Employment Rights Bill unpacked: will guaranteed hours guarantee flexibility for both parties?

Anyone looking for a straightforward ban on “exploitative” zero-hour contracts would have been disappointed by the Employment Rights Bill. Instead, the Bill grapples with the issue of insecure work through a raft of detailed and complicated provisions on guaranteed hours and the right to reasonable notice of shifts and shift changes. 

Focussing on guaranteed hours, these provisions are not exactly ripe for summary – with many of the key details yet to be confirmed. But, in short, the Bill requires employers to make an offer of guaranteed hours to qualifying workers based on hours regularly worked over a defined reference period (which seems likely to be 12 weeks).
 
This isn’t an outright ban. But could we end up in a similar place, by shifting more of the control to the employees? 

Current law

Employers can currently engage workers using a range of different contracts to allow them to rapidly respond to fluctuations in customer demand. These include:

• Zero hours contracts: used to engage somebody with no minimum level of work or pay. In some contracts, the individual is obliged to accept work offered, but not in all. In recent years zero hours contracts have attracted a lot of bad press; reported as an exploitative business practice. But this isn’t always true. They are commonly used where there are peaks in demand throughout the year, for example in the hospitality and retail sectors. Any exclusivity clause, preventing employees from working elsewhere, is unenforceable but there are no other restrictions on the use of zero hours contracts.
• Minimum hours contracts: these are similar but guarantee a number of hours of work each week. The minimum hours are set by the employer. An employee may be offered more than the minimum number but are usually not obliged to accept them. 
• Agency workers: supplied by an agency to work for the hirer, agency workers can be used to cover for absent employees or to manage surges in demand.
• Fixed term contracts: usually used to resource specific projects and are of a defined duration.

The previous Conservative government took steps to introduce a right for workers to request (not have) a predictable working pattern. This was expected to come into force in Autumn 2024 but Labour confirmed that the plans would be ditched in favour of the Bill. What is proposed in the Bill is far more onerous for employers and has the potential to have a significant business impact. It will be a positive obligation on employers and, as it stands, with only limited exceptions.

Guaranteed hours - what we know

The government’s aim is to deliver a baseline level of security and predictability for workers. The government recognises that variable hours can suit both workers and employers. For lots of people, zero hours contracts suit their personal circumstances, and it gives employers a flexible resource ready to meet fluctuations in labour needs.

Does this new right just apply to zero hours workers?

No – this right will apply to workers who are either:

• working under a zero hours contract or under a “zero hours arrangement”; or 
• have a low number of minimum guaranteed hours but work more than those hours in the reference period.

Extending the right to low minimum hour contracts is an anti-avoidance measure to stop employers putting workers onto contracts of, say, 1 or 2 hours a week. What constitutes a “low” number of hours will be set out in regulations – we consider the significance of this below. 

Similarly, a worker does not need to have been engaged continuously throughout the reference period and a worker can be employed under one or more contracts during the reference period. This recognises that it is common for zero hours workers to be engaged only during their specific assignments, with overarching terms and conditions. 

At the moment these provisions don’t apply to agency workers, a group often engaged on zero hours contracts. However, the Bill does include the power to extend its application to agency workers (albeit it is not required to do so) and a consultation has already been launched to look at how these measures could be applied to this group. The key question will be whether the responsibility to offer guaranteed hours will fall to the employment agency, or end hirer. 

What's the reference period?

The reference period will be defined in regulations, but 12 weeks is referred to in the Next Steps document, the impact assessment and the agency workers consultation document.

How should an offer be made?

Employers must offer a new or varied contract that “reflects” the hours worked during the reference period. A valid offer must set out:

• The days of the week, and times on those days when the employer will make work available; or
• A working pattern of days and times.

However, regulations will clarify what prescribed form the offer must be made in and – importantly – how long it must remain open for. 

When must an offer be made?

An offer must be made after an initial reference period and after each subsequent reference period: 

• Initial reference period: Although it is not set out in the Bill, the government has suggested that after 12 weeks an employer will need to offer guaranteed hours.
• Subsequent reference period: If more hours start to be regularly worked over time, subsequent reference review periods will provide workers with the opportunity to reflect this in their contracts. It is not entirely clear how this will operate in practice and if a recalculation is required at the end of every subsequent reference period. There are very few references to subsequent reference periods in the Bill itself and this will be a topic of consultation with employers and trade unions, to ensure they are reasonable and proportionate. 

In terms of timing, it’s unclear exactly how long an employer has after a reference period to actually make the offer.

How long does this need to go on for?

The obligation to make an offer is repeatedly triggered until the worker no longer qualifies for the right; most likely if they cease to be a low hours worker. If an employee accepts a new or varied contract with guaranteed hours exceeding the “low” number threshold, there will no longer be a need to monitor their hours or make further offers.

However, the cycle of reference periods will continue if:

• The worker rejects the offer opting to remain on a zero or low hours contract; or
• An accepted offer of guaranteed hours still falls below the minimum number of "low" hours.

