A Google search defines it as “a labour market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs”.
The gig economy and zero-hours contracts frequently hit the press in a negative way, and last year came to the cinema, in Ken Loach’s 2019 release Sorry We Missed You.
Of course, zero-hours contracts are not uniformly bad for workers; they offer flexibility and they have their place in the economy. The point of this blog is not to look at the economic pros and cons, it’s to go behind the headlines to the employment law underlying them, and to flag up what employers should be thinking about.
It comes down to employment status. It isn’t just the high-profile employers in the headlines, such as Uber and Deliveroo, that should be considering the employment status of their staff. Smaller businesses don’t fall under the radar when it comes to scrutiny of practices. They are affected just as much as larger operations by the law on employment status. As an employer, you could find yourself with an unexpected claim by your zero-hours workers if you haven’t fully considered their legal status.
‘Zero hours contract’ is not a legal definition. Section 27A(1), ERA 1996 says: ‘The employment status of someone working under a zero hours contract is determined in the usual way.’
If you don’t know the employment status of your staff, you don’t know your obligations and their rights. For example, the business may dismiss someone on the basis that they are a worker and therefore cannot bring a claim for unfair dismissal. However, if they are actually an employee, once they reach 2 years’ service they can bring a claim for unfair dismissal in an employment tribunal.
The main kinds of employment status are self-employed, worker, or employed.
Gov.uk sets out the characteristics of a self-employed person here. The boundary between self-employed and worker can sometimes be unclear. Only a court or tribunal can make a final decision on status, on a case by case basis taking into account all of the circumstances.
Gov.uk sets out the characteristics of a worker here.
Typically, a worker will only do occasional work for the business, and they can’t expect to be offered work, neither do they have to accept it. Their contract will probably contain the words “casual” or “freelance” or “zero hours”.
They’re entitled to (among other things) the National Minimum Wage, not to have unlawful deductions made from their wages, the statutory minimum paid holiday and rest breaks, the right not to work more than 48 hours per week (unless they opt out), not to be unlawfully discriminated against, not to be treated less favourably for working part-time, and to whistleblowing protection.
Typically they’re required to work regularly unless on leave, and to do a minimum number of hours and expect to be paid for time worked. A manager or supervisor is responsible for their workload, they can’t send someone else to do their work. The business deducts tax and National Insurance, and their contract uses the words “employer” and “employee”.
Gov.uk sets out all of the characteristics of employees here.
You might be under the impression that you are employing casual workers but there is actually an employment relationship.
A common trend is to assume that where someone is on a zero hours contract, they are a worker not an employee.
If the business wants to dismiss someone, they might do so under the assumption that they are a casual worker and fail to give them the statutory notice period. If it is found that the person is an employee, the employer would be liable for Wrongful Dismissal.
Employers that have workers should be careful not to refer to the relationship as ‘employment’ or them as an ‘employee’
There might be an umbrella contract where it can be demonstrated that there is mutuality of obligation (an expectation that work will be given and must be accepted). If in reality over a period of time the employee has been offered and has come to expect work each week even though there is no obligation for them to be offered any or to accept it, this may give rise to an overriding umbrella contract which takes precedence over any casual worker relationship. (St Ives Plymouth Ltd v Haggerty UKEAT/0107/08)
Exclusivity clauses are banned for zero hours contracts (since 25th May 2015)
You can’t have a clause in the zero hours contract, whether they are an employee or a worker, preventing them from accepting work from another employer whether that other employer is a direct competitor or not. If such a clause exists, it will be unenforceable.
If you dismiss someone for accepting work from another business, this will be automatically unfair regardless of whether they have completed 2 years’ service. Likewise, if you choose to not give the person any work anymore due to knowing they also have another job, that person would have a claim. You can’t sidestep this by simply giving them a minimum hour contract (such as one hour) either.
Employers need to carefully consider whether their staff are receiving enough pay for their holiday entitlement under the Working Time Regulations. Most variable hours workers have the right to the pro rata equivalent of 5.6 weeks’ leave per year, with the right to be paid a week’s pay for a week’s leave.
As there is no statutory definition of a week’s leave in UK law, many employers opt to take a simple calculation approach and pay leave at a flat rate of 12.07% of hours worked. However, there are some circumstances where this could result in an inaccurate calculation of a week’s pay. This could result in the correct percentage calculation being much higher, meaning that effectively, part time workers receive a windfall compared to their full-time colleagues by virtue of the hours that they work.
There is no obligation to effectively pro-rata part time workers’ holiday entitlement (Brazel v Harpur Trust UKEAT/0102/17) to ensure that full time workers are treated no less favourably, even though casual workers may receive a higher rate of holiday pay.
That means that employers should calculate a week’s pay as the average of the earnings over the last 12 weeks as provided by the ERA 1996, not simply use the 12.07% accrual rate.
Overall, consider carefully the nature of the relationship you want to create, and then make sure your contracts and working practices are appropriate for that relationship. You should also review them annually to ensure you are up to date with the regular changes in the law in this area.
If you found this blog useful check out our latest blogs on Top 10 Tips for engaging Contractors and Self-employed Consultants and How can I prepare for the April 2020 IR35 new rules?
For advice on zero hours contracts or any aspect of employment law and HR call our experts today.