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Home » Employment law » Contracts of Employment » Zero hours contracts

What is a zero hours contract?

The term ‘zero hours’ is not a term that is defined in law. However, it is usually taken to mean an arrangement whereby an individual is offered work only when it is available. In addition, the individual is not required to do any work that is offered.

Is the individual an employee?

Determining the employment status of an individual working on a zero hours contract will depend on the working arrangement that is in place.

There is the possibility that the individual is an employee, if the reality of the relationship is that the individual is regularly offered work and always does any work that is offered. It could be that the employer and the individual both started the arrangement with no intention of this relationship developing, but it is the reality of how it has worked out.

If there was a dispute over employment status then the Employment Tribunal would look at any written agreement, but would also look at how the relationship was actually working out. The reality of the relationship would over-ride any written agreement if there was a difference between the two.

It is most likely that the individual will be a ‘worker’ rather than an employee. This status does not attract the same rights as employment status, for example the worker has no right to claim unfair dismissal and has no right to receive a statutory redundancy payment. However, the worker will have rights to holiday pay and to be paid a rate not less than the National Minimum Wage.

Does an individual working on a zero hours contract accrue continuity of service?

If the terms of the contract are that there is only a contractual relationship when work is provided (which would be the usual approach in a zero hours contract) continuity of service will be broken whenever there is a full calendar week (Sunday to Saturday) without any work being provided. If there is some amount of work provided and worked each week then continuity of service will accrue.

If the continuity of service is broken then the usual requirement to calculate accrued holiday and to pay the individual for any untaken annual leave will apply.

If the continuity of service does accrue, then the rights associated with that length of service will apply. As already noted, the right to claim unfair dismissal or a statutory redundancy payment, which only apply after two years of service, will only accrue if there is an employment relationship.

When is it appropriate to use a zero hours contract?

A zero hours contract is useful when there is a requirement to have additional staff, but it is difficult to predict when that need is going to occur. So, it could be useful to have individuals on zero hours contracts in the following situations:

•    When the business is seasonal, and it is difficult to accurately predict the extent of the seasonal demand.
•    To cover for absent employees.
•    To help when unexpected or irregular demands occur, for example putting on a major annual event

What are the disadvantages and advantages of using a zero hours contract?

The main advantage of using a zero hours contract is the flexibility that it gives. It allows the employer to pay for the work that is being carried out, and avoids the possibility of paying permanent employees when there is little work to be done.

However, there are also some disadvantages which need to be considered:

•    There is the need to train individuals who are going to work on a zero hours contract. This might not be extensive training, but the individual will have to understand the systems and processes in the company. If the individual does not have regular work it is possible that s/he will forget what has been taught, and need to retrained each time work is available. This is time consuming and is not cost effective.

•    Unless there is a contractual requirement for the individual to take any work that is offered, there is the possibility that no individual on a zero hours contract is available when they are needed. If a requirement is put in place that they have to take any work that is offered there is the possibility that an employment relationship will develop. This will be a particular risk if work is regularly offered.

•    An individual working on a zero hours contract is unlikely to be as committed to the organisation as a permanent employee, and this could have a negative impact on productivity and customer service.

What alternatives to zero hours contracts could be considered?

Zero hours contracts are used to give the employer some flexibility in the workforce. Flexibility can also be achieved through the use of fixed term contracts or agency workers.

A fixed term contract is one which ends on a specified date, or when a specific event (e.g. a project comes to an end) occurs. An individual on a fixed term contract is likely to be an employee, and will have employment rights.

However, there is the certainty that the individual is available to work, which is lost with a zero hours arrangement.

Using an agency worker gives the flexibility of having extra staff only when needed, but there is no guarantee that the same agency worker will be supplied each time which can be disruptive due to the ongoing training demand. There is an additional cost when using an agency worker, but an agency worker does not have employment status.

Is it possible to insist that someone on a zero hours contract only works for one company?

No. It became unlawful to put an exclusivity clause in a zero hours contract from 26 May 2015.