Labour party proposals to strengthen rights and protections – spotlight on zero-hour contracts

Since we published this article, the Labour party has updated its plans for reforming workers’ rights. For the latest position on what Labour is pledging to do if it wins the general election on 4 July 2024, see our UK election 2024 employment law reform tracker.

The Labour Party’s 2021 Green Paper is widely expected to shape the party’s election manifesto. It contains a range of measures aimed at tackling job insecurity, stagnant pay and the growth of in-work poverty.

We’ve discussed other proposals set out in the Green Paper aimed at improving access to basic rights and protections, such as the proposed reforms to unfair dismissal and the creation of a new single status of worker. However, Labour views these reforms as only one aspect of a suite of measures aimed at bringing about a baseline level of security and predictability. This article considers Labour’s proposals to ban zero-hours contracts.

What are Labour’s proposals to ban zero-hour contracts?

Labour’s proposals in relation to zero-hour contracts are aimed at ending “one sided flexibility”. The proposals include:

• banning zero-hour contracts and contracts without a minimum number of guaranteed hours;
• ensuring anyone working regular hours for 12 weeks or more will gain a right to a regular contract to reflect the hours normally worked; and
• ensuring all workers get reasonable notice of any change in shifts, with wages for any shifts cancelled last minute without appropriate notice.

As employment law (save for some matters) is devolved for the Northern Ireland Assembly to legislate on, these proposals relate to employment law in Great Britain. The current lack of a functioning Assembly and Government makes it impossible to predict with confidence what may happen in Northern Ireland regarding these proposals. However, previous experience suggests that the status quo will likely remain, with the law on zero-hours contracts being different in Northern Ireland, as well as differing in other respects to the law in Great Britain referred to in this article – for example, the minimum service requirement for bringing a claim in Northern Ireland remains at one year, not the two years currently in Great Britain.

What are zero-hour contracts?

Zero-hour contracts are a type of casual worker contract. There is no legal definition of a zero-hour contract and how they are used differs from business to business. However, they are broadly understood to describe an arrangement where there is no guarantee of work or pay.

Zero-hour contracts are not a recent phenomenon. Casual working arrangements have existed in some form in the UK for decades, although the use of zero-hour contracts has become more prevalent since the early 2000s. 3.4% of the UK workforce are engaged under a zero-hour contract which is up from 0.8% in 2000, and almost a fifth of employers report using these types of contracts in their workplace. These arrangements are primarily used in industries such as hospitality and healthcare.

Zero-hour contracts can play a key role in enabling flexible models of working for both employers and workers. From an employer’s perspective they can help to manage fluctuating demand, such as where work is seasonal. For individuals, the arrangement can allow work to fit around other commitments whether that be for parents, students or carers. Used in the right way these types of working arrangements can enable people to participate in the labour market who might not otherwise have been able to.

What are the challenges with zero-hour contracts?

Although in many cases zero-hours contracts allow employers and individuals a degree of flexibility both parties seek, the use of zero-hour contracts has been under scrutiny in recent years because of the perceived disadvantages for some workers and high-profile cases of businesses adopting exploitative working practices. This has sparked ongoing debate regarding workers' rights, such as:

• Lack of security - no set hours means no fixed income, so financial planning can be difficult.
• Lack of certainty - no guarantee of work means that some businesses change or cancel instructions for work last minute, making it difficult to balance other commitments such as carer responsibilities, social life, child arrangements etc.
• Repercussions of turning down work – some businesses reportedly stop offering work if individuals turn down an offer of work which increases pressure to accept work even if it does not suit their need for flexibility.
• Lack of opportunity for training or career progression and lack of integration - inadequately paid and insecure work contributes to adverse mental health.
• Disparate impact - recent research has shown that the majority of those working under zero-hour contracts come from an ethnic minority. Further research has shown that these arrangements also disproportionately affect young people with over 1/3 falling in the 16-24 age bracket and is skewed by gender, with woman more likely than men to adopt zero-hour working arrangements.
• Uncertainty about employment status – individuals have different statutory rights depending on their employment status. There are three categories of employment status – employee, worker and self-employed with different statutory rights and protections attached to each. In some instances those working under zero-hour contracts may be engaged as employees and in others as workers (whether for each individual engagement, or under a deemed overarching contract covering all engagements) or they may even be self-employed (albeit less commonly) if they have an unfettered right of substitution. Identifying the correct employment status is challenging in casual working arrangements and can leave individuals unclear on their employment rights and protections). In particular:
  
  • Generally, only employees with two-years’ service benefit from unfair dismissal protection. However, as we explored in our article on Labour’s proposals on employment status, determining the employment status of an individual is fact specific and tribunal decisions are decided on a case by cases basis. Individuals who are contracted to work for specific individual engagements find it more difficult to satisfy the two-year qualification period because continuity of employment can be easily broken where there is a series of individual assignments and no overarching employment contract. This means the parties can be unclear about their rights and protections on termination.
  • Holiday pay - apart from the genuinely self-employed, workers and employees engaged on zero-hour contracts will benefit from holiday pay. However, calculating holiday pay is challenging where working patterns are not guaranteed. Holiday pay will usually be based on a weekly average for the holiday reference period (now 52 weeks) which excludes any unpaid weeks meaning the actual reference period that needs to be considered may be much longer and will include weeks where even nominal time is spent working. Understanding the reference period where hours fluctuate can make it hard to calculate holiday pay accurately. This is an area the current government is also looking to reform.
  • Family rights – only employees benefit from these rights and so identifying the correct status of the zero-hour relationship will be important. Even if the arrangement is one of employee/employer, the majority of family-related rights also engage other conditions in order to qualify. For example, to qualify for statutory maternity leave the employee must earn at least £123 a week on average and have worked for at least 26 weeks by the 15th week before the expected week of childbirth. Many individuals working on unpredictable zero-hour arrangements can find it difficult to meet these criteria.

