Employment update
Employment law update:
Zero-hours contracts - not always what they seem
Carol Cook examines the law, policy and practice of ‘zero-hours contracts’ from the perspective of the courts and tribunals, and employers.
About the author
Carol Cook is a principal lecturer in law at the University of Huddersfield.
In May 1998, the Labour government issued its white paper, Fairness at work.¹ The white paper said that the government’s proposals for a new framework of light-touch employment regulation would ensure a stronger and more competitive economy while retaining the ‘basic canons of fairness’, including the right to claim unfair dismissal.² A cornerstone of the policy was flexible working relations, and the development of policies to enhance family life and provide for a better work life balance.
The use of zero-hours contracts in employment appears to have emerged as a predominant response to that call for maximum flexibility. In May 2017, the Office for National Statistics reported that there were an estimated 1.7 million people employed on contracts which did not guarantee minimum hours; this represents 6% of all people in employment.³ There are more women than men working on zero-hours contracts, and 33% of all people with no guaranteed hours are between the ages of 16 and 24. Just over one in five work in the food and hotel industry; health and social work and education are in the top five of sectors using zero-hours contracts; paradoxically, sectors where the skill and reliability of the workforce are paramount.
A legal definition of the term ‘zero-hours contract’ only emerged in May 2015, when it was introduced by Small Business, Enterprise and Employment Act 2015 s153. This section amended the Employment Rights Act (ERA) 1996 and introduced a new section 27A, the effect of which was to make exclusivity clauses in zero-hours contracts unlawful. Section 27(1) defines a zero-hours contract, and although it is helpful to have a definition, the more complex issue of the employment status of those working under such contracts is still left to be decided by an analysis of what the contract states and the reality of the working arrangements. This is essential to establish the rights which the worker will have in relation to, for example, holiday pay, statutory redundancy pay and unfair dismissal.
One element considered crucial to the finding of a contract of employment is ‘mutuality of obligation’. This is an obligation on the part of the employer to offer work, and an obligation on the part of the worker to perform it. If this is missing, there can be no contract of employment even though all the other aspects of the relationship are consistent with the worker being an employee.
In Carmichael and another v National Power plc [2000] IRLR 43, the House of Lords said that when determining whether mutuality of obligation exists, it is necessary to consider all the relevant evidence about the dynamics of the work relationship. This includes what the parties have said and done when the relationship was first entered into, how they viewed the relationship, and their subsequent conduct.
This analysis took place in Pulse Healthcare Ltd v Carewatch Care Services Ltd and others UKEAT/0123/12/0608. Carewatch provided a critical care package to a young woman on behalf of a local primary care trust. The claimants were members of a team of 15 care workers trained to provide a high standard of specialist care around the clock. When the trust terminated the contract with Carewatch and appointed Pulse Healthcare, the claimants argued that their contracts of employment transferred to Pulseunder the Transfer of Undertakings (Protection of Employment) Regulations 2006 SI No 246. Pulse disagreed on the grounds that the lack of mutuality of obligation meant that the claimants were not employees, and even if they were they had insufficient continuity of employment to bring a claim for unfair dismissal.
When the claimants were first appointed, they signed a document entitled ‘Zero-hours contract agreement. The agreement said that the employer was not under any obligation to offer work. The reality of the arrangement, which was clear from the evidence presented, suggested otherwise. The tribunal found that the claimants were required to work an agreed number of hours each week, and they had acquired the skills necessary to provide the standard of care required. In relation to other characteristics of their working arrangements, the claimants were subject to control and discipline; they were provided with uniforms and equipment; they were required to provide the services personally and could not send a substitute; and they were paid on a PAYE basis. When they took time off for holidays and sickness (and in one case suspension), they received payment. These, said Employment Judge Shepherd in the employment tribunal (ET), ‘were the true terms of the contract’ (Employment Appeal Tribunal (ETA) transcript, para 22).
To bring a claim for unfair dismissal or to be entitled to a statutory redundancy payment, the current qualifying period is a minimum of two years’ continuous employment. Workers on zero-hours contracts face an additional obstacle, in that the periods where no work is offered or undertaken may break the continuity of employment and prevent the employee from acquiring that two-year qualifying period. A break of less than one week will not normally break continuity (ERA s210(4)), and employment is presumed to be continuous unless the employer can show otherwise (ERA s210(5)).
One of the key questions raised by the issue of continuity of employment for workers on zero-hours contracts is whether or not there is a contract in existence during the periods when the individual is not working for the employer. In response, the courts have looked to see whether there is sufficient mutuality of obligation during the periods when the worker is not working to give rise to an overarching contract, sometimes called an ‘umbrella’ or a ‘global’ contract.
This, again, requires an evaluation of the actual patterns of work and the conduct of the parties over time rather than simply relying on what the contract states. In St Ives Plymouth Ltd v Haggerty UKEAT/ 0107/08/2205, the EAT upheld an ET’s finding that sufficient mutuality of obligation existed in the gaps when no work was performed by the claimant. The ET accepted that there was no obligation to accept work, and that if the claimant has persistently declined work offered, she would have been removed from the list of casual workers. Nevertheless, the conduct of the parties over time showed that the employer expected the claimant to be available for a reasonable amount of work, and likewise she expected it to be offered; if it had not been, she would have sought work elsewhere. The claimant had also, over a period of time, become skilled in the type of work undertaken. These circumstances, said the ET, were ‘just sufficient ’ to give rise to the minimum level of mutuality to support the existence of an overarching contract (para 9).
Whether an employee or not, individuals working under zero-hours contracts are protected against unlawful deductions from their wages, and are protected for whistleblowing and against unlawful discrimination. They should receive the national minimum wage, and have the protections relating to working time, rest breaks, holiday and holiday pay required by the Working Time Regulations 1998 SI No 1833.
Where a global contract exists, the worker is entitled to accrue holiday for the entire period that the contract exists and not just when work is undertaken. Where there is no global contract, difficulties will inevitably arise in calculating holiday pay and entitlement, and adds further to the uncertainty that zero-hours contract workers face in relation to their income. If they are unable to work because of illness, they may also not qualify for statutory sick pay because they do not meet the minimum earning requirement.
The use of zero-hours contracts divides opinion. On the one hand, they are seen as an economic necessity while, on the other hand, they are seen as exploitative and result in financial insecurity and a lack of basic employment rights for workers.
The Labour party said that it would abolish them. Following a government inquiry into the working practices at Sports Direct, Mike Ashley, the company’s founder and CEO, said that the company would stop using them for its shop workers.
Calls for the regulation of zero-hours contracts have been fiercely criticised as potentially damaging to the economy, with claims that such regulation would make many opportunities for employment uneconomic and, ultimately, unavailable. What is clear, however, is that the courts and tribunals will not take, on face value, the written terms of the contract. They will look to the reality of the relationship as played out on a day-to-day basis by the parties.
1 Available at: https://tinyurl.com/l6pmky3
2 See note 1, foreword
3 ‘Contracts that do not guarantee a minimum number of hours: May 2017’, available at: https://tinyurl.com/k53lgp5