Government rules out ban on zero hours contracts, but seeks views on exclusivity clauses

It is consulting on whether to enact an outright ban using legislation, or whether to use a less restrictive code of practice or Government guidance. It also intends to publish additional guidance intended to improve transparency and access to information about the controversial contracts, under which employees are not guaranteed work and are only paid for that which is actually carried out.

Employment law expert Stuart Neilson of Pinsent Masons, the law firm behind Out-Law.com said that it was good to see the Government recognise the benefits of this type of contract for both employers and staff.

"It is good to see that the Government has recognised that so-called 'zero hours' contracts are a valid option for both employers and employees and that any legislative control of this area will be 'light touch'," he said.

"Clearly there are some situations where abuses of these arrangements are occurring but that could be said of any type of contract that employers and employees use. An outright ban on the use of zero hours contracts would have been a disproportionate and unwelcome response for both business and individuals," he said.

Zero hours contracts are contracts under which an employer does not guarantee to provide the worker with any work and pays the worker only for work actually carried out. Under these contracts, individuals are not obliged to accept work that is offered. Critics of zero hours contracts say that businesses use them to avoid giving workers the status of 'employee' and eligibility for the full range of employment rights; however, business groups claim that using this type of contract gives firms the flexibility to cope with fluctuations in demand, particularly during challenging economic times.

The Government's consultation, which runs until 13 March 2014 follows a research exercise into the advantages and disadvantages of this type of contract carried out over the summer. Business Secretary Vince Cable said that the research had shown a growing number of employers and individuals using the contracts, but had also highlighted concerns about so-called 'exclusivity clauses' and worker protections.

"Employers need flexible workforces and people should have the choice in how they work," he said. "But this shouldn't be at the expense of fairness and transparency."

"While for many people [zero hours contracts] offer a welcome flexibility to accommodate childcare or top up monthly earnings, for others it is clear that there has been evidence of abuse around this type of employment which can offer limited employment rights and job security. We believe they have a place in today's labour market and are not proposing to ban them outright, but we also want to make sure that people are getting a fair deal."

The consultation sets out a number of different proposals to tackle the use of exclusivity clauses, used to stop a contracted worker from working for another company even where the contract does not guarantee them a minimum number of hours. This could include through legislation, Government-issued guidance, an employer-led code of practice or making no change, and instead requiring individuals to rely on existing legal mechanisms to challenge such clauses. According to the consultation, a ban could "make any jobs which legitimately need an exclusivity clause unviable, and thus prevent such jobs being created at all".

The Government is also seeking views on how to improve transparency around zero hours contracts, highlighting the fact that there is not presently a clear or legal definition and that the term has been used to cover a number of working arrangements. Options set out in the consultation include new guidance or an employer-led code of practice, or the creation of 'model clauses' drawn up by the Government for use by businesses.