The worker wants to accept guaranteed hours – what happens next?

An employee has until the end of a “response period” to accept the offer. If they do so, they will begin working under their new or varied contract from the day after they tell the employer (unless a later date is agreed between the parties). It’s not clear yet how long the response period will be, but this is likely to have a significant operational impact on employers looking to quickly flex their labour.

What if the worker wants a lower number of guaranteed hours? 

Parties will likely still be able to negotiate and agree the level of offers - under the Bill, an employer is not prohibited for making a separate offer to vary terms and conditions. However, the requirement to make a “statutory” offer will still apply.

What if the worker doesn’t want guaranteed hours?

There is no obligation for a worker to accept any offer of guaranteed hours. The worker can reject the offer within the response period. However, it seems that employers will be obliged to keep making offers at the end of each subsequent review period.

What if the worker doesn’t respond?

Employers can treat the offer as rejected if a response is not received within the designated response period.

Can any other terms be changed?

The Bill includes provisions that prevent an employer from taking the opportunity to change other terms when making an offer of guaranteed hours:

• If varying existing terms: the Bill prevents employers from varying any other terms and conditions; only the minimum hours can be varied.
• If entering into a new contract: the Bill requires that new terms and conditions must not be any less favourable on the whole. For example, a new contract must not remove previous benefits offered, or offer a lower rate of pay.

An offer should only be for a variation of terms and conditions if a worker has worked continuously under the same contract during the reference period.

What if the employer ends up overstaffed?

Responding to customer demand could become must harder for employers to manage. If an offer is accepted, the guaranteed hours become a permanent fixture of the worker’s employment. The employer will be required to provide that level of work and pay the employee for it. 

Unless subsequent review periods apply, there is no scope to later unilaterally reduce the number of guaranteed hours. Where there is a clear time limited need for staff, employers can make use of fixed term contracts. We consider this in further detail below. Where the reduction in work is not related to a specific time-limiting event, it will be challenging to manage resource levels. For example, an employer could consider reducing the hours offered to those who remain on zero-hours contracts, to ensure they can fulfil any contractual guaranteed hours as a priority. This could come at a cost of offering less stability to some members of staff.

If it is not feasible to adjust the staffing levels, employers may be left needing to consider redundancies. The Bill separately removes the qualifying period for unfair dismissal and requires a full dismissal procedure for employees (but not yet workers) being made redundant from day 1 of employment. We discuss these changes in full here. This could therefore be a significant additional burden for employers. Employers will also need to tread carefully given an employee will be considered automatically unfair dismissed if the principal reason for dismissal is because they accepted a guaranteed hours offer (more on this below).

What if we only need a worker on a temporary basis?

The default position is that any offer of guaranteed hours will need to be for a permanent change to terms and conditions. However, this may not be feasible for employers where the reference period has included unusually high levels of work and there are exceptions for when the work is “inherently temporary”.

The Bill attempts to address the question of short-term labour needs by setting out circumstances where it will be considered reasonable to make an offer for a limited-term contract instead. Fixed terms contracts (referred to as “limited term” in the Bill) can be offered where “reasonable” and there is a limiting event. A limited-term contract will be reasonable if an employer reasonably considers:

• the worker is only needed to perform a specific task and the contract provides that it will be terminated when the task is performed;
• the worker is only needed until the occurrence of an event (or failure of an event to occur) and the contract provides that it will be terminated on occurrence of the event; or
• there is only a temporary work need and the contract provides that it will be terminated when the employer reasonably considers that need has come to an end. The example given is providing cover for another worker.

These circumstances are quite broad and could arguably extend to predictable seasonal fluctuations in work e.g. the peak retail and hospitality periods in the lead up to Christmas. For example, if a retail worker has a very busy initial 12 weeks in the lead up and over Christmas, the offer of guaranteed hours will need to reflect those hours. But if the retailer expects a sharp decline in custom, it seems possible they will be able to offer a limited-term contract. 

Aside from the many points in this part of the Bill that remain to be determined in further regulations, the crucial question of “reasonableness” is a bar to be set by employment tribunals in the future. 

Are there any other exceptions?

Yes. There will be no need to make an offer where the worker is fairly dismissed or resigns during the reference period or offer period (so before an offer is made). Similarly, there will be no need to make an offer if a “limited term contract” ended because of a specified event. This arguably leaves a worker worse-off as they will not revert to any previous zero or low hours contract.

If there is a resignation or dismissal during the response period, the offer will be treated as withdrawn.

In addition, the Bill also includes a very open-ended reservation power to set out in future regulations further circumstances when an offer can be treated as withdrawn, as well as further exceptions to the duty to make an offer. This is likely to be a point employers will be closely watching as the Bill progresses. 

A worker who is not offered hours on the required terms can bring an employment tribunal claim. The Bill currently refers to a 3-month time limit but it is worth noting that the government plans to amend the Bill extend time limits more generally.

