Legal: Contract conundrums

Legal: Contract conundrums

Zero hours contracts (ZHCs) are under increasing levels of scrutiny in the UK, from employees and their representatives. The general view is that ZHCs are inflexible and not transparent, arising from the confusion around terms, status and rights associated with them. The imbalance of power in the employment relationship is evident in ZHCs; yet, with the rise of the gig-economy and upcoming changes aimed at affording more rights to individuals, is there a way forward for these contracts?

How flexible are they?
On the face of it, the dynamics of a ZHC – whereby there is no obligation for employers to offer work, or for employees to accept it – seem to suggest a relatively balanced relationship, providing flexibility for both parties. In reality, however, ZHCs allow businesses to take on individuals with no guarantee of work; and often when work is scheduled it is cancelled at the last minute with little or no notice provided. Remuneration is similarly uncertain: pay is based on hours worked rather than as a salary, making financial planning challenging. Conversely, businesses find ZHCs economically efficient as labour costs can be managed in line with customer demand.

Status and rights
Since there is no legal definition of a ZHC, a worker’s obligations can be drafted in numerous ways depending on parties’ requirements. ZHCs are therefore often used by businesses in an exploitative way, using them on the basis that they are hiring a self-employed contractor or a worker with few employment rights. In reality, the working relationship between the parties indicates employee status, affording a greater level of statutory rights.

A further issue relates to whether that individual has continuity of employment. Usually under a ZHC, an employee will work on short assignments. If this is not the case, and the employee has in reality been working under an umbrella contract (meaning any gaps in work were a temporary cessation) for two years or more, then the employee is likely to have gained additional employment rights, such as the right not to be unfairly dismissed.

The future of ZHCs
• As of April this year, there is an obligation for employers to provide itemised payslips to all workers on hourly rates showing hourly remuneration.
• From April 2020, all workers will have the right to a written statement of terms in line with current employee rights.
• In order to address the inflexible nature of ZHCs, workers will have the right to request a more stable and predictable contract after 26 weeks’ service. However, the jury is out over what practical effect this will actually have since a ‘right to request’ is markedly different to a ‘right to receive’.

Under the Working Time Regulations (stemming from European Union (EU) law), employers must keep “adequate” records of hours worked. However, recent EU case law will require employers to do more to set up an “objective, reliable and accessible system”, enabling them to record the number of hours worked each day by each worker. Any legislative changes granting workers more rights will be subject to any Brexit deal, however.

The contract
It is critical for businesses to establish employment status at the outset and draft ZHCs accordingly. In addition to setting out the status and associated rights an individual is entitled to, businesses should be mindful of restricting a worker’s ability to provide a substitute and avoid exclusivity clauses that prohibit an individual from looking and accepting work elsewhere. Finally, contracts should set out how work is to be offered and confirm that an offer of work does not need to be accepted.