Zero Hour Contracts

Abstract

This paper focuses on the effect that temporary employment such as zero hour contracts have on the wellbeing of employees, it gives a brief definition of what a zero hour contract is, and how they have changed throughout the years eg how they were used in previous years before being called zero hour contracts, why the use of zero hour contracts is on the rise in the UK business market, and investigates the benefits and detriments of these contracts in regards to employees, it will also look at the financial benefits to the employers who use these contracts, and the type of culture that surrounds the employees who are employed on these contracts, It will also investigate what the government plan to do once their consultation is complete to help individuals on these contracts.

Introduction

This paper provides a brief definition of what a zero hour contract is, an employee perspective on the benefits and detriments of the use of zero hour contracts. The effect on the employee’s wellbeing whilst employed on said contracts, and also what sort of organisational culture surrounds those on zero hour contracts, how this in turn may have an effect on their wellbeing. Why the use of zero hour contracts are on the rise, and so prevalent in the UK market, it will also investigate what the government plan to do once their consultation is complete to help individuals on these contracts.

The aim of this research is to establish how zero hour contracts came into existence, why zero hour contracts are used, and what effects these contracts have on employees.

What is a zero hour contract?

‘Zero-hours contract’ is not a legal term. The CIPD Labour Market Outlook survey (2013) defines it as:

‘an agreement between two parties that one may be asked to perform work for the other but there is no set minimum number of hours. The contract will provide what pay an individual will get if he or she does work and will deal with the circumstances in which work may be offered (and possibly, turned down).’

And the Resolution Foundation (2013) defines zero hour contracts as:

A type of employment contract under which an employer is not required to offer an employee any defined number of working hours and the employee is, in turn, neither guaranteed any set number of working hours nor obliged to take any offered. The individual therefore only receives pay for the working hours for which they are required: hours which may be subject to variation on a daily or weekly basis.

Literature Review

The percentage of people employed on a zero hour contract in the UK market according to a survey conducted by the ONS (2013) is that larger companies were more likely to use zero hour contracts, hotels and restaurants have a high use of zero hour contracts along with the health and educational sectors. There are as many as 583,000 people employed on zero hour contracts in the UK according to ONS (2014). This is quite a steep rise in a year, probably due to the UK economy.

The lengthy recession meant that employers could not afford to keep permanent staff and now they are understandably concerned about committing to full or even part-time contracts. Rodgers, E, (2013). The greater use of zero hours contracts is taking place against a background of falling real wages, high levels of workplace fear regarding redundancy, and unfair treatment for a significant minority, this is due to an employment recovery where permanent employee jobs have been in the minority. According to Brinkley, I, (2013) and employers want to safeguard their businesses, so they use zero hour contracts to be able to retain the staff needed without the cost.

Rodgers, E, (2013) and Brinkley, I, (2013) agree that the use of zero hour contracts fluctuates according to demand and the fear of redundancy, and in an employment recovery where there has been a shortage of permanent jobs means that employers are reluctant to offer permanent positions to employees thus increasing the use of zero hour contracts, as this enables the employers to keep costs low.

The diagram below shows the percent of people in employment on a zero hour contract. Level and rate of people on zero-hours contracts1,2
October to December, each year  UK, not seasonally adjusted

1 Zero-hours contract – is where a person is not contracted to work a set number of hours, and is only paid for the number of hours that they actually work.
2 Series adjusted for pre-2006 change from seasonal to calendar quarters and for missing cases that cannot be brought forward

Zero hour contracts on the rise could be attributed to the economic downturn in recent years, as employers struggle to find ways to reduce the costs of their businesses to be able to keep them viable “greater labour market flexibility helps the economy to respond to changes in demand and output, which in turn enables wages and employment to adjust easier”, according to Jowett et al (2014)

Businesses use these contracts which allow employers to maximise the flexibility of their workforce to meet demand. Pennycook et al (2013) These types of contracts allow employers to minimize risk and reduce initial costs whilst avoiding certain employment obligations. Although this is not to be assumed that this practice is deliberate.

