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How to Regulate Zero Hours Contracts

Re-regulating zero hours contractsZero hours contracts (‘ZHCs’) are one of the most extreme examples of precarious working arrangements in Britain today.  They have provoked public concern, widespread media comment, think tank reports, a government consultation and a first attempt at statutory reform. However, the problems associated with ZHCs look set to continue.

There is no clear legal or statistical definition of a ZHC.  This makes it difficult to assess the extent of ZHC working.  The best estimates suggest that over 1 million workers are currently employed on ZHCs, and that numbers have doubled since the start of the recession.

ZHCs can be highly profitable for employers and many of the largest private sector companies in the country, as well as parts of the public sector, make use of them.  ZHC workers, on other hand, report high levels of job dissatisfaction, associated with insecurity of work and income.

The recent rise in ZHCs is partly the result of the recession, but it is also caused by loopholes in employment law and by the operation of the tax-benefit system.  At the same time, there is widespread misunderstanding about the legal effects of ZHCs.  

Most ZHC workers will have ‘employee’ status, but because they lack regular work (‘continuity of employment’), they will not normally be protected against unfair dismissal, or even have the right to a written statement of terms and conditions of employment. 

ZHC workers mostly have the right to the minimum wage for work done and for some periods waiting for work, but the rules for on-call work are complex and have to be interpreted and applied on a case by case basis, creating uncertainty for workers.

The recent focus on ‘exclusivity clauses’ in ZHCs addresses a non-issue.  A clause in a contract under which an individual agrees not to work for another employer is not normally enforceable if the employer, in return, does not offer work and/or pay for the relevant period of time.  A post-contractual restraint is void unless it is a reasonable way of protecting the employer’s confidential information or similar commercial interest.  ZHCs will rarely meet these conditions.

For these reasons, clause 139 of the Small Business, Enterprise and Employment Bill 2014, which seeks to outlaw exclusivity clauses in ZHC, is little more than window dressing. It gives the impression of government action, but will not materially improve the legal position of ZHC workers.

The debate needs to move beyond exclusivity clauses.  We can begin by putting ZHCs in a European context. Few other EU countries recognise ZHCs as a valid contractual form. Where ZHCs or their close equivalents, such as on-call work, are recognised, they are subject to precise regulation.  For example, it is common to require the employer to specify the nature of on-call working arrangements and to agree to pay a minimum weekly remuneration where no work is provided. 

We can learn from this approach.  Our employment law could be amended to provide a right to regular working hours and a minimum level of pay for time spent on call.  The rigid and archaic rules on continuity of employment should be reformed, and a right to written information on terms and conditions from day one provided.

The social security system should once again become an effective safety net.  At present, the tax credit system subsidises low paid work, while strict conditionality in the operation of the jobseeker’s allowance rules puts benefit claimants under pressure to accept casual employment or face being sanctioned.  The effects of this misguided policy, pursued by all political parties since the 1980s, have included stagnating wages and a huge increase in the numbers of the working poor. 

Universal credit will make matters worse if it is introduced as planned in 2017. The conditionality rules will be tightened again and in some cases applied to those in low-paid and part-time work, who, it seems, will risk losing benefits or tax credits if they do not seek out additional employment up to a weekly hours threshold.  Freedom of information requests indicate that benefit claimants will be sanctioned under Universal Credit if they refuse to take up offers of work in the form of ZHCs. There is evidence that this is already happening under current rules.

The best we can hope for from Universal Credit is that the system is so cumbersome and inefficient that it will not, in the end, be implemented as planned. But if it were to work efficiently, it would not address the problem of precarious work.    That can only happen if there is a realignment of the tax-benefit system, to support stable employment and remove the effects of fiscal subsidies for low pay.

Additional steps can be taken to improve the working of the labour market. Public procurement rules can be used to promote fair working conditions in ways which are consistent with EU laws on competitive tendering of services, and, again following European examples, innovative options exist to give collective bargaining and workplace dialogue a role in regulating the use of ZHCs and other flexible working arrangements.

Only a comprehensive reform strategy, involving employment law, the tax-benefit system, the procurement regime and social dialogue, will adequately address the problematic use of ZHCs and the insecurity which is currently affecting millions of workers and their families in Britain.

You can buy a copy of the publication, Re-regulating Zero Hours Contracts, here.

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