Risk & Economy » Regulation » Government launches review of zero-hours contracts

VINCE CABLE is due to complete his review of zero-hours contracts at the end of the year and, given his recent remarks on the issue and the growing clamour for something to be done, changes in employment law may well be expected.

The flexibility of the UK labour market has been seen by many as an advantage for the UK against its international competitors and is the reason many companies have chosen to invest here.

The government will have to balance that when it decides whether to alter the laws and regulations surrounding zero-hours contracts. In some instances, zero-hours contracts might be more preferable for workers than casual employment, especially if these come with rights to holiday and sick pay. Elsewhere, however, it is becoming apparent that some companies are using them to exploit an abundance of workers as a convenient route to keep costs down.

Labour leader Ed Miliband has recently joined union leaders in the call to tackle the spread of zero-hours contracts, with a survey by Unite – Britain’s biggest union, representing more than one million people – demonstrating that 22% of workers employed in private businesses are on work contracts that promise less than three hours a week. It comes after the Chartered Institute of Personnel and Development (CIPD) estimated that one million people in the UK are on zero-hours contracts.

No guarantees
Just what is a zero-hours contract? It is a contract of employment that, while meeting the terms of the Employment Rights Act 1996, means the employee agrees to be available for work as and when required, so that no particular number of hours or times are specified.

The contract often ties the employee to the organisation, but provides little in terms of rights for the employee, frequently with no sick pay, holiday pay or a pension. Many people on zero-hours contracts are on the lowest wages in the economy, making them the least able to cope with financial shocks if their hours should be cut from one week to the next. Zero-hours contracts also make financial planning all but impossible. It is difficult to get a loan, a mortgage, a credit card or a tenancy agreement if you are not able to provide proof of earnings.

Exactly what will be put forward by Cable is unclear, but it is almost certain that he will not propose an outright ban. That said, the business secretary has commented recently that he would be willing to look at changing the rules for workers who are tied to a single employer that is unable to provide stable employment.

Options in such cases would be to require companies either to provide base pay or assure workers that they will receive a minimum number of hours. One proposal backed by Miliband is to ensure that people who have worked regular hours on a zero-hours contract for 12 weeks become contractually entitled to those hours.

The Resolution Foundation has also called for a clear requirement that vacancies on a zero-hours contract must be clearly advertised as such (a remarkable number of people are unaware that they are on such contracts). It has also called for the abolition of the practice of ‘zeroing down’ employees to avoid redundancy payments, and for better information for employers about their statutory obligations towards employees on zero-hours contracts, such as holiday pay and the right to raise a grievance.

Beyond this, Cable may also look at how the benefits system treats people who are on zero-hours contracts, possibly providing more generous tax credits to compensate for periods when workers are not called in to work.

A flexible workforce may well have made the UK competitive, but the onus is on employers to make sure that such flexibility does not turn into exploitation. The spotlight has been shone on employers using zero-hours contracts, and they now need to show that they are using them for the right reasons and not simply to exploit those in vulnerable positions.

Preparing for changes

An estimated one million workers in the UK are on zero-hours contracts, with 22% of people working in the private sector on contracts of less than three hours a week.

The government is reviewing the use of zero-hours contracts and that is likely to lead to changes. Firms need to prepare themselves for this and review their contracts and practices in advance.

Changes could include assuring workers that they will receive a minimum number of hours or a base pay.

Providing tax credits to workers on zero-hours contracts could be an option for the government, while organisations may be called upon to make it clear when advertising any jobs that come with a zero-hours contract that this is the case.

The use of these contracts and flexible working may come with caveats from the government that statutory rights, holiday and sick pay will still be held by workers on these sorts of contracts.

The government will not want to harm the flexibility of the labour market, but they will have to shield workers from exploitation and will look to companies to revise such practices.

Kim Hoque is a professor of human resource management at Warwick Business School

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