‘Good Jobs’ talking points: How is the Department for the Economy proposing to reform zero-hours contracts?

The Department for the Economy is currently consulting on its ‘Good Jobs’ Employment Rights Bill. Changes are proposed to ‘prevent abuses’ in the use of zero-hour contracts and, in this insight, we look at the current legal position; why change is needed; and what this is likely to mean for businesses. We encourage readers to respond to the ‘Good Jobs’ consultation and share our views on how the potential changes may impact their organisations.

What are zero-hours contracts?

The term ‘zero-hours contract’ can have various meanings but is generally used to describe an arrangement where an employer engages a worker for work without guaranteeing them any minimum level of work. In some types of zero-hours contracts, the individual is under an obligation to accept any work they are offered, but this is not always the case.

While there may be circumstances where the flexibility offered by these contracts can be mutually beneficial to the worker and the employer, they can also lead to uncertainty and instability for workers, both financially and personally.

Why do employers use zero-hours contracts?

Primarily, zero-hours contracts are used by organisations to manage fluctuating demand. In particular, these contracts are commonly used in hospitality, catering, leisure, education and healthcare sectors where the need for staff is not constant (for example due to work being seasonal or unpredictable). Likewise, zero-hours contracts can be used by employers to meet demand from workers themselves who are seeking flexibility. Such workers may include parents of young children, carers and students, but also professionals who would prefer to have more of a flexible working arrangement.

Current law on zero-hours contracts in Northern Ireland

Unlike in the rest of the UK, there is currently no legislation in Northern Ireland which prohibits the use of zero-hours contracts or addresses some of the concerns raised about them.

For example, the practice of including clauses which prohibit a worker from working elsewhere (or doing so without the employer’s consent) is still allowed in Northern Ireland, whereas these type of ‘exclusivity clauses’ were banned in the rest of the UK in 2015. In the Labour Government’s recent Employment Right’s Bill, further measures were recently announced to curtail use of zero-hours contracts in Great Britain, including proposals to outlaw ‘exploitative’ zero-hours contracts, introduce anti-avoidance measures and bring in a new right for workers to have a contract which reflects the hours they regularly work. We have explored Labour’s proposed reforms further here.

A bill to enhance protections for zero-hours workers in Northern Ireland was first proposed in 2022 (including provisions to ban exclusivity clauses and introduce other measures such as ‘banded hours’ contracts), but it was never passed, and Northern Ireland remains out of step on this issue. It is perhaps no surprise, therefore, that reform to zero-hours contracts is now a key feature of the ‘Good Jobs’ consultation.

Proposed changes to the law on zero-hours contracts

The Northern Ireland consultation paper references three problematic aspects of zero-hour contracts as highlighted by The Low Pay Commission:

• Income insecurity: The variability and insecurity of work makes it difficult for people to manage their financial obligations or access credit.
• Unpredictability: Sometimes the use of flexible working practices leads to poor workforce planning, which makes it difficult for workers to manage their lives around frequently changing and/or unpredictable work schedules.
  
• Inability to assert rights: Workers feel unable to express concerns or assert their statutory rights for fear of having work denied to them later (sometimes referred to as being ‘zeroed down’).

In response to these concerns, the Department proposes introducing legislation to limit or restrict the use of zero-hours contracts and other practices that are detrimental to workers without guaranteed hours.

Currently, through the ‘Good Jobs’ Employments Rights Bill, views are being sought on:

• whether there should be an outright ban on zero-hours contracts, or if they should be permitted in certain circumstances (such as casual work, emergency situations, or short-term relief work for routine absences);
• whether eligible workers should be able to transition from zero-hours contracts to banded hours contracts (contracts which would reflect the reality of the type of hours they actually have worked over a set period);
• whether eligible workers should be able to request a more stable or predictable contract and whether, if so the qualifying period after which such requests could be made should be 12 weeks, 26 weeks, or 12 months;
• whether employers should be required to give reasonable notice of work;
• whether legislative change is necessary, or whether guidance or a code of practice would be effective in promoting good practice and address existing concerns;
• whether employers should be obliged to pay compensation to workers when they have work cancelled at short notice, and whether this should apply to other categories of workers; and
• whether, as in the rest of the UK, there should be a ban on exclusivity clauses in zero-hours contracts and whether such a ban should apply to all workers, or only those whose contracts do not guarantee an income above the Lower Earnings Limit.

Who would these changes affect?

The proposed changes would naturally affect employees and workers who are engaged on zero-hours contracts, but would not apply to someone classified as self-employed, or an independent contractor.

Statistics suggest that relatively few people are engaged on a zero-hours contract in Northern Ireland, (1.8% of people in employment between January to March 2024), but some business sectors are likely to be more affected by the proposed changes than others and women are more likely to be affected than men as the flexibility of these contracts enables working alongside childcare and other caring responsibilities etc. For example, employers in the hospitality and leisure sectors who have zero-hours workers may will need to re-assess their current arrangements and review their contracts.

What is the impact of potential changes on employers?

Whilst the Department is still consulting about the proposed changes, it seems likely that significant changes will be brought in which will affect the use of zero-hours contracts. Some of our initial observations are below:

• The prohibition of exclusivity clauses is largely uncontroversial and will likely be welcomed across both employer and employee groups, since it will rectify a key divergence between employment law in Northern Ireland and Great Britain.
• The potential banded hours system would be a significant departure from the position in Great Britain, but instead, would align Northern Ireland with the Republic of Ireland in this area.
• Banded hours contracts and compensation from employers if shifts are cancelled at last minute, could be of benefit to low-income workers who rely on the work being guaranteed. However, it would undoubtedly increase administration for HR departments, as they would be required to assess the banded hours for each individual currently on a zero-hours contract.
• The requirement to respond to requests for, and review workers’ entitlements to, stable/predictable contracts or placement in banded hour contracts could also become onerous for employers who have a large bank of casual workers.
• For employers, the reforms could lead to a more settled zero-hour workforce with more consistent skill and experience levels, and higher retention rates.
• However, the proposed reforms could encourage some employers to deliberately manage the hours offered to their zero-hours workforce to prevent individual workers from being entitled to a particular banding or any compensation.
• The proposed changes could also increase labour costs, since as zero-hours contracts can be a cheaper alternative to other flexible workforce arrangements (such as agency workers or part time contracts).
• There could be resourcing challenges for employers who may be less able to flex staffing to meet fluctuating demand.
• Finally, there is an increased risk of employment misclassification, as some businesses may employ people on a self-employed basis, even if this does not reflect the reality of the arrangements in practice, resulting in risks both from an employment law and a tax perspective.

Given the potentially significant ramifications for businesses engaging zero-hours workers, we encourage businesses to engage in the consultation process, either through our survey or by responding directly to the Department’s ongoing consultation.

To respond to Lewis Silkin’s survey, or to register to attend our in-person event on 10 September 2024 please click here.

To review other proposals we consider to be of high impact for employers, please take a look at our overview, and refer to our Northern Ireland Employment Law Reform Impact Hub for more information.