Updated for 2016.
With the introduction of the Agency Workers Regulations in 2010, many Companies are believed to be using far more zero-hour contract workers now, instead of Agency temps. At Workline we get a lot of queries from people employed on zero-hour contracts, so here we look at these types of contracts in more detail.
There are basically three different types of working individuals:
- An Employee
- A Worker (someone who works on a e.g. casual basis or is an agency temp)
- Someone who is self-employed (i.e. a freelancer or contractor – for more information on determining your legal status if you are a contractor, see our IR35 Guide).
It is important for the individual and the employer to establish their status, as:
- Employees generally have more employment rights than Workers or those who are Self-Employed (see our Guide to your Employment Rights here)
- There is a difference in National Insurance contributions, tax and benefits between Employees/Workers and those who are Self-Employed.
(To read about Internships/Work Experience see our Interns article here. For more information on unpaid Volunteers and Voluntary Workers see our new article here)
If you are employed on a Zero-Hour contract
You will generally be a Worker if employed on a zero-hour contract (some zero-hours contracts can be full employee contracts, although this is more unusual). A Worker is a broader category than an ‘employee’, introduced by European Union legislation (although there is no EU definition). A worker is anyone who works for an employer under a contract of employment (but this may be a written contract or not and the contract may not come directly from the Employer) and performs the work personally (which can include some freelancers).
Workers are usually:
- Agency workers (‘temps’) – the Agency who finds you work pays your wages (or, if you are a Contractor, you may get work through an Agency but an Umbrella company pays your wages), and the Company who hires you pays a fee to the Agency for your work.
- Short-term Casual Workers hired directly by the Employer (often with a written contract and usually paid via PAYE, with tax and national insurance contributions deducted) – Casual Workers are not usually part of the permanent workforce but supply their services on an irregular or flexible basis or have a ‘minimum guaranteed hours’ or ‘zero-hour’ contract.
- Some Freelancers and Contractors – there are occasions when those who are self-employed for tax purposes may be classified as ‘workers’ for employment rights purposes – including when a self-employed person is personally providing a service under a contract for another party to a client (i.e. not providing services directly to the client or business). You cannot be a ‘worker’ if you are self-employed and the contract between yourself and your client includes a genuine right entitling you to ‘substitute’ someone else to do the work.
What are zero-hour contracts?
- They are contracts that give businesses a high degree of flexibility as they give no guarantee to the individual worker of a minimum number of working hours, so the individual worker can be used as and when required, and is only paid for the hours they work.
- The worker will not obtain ‘employee’ status generally, and will not build up any continuity of service (if the contract is appropriately written and accurately reflects the relationship between the employer and the worker).
- The worker should not be required to undertake any work that is offered and there should be no detriment to them if they decline work or work for another company. Otherwise this would indicate they have employee status, it is called ‘mutuality of obligation . ‘Mutuality of obligation’ is a key requirement for a contract of employment – where the employer is obliged to offer and pay for work and the employee is obliged to accept and perform the work. Exclusivity Clauses (where a worker is not ‘allowed’ to work for another Employer) should not exist and on the 26th June 2014 the Government announced they would ban these clauses. More details are below on this progress.
- For a zero-hour contract to be legitimate there must not be any mutuality of obligation between assignments given to and accepted by the worker (and this means that holiday entitlement should not accrue between assignments, only during the period of an assignment). If you are an Employer and need help calculating your zero-hours workers’ holiday entitlement, as there are many issues here to keep abreast of, please talk to Lesley Furber at The HR Kiosk, as she has experience of providing this help.
- See our June update about zero-hours contracts here and the Government review of these types of contracts.
- In Mid December 2013 Vince Cable announced the start of a consultation on the use and nature of zero-hours contracts, looking for views from various stakeholders, up to until March 2014. BIS has highlighted concerns at the use of exclusivity clauses preventing staff from working with multiple employers and the apparent lack of transparency of the contracts from both the employers and employees perspective.
- On 26th June 2014 Vince Cable announced legislation would be introduced to ban ‘Exclusivity Clauses’ (which stop workers working for another Employer). You can read about this here and the consultation that started at the end of August 2014 here.
- In March 2015 the Government published draft legislation (the Small Business, Enterprise and Employment Bill which is currently before Parliament) to make exclusivity clauses unenforceable among staff whose have a mixture of low pay and low guaranteed hours of work each week. And said an hours and pay threshold will be introduced.
- On 26th May 2015 exclusivity clauses in zero hours contracts became illegal – which means that any clause that stops a worker “doing work or performing services” under another contract (with another employer) or stops the worker from doing so “without the employer’s consent” will be unenforceable by the employer. However, the implications of this change are limited as the worker has no way, yet, of complaining if they suffer any ‘detriment’ from an employer trying to enforce this clause. The Government published the draft ‘Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015, in November, and this became law on 11th January 2016, which means that zero hours workers will have a right not to be unfairly dismissed if the reason for this dismissal is that they failed to comply with an exclusivity clause (no qualifying period needed); and they have a right not to subjected to any detriment because they failed to comply with an exclusivity clause.
