UK: Government to review the use of "zero-hours" contracts

In late 2012 we have looked at zero-hours contracts as a possible solution to temporary staffing needs. However, last month, the Business Secretary, Vince Cable, announced a review of their use by businesses,  which will involve informal talks with various stakeholders including trade unions, think tanks and employers'  groups. What has prompted this review and what potential is there for reform?

Concern that some companies are abusing zero-hours contracts – under which individuals are not guaranteed a minimum amount of work, not required to accept any work offered, and paid only for work carried out – has prompted a review of the growth in their use in both the private and the public sectors. The aim of the review is to better understand how this type of contract is working in practice.

Zero-hours contracts are being used increasingly by companies seeking workforce flexibility in order to adapt to fluctuations in demand, without taking on the obligations associated with contracts of employment.

According to the Office for National Statistics, the number of zero-hours contracts has risen from 134,000 in 2006 to more than 200,000 in 2012; their use being most common among workers aged 16-24. These statistics are thought, however, to represent a gross underestimation; in part due to people failing  to accurately identify the nature of their contractual status. Indeed, very recently, Care Minister, Norman Lamb, revealed that  307,000 workers in the care sector alone are employed on zero-hours contracts. 23 per cent of workplaces with 100 or more  employees are reported to use zero-hours contracts, up from 11 per cent in 2004 . 11 per cent of all zero-hours contracts are reported to e used in the retail sector.

One explanation for the rise in their use is the recession: zero-hours contracts provide a pool of flexible labour, assisting employers to satisfy short-term staffing needs whilst reducing wage costs; they also allow employers to reduce the initial costs of recruiting and training staff. Another explanation may be the introduction of the Agency Worker Regulations in 2011. 

Critics say that zero-hours contracts present serious drawbacks for individuals given the associated lack of employment rights, insecurity and the potential disruption to family life – in particular, the ability to arrange child care – due to short-notice calls to attend work  

But it is recognised that for some individuals, particularly those seeking to supplement a more permanent source of income, zero-hours contracts have value. These individuals prefer to work only occasionally; having the flexibility to turn down work if they wish and benefitting from a choice of working patterns, thereby facilitating a better balance between work and other commitments.  

What is the likely shape of reform?

The Trades Union Congress initially called for the contracts to be outlawed, but has more recently confirmed that they do not intend to call for an outright ban. The Resolution Foundation similarly concludes that it may be too early to ban them, but considers that they should be reformed and more closely regulated. For example, all job adverts for such posts should make the conditions entirely clear.

Whilst an outright ban seems unlikely, increased regulation and possible safeguards are likely to be considered including, for example, in relation to the eligibility of people on zero-hours contracts to receive benefits. One option could be higher tax credits to compensate for periods when they are not working Officials within the Department for Business, Innovation and Skills who are investigating zero-hours contracts are due to report their findings after Summer Recess, with next steps to be considered once there is a better understanding of the issues for both businesses and individuals.

Sources:

•  ‘A Matter of Time, The rise of zero-hour contracts’, Resolution Foundation, June 2013
• The 2011 Workplace Employment Relations Study
• ‘Zero Hours Contracts’, UNISON website (accessed 8 July 2013) 
• Sheila Gilmore MP, House of Commons debate 28 November 2012 column 317

This update, authored by Tara Grossman and Julia Williams, senior associates, was first published in the Herbert Smith Freehills Consumer Products Update – Summer 2013.