Update: employment: Working ‘when required’, Law Society Gazette (2014) LS Gaz, 12 May, 24

[5] Department for Business, Innovation & Skills, Consultation Paper, zero Hours Employment Contracts, Banning exclusivity Clauses: Tackling Avoidance, BIS/14/992, 2014

[6]ONS, ‘Analysis of Employee Contracts that do not Guarantee a Minimum Number of Hours,’ 2014 <http://www.ons.gov.uk/ons/dcp171776_361578.pdf>

[7] Wanrooy, Bewley, Bryson, Forth, Freeth, Stokes and Wood, Workplace Employment Relations Survey, 2011

[8] HC Deb col 908 July 16 July 2014

[9] T Schuoler, EEF Comments on Queens Speech, 2014 <http://www.eef.org.uk/about-eef/media-news-and-insights/media-releases/2014/jun/eef-comments-on-queens-speech>

[10] See footnote n.9 & E Miliband, ‘Labour Leader Miliband vows to end zero hours abuse’, 2014 <http://www.bbc.co.uk/news/uk-politics-27159778 >

[11] P Leighton, “Problems Continue for Zero-Hours workers”, Ind Law J (2002) 31 (1): 71-78 3 & BIS Report August 2014

[12] s.230(1) Employment Rights Act 1996 (ERA 1996)

[13] P Gwyneth, Employment Law,9th edition, (London: Sweet &Maxwell,2014), p.96

[14] s.230(3) ERA 1996

[15] (1880) 6 Q.B. 530

[16] D Cabrelli, Employment Law in Context Texts and Materials, (Oxford: Oxford University Press, 2014), p.81

[17] [1968] 2 Q.B. 497

[18] [1969] 2QB173

[19] See footnote n.13,

[20] Express and Echo Publications v Tanton [1999] IRLR 367

[21] [1984] ICR 612

[22] [1987] 1 WLR 728

[23] [1999] 1 W.L.R. 2042

[24] IRLR 627

[25]  as evidenced by Ferguson v John Dawson & Partners [1976] 3 All ER 817

[26] [2008] UKEAT/0107/08

[27] [2011] UKSC 41

[28] EAT 0123/12

[29] [2012] I.R.L.R. 973

[30] ss.210-219 ERA 1996 & P Leighton, “Problems Continue for Zero-Hours workers”, Ind Law J (2002) 31

[31] s.211(1) ibid.

[32] Koenig v The Mind Gym Ltd UKEAT/0201/12/RN

[33] S.212(1) ERA 1996

[34] s.235(1) ibid.

[35] s.210(4) ibid.

[36] [1995] I.C.R. 965

[37] Nokes v Doncaster Collieries [1940] AC 1014

[38] s.212(3)(a) ERA 1996

[39] S.212(3) ibid.

[40] s.212(3(b) ibid.

[41] s.12(3)(c) ibid.

[42] [1983] ICR 273

[43] P Gwyneth, Employment Law,9th edition, (London: Sweet &Maxwell,2014), p.122

[44] See footnote n.5 + G Dix, ACAS Give and take? Unravelling the true nature of zero-hours contracts, 2014

[45] ibid.

[46] Department for Business, Innovation & Skills, ‘Cable Announces plans to boost fairness for workers’, 2013 <https://www.gov.uk/government/news/cable-announces-plans-to-boost-fairness-for-workers>

[47] CIPD, Research Report, Zero-hours contracts Myth and reality, 2013

[48] HC Deb col 124  16 July 2014

[49] “Following overwhelming evidence we are now banning the use of exclusivity in zero hours contracts” (Business Secretary Vince Cable),  Department for Business, Innovation & Skills, ‘Government crackdown on zero hours contract abusers,’ 2014 <https://www.gov.uk/government/news/government-crackdown-on-zero-hours-contract-abusers>

[50] See footnote n.5

[51] ss.27A(1) -27(2), Part 2A, Clause 139

[52] s.27A(3) ibid.

[53] s.27B(1) ibid.

[54] Department for Business, Innovation & Skills, ‘Government crackdown on zero hours contract abusers,’ 2014 <https://www.gov.uk/government/news/government-crackdown-on-zero-hours-contract-abusers>

[55] CIPD, Research Report, Zero-hours contracts Myth and reality, 2013

[56] BIS Report August 2014

[57] Resolution Foundation, ‘A matter of time the rise of zero-hours contracts <http://www.resolutionfoundation.org/wp-content/uploads/2014/08/A_Matter_of_Time_-_The_rise_of_zero-hours_contracts_final_1.pdf>

 

[58]H Osborne & S Butler, ‘Zero-hours contract workers turned away by some of UK’s biggest landlords, 2014

<http://www.theguardian.com/uk-news/2014/oct/31/zero-hours-contract-workers-turned-away-britains-biggest-landlords>

[59] BIS report Aug 2014

[60] Vince Cable – We envisage a two-tier code system. Independent adjudicator to enforce the code,           HC Deb col 914 16 July 2014