In 2015 a Zero-Hours contract worker, who feared reporting allegations of sexual harassment by her line manager, in case she lost her job, was awarded £19,500 for sexual harassment (S v Britannia Hotels Ltd). The Tribunal was very critical of the employer’s investigation and there failure to follow up the worker’s complaints, the lack of any clear action against the alleged perpertrator and the long delay in completing the investigation.
In October 2015 the Government published Guidance for Employers on Zero-Hours Contracts – how to use, them, what are appropriate and inappropriate ways to use them. You can read the guidance here.
Does a temporary/casual worker ever become an employee?
Unfortunately, there is no simple answer to this question.
If an employer engages people on an ad-hoc basis to help out during staff shortages or at busy times of the year, or when an emergency arises, knowing full well that the individual may or may not be available when the Employer needs them, then they will not be employees.
But, if the Employer regularises the arrangement with those workers and undertakes to provide them with work on specified days and at specified times of the week, on the understanding (accepted by the individual) that they will present themselves for work on those days and at those times, the chances are that the relationship between the employer and the workers will change to that of employer and employee.
The other factors that need to be taken into account in determining employee status include whether an individual is expected to carry out the work personally and whether the Employer has had sufficient control over the way the work was done.
As always, it will be for an employment tribunal to determine the true nature of the contractual relationship between an employer and a worker, if an agreement cannot be made between the Employer and Worker.
An important Tribunal Case at the end of 2012 found that six individuals employed on ‘zero hours contracts’ were actually employees.
In Pulse Healthcare Limited V Care Watch Care Services Limited plus others, the 6 individuals were engaged by Carewatch to provide 24 hour care to a severely disabled individual. Pulse took over the service contract from Carewatch and the individuals claimed they were employees and that their employment transferred under TUPE. Pulse argued they were not employees and did not have sufficient continuity of employment to claim unfair dismissal but the Employment Tribunal disagreed. The ET said there was sufficient mutuality of obligation for the claimants to be employed (i.e. they were required to personally perform the work, they were obliged to do the work and Carewatch undertook to offer the work). The ET also disagreed that the claimants were engaged on a succession of individual contracts as opposed to an ‘umbrella’ contract and therefore did not have sufficient continuity of service – the ET felt they were employed under a ‘global’ contract to provide a critical care package.
If it is established that the employment relationship has changed to that of an employer and employee then the start of the individuals continuous period of employment will also need to be established, in order to determine what statutory (and perhaps contractual) rights the individual has.
In an interesting 2013 case, Borrer v Cardinal Security Ltd, Borrer was a Security Guard for Cardinal Security for 4 years. His main place of work was at Morrisons in Brighton, where he worked for 2 years on a regular 48 hour week. His Contract with Cardinal (which could be described as a zero-hours contract) did not specify his hours of work but said “your working hours will be specified by your line manager”.
When working at Morrisons Brighton he was informed about his hours of work by text message from his manager or by contacting the control centre. In October 2011 Morrisons made a complaint about Borrer and requested that he be moved from the Brighton store (as they were entitled to under the contract with the security company). Mr Borrer worked for other clients and a few weeks later was offered a full time position with Morrisons Seaford store, where he worked for the next few weeks The Manager of the Seaford store was also unhappy with him and eventually Cardinal found him shifts at another of their clients. Borrer told Cardinal he was resigning because he was not being offered enough hours – during that conversation he was offered a full-time position of 38 hours per week at another store in Brighton. A week later he wrote to Cardinal confirming his resignation, claiming Cardinal were in breach of contract and rejecting their statement he was on a zero-hours contract.
The original Employment Tribunal found that there was nothing to imply that he worked a fixed number of hours per week (48) and there was no breach of contract, so he could not claim unfair constructive dismissal. The Employment Appeal Tribunal allowed the appeal and found that Borrer had been contractually entitled to work his claimed 48 hours per week (and there was no doubt he was an employee).
In 2015, in Smith v Carillion (JM) Ltd, the Court of Appeal confirmed that a contract could not be implied between an agency worker and the end-user of his services, unless it was necessary to do so. The Court also made it clear that is not against public policy for an end-user to obtain services by using agency staff, even if the purpose of doing so is to avoid legal obligations (which would otherwise arise if the agency worker was directly employed by the end-user). Although, in this case, there were various potential indicators that Mr Smith had employee or worker status with the end-user, the Court decided that none of these factors were necessarily inconsistent with a genuine agency worker arrangement.
In August 2013 a legal challenge was taking out against SportsDirect for their use of Zero-Hours contracts – see the details here.
If you are an Employer and need ongoing professional help with any staff/freelance issues then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.
Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.
Photo by Mao Lini