What approach have the Conservatives taken towards zero-hour contracts?

The focus of various Conservative government reviews and consultations on zero-hours contracts over the last decade have been on regulating exclusivity clauses which prevent zero-hours workers from engaging in other business contracts, rather than banning them completely. The Small Business, Enterprise and Employment Act 2015 makes void and unenforceable any such exclusivity clause in Great Britain. In 2016 this was extended to enable individuals with contracts containing exclusivity clauses to bring an unfair dismissal claim (without qualifying service) or a detriment claim if they are subject to a detriment or dismissed by their employer for failing to comply with such a clause. However, this is easily avoided by the employer guaranteeing as little as an hour of work.

Alongside those changes, the government also introduced changes as a result of the Taylor review which included: a right to an itemised payslip; the right to a written statement of core employment terms; and extending the reference period for calculating holiday pay from 12 to 52 weeks. However, other promised reforms, such as the right to request a regular contract and preserving continuity of employment where a break in work is less than four weeks, have not materialised.

What approach do other countries take to regulating zero hour contracts?

The concept of a flexible arrangement without guaranteed hours exists in various forms across multiple countries, but it is most heavily used in the UK.

How zero-hour contracts are regulated across other jurisdictions

What are alternatives to banning zero-hour contracts?

Many critics of attempts to regulate or reduce zero-hours contracts say that they play a vital role in the UK’s economy. Labour’s position is that these proposals will not prevent businesses operating flexible workforces. Instead, the aim is to shift the responsibility from workers to employers who then must “shoulder the sole burden.”

Labour’s proposal to ban zero-hour contracts reflects a particular view of this type of flexible working. But is there a middle ground? Can people have the choice to work under a zero-hour arrangement if it suits them, or have the opportunity to make the arrangement more permanent if they change their mind?

Labour’s proposal that working regular hours for 12 weeks or more should allow the individual to gain a right to a regular contract to reflect the hours normally worked (or, in the alternative, a right to opt into a minimum number of hours after a certain period of qualifying time with the employer) would provide an adequate level of protection against many of the pitfalls associated with zero-hour contracts, without banning their use outright and removing the choice and flexibility many individuals desire.

However, the 12 week period may have unintended consequences. If the reason for the threshold period is to clamp down on employers avoiding offering job security, it should be set at a length by which point it is more obvious that the working pattern is a longer-term commitment – say six months . For example, someone who worked across the summer period to cover temporary increase in demand could have a right to a regular contract covering those hours, even though there is no ongoing need for it.

What do Labour’s proposed reforms to zero-hour contracts mean for employers?

In our experience, a growing number of businesses are moving away from zero-hours contracts to minimum hour contracts. However, for those employers that still rely on zero-hours contracts, it is likely that banning them will impact certain sectors such as in agriculture, healthcare, retail and hospitality more than others. While Labour hopes the effect of the ban will be to bring more staff into permanent jobs providing more stability and security in work, potential challenges include:

• An immediate workforce reduction - those desiring the flexibility of zero-hour contracts may leave the workforce or will need to be offered minimum hour contracts which may put pressure on overall workforce headcount . Research has suggested that more than 20% of businesses that use zero-hour contracts do so to retain workers and avoid making redundancies.
• Less flexibility (for both parties) - in times of economic instability, zero-hour contracts have allowed businesses to offer jobs on terms where they may have not been able to offer work at all. A ban will hamper the ability to call upon employees based on fluctuating demand, especially in instances of cover or sickness or holiday.
• Increase in employment status mis-classification - certain businesses may look to engage people on a self-employed basis even though that may not reflect the reality of the working arrangement in practice.
• Increased labour costs - zero-hour contracts can be a cheaper alternative to other arrangement such as agency workers, increased permanent part-time contracts, overtime and annualised hours.

What steps should employers take to prepare?

If Labour are successful in forming the next government and bring in these changes, employers impacted by these proposals should consider taking the following action now to prepare:

• Audit the current workforce to identify the proportion of the workforce engaged on zero-hour contracts and in which areas of the business.
• Review how many individuals in the workforce are engaged on zero-hours contracts but actually work regular hours in practice, such that they may become entitled to a contract reflecting those hours.
• Review casual arrangements and consider whether or not a zero-hours contract is the best type of arrangement, depending on the nature of the work required. It may be that casual workers are not the best option or that different casual working arrangements are needed (for example agency workers).
• Review processes for managing requests for work and cancelling shifts and consider how these need to be changed.
• Train managers in any new work allocation processes.