ONS report on 'zero hours' contracts highlights difficulties in legislating for them, says expert

Out-Law News | 02 May 2014 | 10:41 am | 3 min. read

The government would find it hard to create legislation to deal with zero hours contracts because it is hard to define exactly what is meant by a 'zero hours' contract and how many people are working under them, an expert has said.

Employment law expert Stuart Neilson of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the Office for National Statistics (ONS) published a report which indicated that 1.4 million UK workers were employed on a zero hours contract. However, the report said that other than "the lack of a guaranteed minimum number of hours", there was little in common between definitions adopted by HMRC, the Department for Business and individual employment contracts.

"Last week Ed Miliband put forward proposals for dealing with what he suggests is an 'epidemic' of zero hours contracts," Neilson said. "Whist the issue of zero hours contracts is something which engenders a lot of lively debate and where clearly there are examples of abuse taking place, it is a difficult area to effectively legislate where there is no real certainty around what we mean by zero hours contracts, and where there is a risk that any legislation will have unintended consequences," he said.

"The aim might be a laudable one but legislators need to make sure they can provide very targeted and specific legislation and that it will achieve the aims the politicians want it to without causing greater drawbacks for both employers and employees," he said.

The ONS report contains its first official estimates of the number of people working under a contract that does not guarantee a minimum number of hours. It found that 1.4 million people worked at least a few hours on one of these contracts over a two-week period in January, while employees were not given any hours under a further 1.3m contracts. However, these were excluded from the final total pending further investigation of whether some workers held more than one contract, did not want to work or had found another job elsewhere and remained on employer records.

Previous ONS estimates, included in its most recent Labour Force Survey, had put the number of people employed on 'zero-hours contracts' between October and December 2013 at 583,000. However, this figure was based specifically on the worker's perceptions of whether they were employed on that specific type of contract. The figures in this report were based on a survey of 5,000 businesses, which were likely to "be more aware of formal contractual arrangements of their employees", the ONS said.

According to the earlier Labour Force Survey, people employed on zero hours contracts were more likely to be women, in full time education, aged 16-24 or aged 65 and over. Nearly two thirds of those people worked part time, for an average of 25 hours per week. Just over one third of those employed under this type of contract wanted more hours, usually in their current job; a "somewhat greater" proportion than those not employed on a zero hours contract that wanted more hours.

The term 'zero hours contract' is generally used to refer to a contract under which an employer does not guarantee to provide the worker with any work and the worker is not obliged to accept work that is offered. Workers are only paid for work actually carried out under the contract. 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.

Last year, business secretary Vince Cable ruled out a complete ban on zero hours contracts; instead consulting on whether and how to ban the 'exclusivity clauses' preventing contracted workers from working for another company. The results of that consultation will be published shortly. The government also intends to publish additional guidance intended to improve transparency and access to information about the contracts.

Labour leader Ed Miliband recently committed to banning the "abuse" of zero-hours contracts if his party is successful at the next election; including by creating a new right to a contract with fixed hours for workers who have worked regularly for the same employer for over a year. However, employment law expert Stuart Neilson said that this sort of legislation could have "unintended consequences" for employers, as it could "effectively discourage employers from engaging employees on a casual basis for more than six or 12 months".

"The ONS report has highlighted that there are disproportionate numbers of women, students, under 25s and over 65s on 'zero hours' contracts," he said. "These groups may find it more challenging to obtain regular employment."

"In addition, whilst there may be particular sectors of the economy where abuse of so-called zero hours contracts is thought to be occurring – particularly with low skilled and poorly paid occupations – the impact of any legislation is likely to be felt more widely and could impact upon sectors where flexibility is highly prized by both employers and employees, and where skills shortages are the primary concern, such as in the engineering and construction sectors," he said.