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Zero hours contracts: Respite for SMEs?

Strategy, Legal & Operations

Zero hours contracts: Respite for SMEs?

Headline-grabbing stories about employees being treated unfairly, denied bonuses and dismissed at the whim of penny-pinching multi-millionaire employers have aroused lively debate. Changes to the way businesses are permitted to operate have gone some way to dispelling those myths, but perhaps not (yet) far enough.

What is ‘zero-hours’?

The name “zero-hours” contracts can be misleading. Although not defined in law, it is generally understood to be an employment contract between an employer and a worker whereby the employer is not obliged to provide the worker with any minimum working hours, and the worker is not obliged to accept any hours that are offered.

This lack of mutual obligation – typically an essential element of an employment contract – has led to widespread uncertainty and allegations of exploitation, particularly given many of these contracts tie the individual to the organisation under an “exclusivity” clause preventing them working for anyone else.

Over the past few years, criticism has been directed at organisations who routinely use such contracts, which have mainly been in the hospitality, retail and catering sectors, and where they affect the most vulnerable workers in the lowest-paid jobs.

The opportunity to only use employees when they are needed is attractive to any business, but a lack of security for both parties can lead to lack of motivation and engagement amongst the workforce, which must be balanced. Zero-hours contracts can work to serve the interests of both employer and worker if, and when, used properly.

Since 26 May (when the Small Business, Enterprise and Employment Act came into force), exclusivity clauses have been banned. This means that any provision which prevents zero-hours workers from performing other work, or prohibits them working without the employer’s consent, will be unenforceable.

What hasn’t been made clear is what the penalty will be for businesses who seek to evade the new rules or who try to enforce exclusivity clauses. Details are expected to follow in due course, but until then it is probably best to avoid being the ‘test case’ and follow the rules.

What does this mean for small businesses?

Some employers have been accused of penalising employees who refuse work or raise concerns in other areas and reduce or refuse hours of work. Any temptation to use the threat of reduced hours as a management tool should be quashed.

From now on, any business which is tempted to abuse its power in relation to zero-hours employees is likely to find themselves penalised in an employment tribunal where a complaint is raised. Where claims are upheld, workers can be awarded compensation which is considered to be ‘just and equitable’ in all the circumstances. Further, where there are considered to be aggravating factors, such as the use of intimidation or serial abuses, employers could be exposed to additional financial penalties.

What now?

Employers will avoid controversy by being fair to employees and treating those who are not guaranteed minimum hours as they would other employees. As ever, communication and mutual understanding is key. Agreeing and explaining the terms of any agreement from the start and detailing what will and will not be expected from both sides should neutralise any criticism of exploitation and the use of exclusivity clauses in any contract must be carefully considered.

Ensuring that you have the right people on the right contracts will not only boost productivity and staff morale, it will also encourage loyalty and commitment from what is expected to be an increasingly mobile workforce. However, flexibility will continue to be a driver for many small businesses and some employees, so communication, accurate recording of terms and a removal uncertainty will be essential to avoiding costly disputes.

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