If successful, a Tribunal must make a declaration and may also make an award for just and equitable compensation based on financial loss. In practice, this will likely be based on the guaranteed hours that should have been offered, but the usual rules around mitigation will apply. The maximum possible award will be capped – this will also be out in regulations.

Workers also have a right not to be subject to a detriment because they accepted or rejected any offer. Although longer-term the government plans to remove the distinction between employees and workers, for now, only employees will have the right not to be unfairly dismissed because they accepted or rejected any offer. An employee who is dismissed for accepting (or proposing to accept) or rejecting (or proposing to reject) any offer will be considered automatically unfairly dismissed. As set out above, this could present risk to an employer when there is a reduction in need after a guaranteed hours offer has been made. The usual unfair dismissal compensation rules will apply.

Main areas of uncertainty

A number of key provisions will be set out in regulations which we assume will be subject to consultation. At this stage, key outstanding questions are:

• What is a “low-hours contract”? This is perhaps the most critical question. Setting this number too high will severely limit businesses’ ability to adjust staffing levels on short notice, as well as increasing the administrative headache by bringing more workers into scope.  
• What will the length of the reference period be? A 12-week reference period is not referred to in the Bill itself, so presumably will be consulted on. The reference period will have a significant practical impact on the admin required for businesses.
• How long will subsequent review periods be? It is unclear if any subsequent review periods will also be 12 weeks. Again, this will be spelt out in regulations. This is bound to create an administrative burden for employers. Particularly in circumstances where a worker is very happy and willing to work on a zero hours contract, so rejects all offers. 
• What does it mean to “reflect” the hours worked? And how will the guaranteed hours be calculated? It is unclear what it means to “reflect” the hours worked and exactly how the guaranteed hours should be calculated. It may be a simple average of hours worked over 12 weeks. Although the Bill says that the regulations could set out further conditions around the number and regularity of hours worked, we have been given no clues as to what these conditions could be.
  So, for example, if an employee does not work for 8 weeks but then works 30 hours a week for 4 weeks – this gives an average of 10 hours a week. Will they need to be made an offer of 10 guaranteed hours a week? Or could the regulations say hours need to be worked more regularly than 4 weeks in a reference period?
• What will the response period be? Where fast paced resource is needed, it will be tricky for employers to manage a long waiting period to know whether or not an offer is accepted. 
• What exceptions to the right? It is possible further exceptions could be included. The government’s impact assessment says these will be “circumstance-based” and won’t cover many workers. This suggests we won’t see any radical moves, such as excluding particular  sectors or allowing for variations by collective agreement. 
• What is the statutory maximum compensation that a tribunal can award? Where an offer isn’t correctly made, it is not yet know what the maximum financial liability could be.

Next steps

Whilst the Bill does not ban zero hours contract, it does give workers significantly more control. Where high hours are regularly worked, it will be the worker’s choice as to whether they want a more stable, predictable contract. For workers who are happy working on a zero hours basis, they can continue doing so for as long as it suits them (although they may be pestered with regular offers for a more predictable contract).

There is a risk that creating such complicated provisions will result in them rarely being used (a little like the shared parental leave regime where take up is still relatively low). The government have recognised that compliance could include avoiding zero and low hour contracts. The inevitable admin (and cost) involved in offering guaranteed hours could leave businesses looking to really test the scope of the exceptions or find alternative ways of recruiting staff e.g. using more fixed term contracts. One of the government’s objectives with this policy is to incentivise better workforce planning to improve staff relations, but they also recognise that the loss of flexibility for businesses may jeopardise the viability of some business models. How significant these changes are will heavily depend on the detail to be set out in regulations.

Ultimately, there is no need for employers to take any immediate action. We are expecting consultations to kick off next year and the majority of changes are not expected to take effect until 2026. There are, however, useful preparations that could be made. These include: 

• Auditing the current workforce to identify the proportion engaged on zero-hour contracts and minimum hours contracts, and in which areas of the business. 
• Review how a 12-week average calculation would impact zero hours or low hour workers. It will be helpful to begin considering the contractual working patterns of these workers and what hours are worked in practice.
• Track seasonal fluctuations in demand for work to gain a better understanding of when there will likely be a peak or trough in work. Any evidence around predictable fluctuations will help support any belief there is only a temporary work need and a limited-term contract is need (avoiding the need to permanently increase a worker’s hours)
• Review the current use of fixed term contracts to address any seasonal work requirements.
• Reviewing processes for managing requests for work and cancelling shifts (including the use of any AI systems) and consider how these need to be changed. 

This new right should also be viewed in conjunction with other provisions in the Bill. In particular, the right to reasonable notice of a shift an employee is required to work. There is also a right to reasonable notice of any change or cancelled shift. There is a duty on employers to make a payment to workers each time there is a change to a shift at short notice. Details will be clarified in regulations, but compensation will be proportionate to the cancellation or curtailment. We will be considering these provisions in a separate Insight so watch this space!

Our dashboard breaking down what’s in the Employment Rights Bill can be found here.