Pennycook, M, et al (2013) and Jowett et al (2014) agree that businesses use these contracts to respond to changes in demand and allow the employer a totally flexible workforce; this in turn allows them to retain staff without the costs and employees sign up to these contracts, in some instances employees do not even know what these contracts are.

Employees will sign a zero hour contract for any number of reasons according to a survey conducted by Burchell. B. et al (1999 ) such as:

Employees own preference – some employees such as students like the flexibility of the zero hour contract as it suits their lifestyle and enables them to study and work as they need to according to Pennycook, M, et al (2013). Employers Preference – these contracts enable employers to respond to the fluctuations in demand, if demand is high they can employ more workers if demand is low they are not obligated to give workers hours thus reducing staffing costs according to CIPD (2013) Only basis on which work was available – some workers can only find temporary work and then use this as a stepping stone to find permanent employment according to Tremlett, N, et al (1999) Burchell, B. et al (2009), Pennycook, M, et al (2013), CIPD (2013) and Tremlett, N, et al (1999) all agree that there are various reasons why employees choose to be employed on zero hour contracts, it sometimes suits the individual concerned, the employer involved may only offer this type of employment or it may be the only work the individual is able to find, there is also the issue of the status by which employees are employed.

The employment status of an employee is equally important with regards to zero hour contracts as individuals on these contracts can be employed as an employee or worker, if employed as a worker the individual will have less employment rights than that of an employee according to ACAS (2013). Persons with employee status are afforded a number of important legal rights which workers are not such as the right not to be unfairly dismissed, maternity rights, and redundancy rights according to Pyper, D, et al (2013). Both ACAS (2013) and Pyper, D, et al(2013) agree that workers have less employment rights than that of employees which can then lead to legal issues arising.

Legal issues

Zero hour contracts have been in the news a lot over the past year, this is due to the fact that some employers have been found to be employing workers on zero hour contracts, only for these workers to end up having regular hours and the employer was found to be unfairly treating the staff and dismissed. This can be seen by the following court cases.

Pulse Healthcare Ltd v Carewatch Care Services Ltd and [2012] upheld

Docherty and another v S W Global Resourcing Ltd [2013] UPHELD

The government has completed their consultation on zero hour contracts due to increased demand that these contracts needed to be clearer with regards to certain clauses within them and how transparent they were, and in a recent press release states:

1.All workers, regardless of the type of contract they have, are entitled to core rights. These include the right to receive the National Minimum Wage; protection against unlawful deduction from wages; the right to a minimum duration of paid holiday and minimum duration of rest breaks, the right not to work more than 48 hours on average per week (or to opt out of this right on a voluntary basis); protection against unlawful discrimination and protection for whistle-blowers. 2. The key areas of concern identified for zero hours contracts: • Exclusivity A small number of businesses who engage people on these contracts insert clauses into the contract (or tell people) that they cannot work for another employer • Transparency and information advice and guidance. In some cases people engaged on these contracts were not aware of the fact that there was a possibility they could be offered no work. Businesses did not make this clear when advertising or interviewing people for jobs or in the employment contracts themselves. Department for Business Innovation and Skills (BIS) (2014)

This should help with the regulation of these contracts and in turn help individuals employed on them better understand what they entail.

The government consultation (2013-2014) has identified such issues as exclusivity clauses which mean that a worker cannot work for another employer, and transparency, information and guidance as workers were not always aware that they may not be offered work. Department for Business Innovation and Skills (BIS) (2014) The full results of this consultation have yet to be published.

Although there has been a lot of controversy about these contracts there are also benefits to some employees on these contracts according to CIPD (2013) workers have complete flexibility, enable them to balance work life and their personal lives, there are also shorter notice periods. Such contracts can offer flexibility and a welcome choice of working pattern that can aid a better balance between work and other family commitments according to Pennycook, M et al (2013). Pennycook, M, et al (2013) and CIPD (2013) agrees with the flexibility the contracts afford some workers although Pennycook, M, et al (2013) does conclude that this is in the minority, and suits students or people near retirement age who want to reduce their hours gradually, that being said there are also detriments to employees on these
contracts to be considered.

The detriments to employees on these contracts this affects the majority of employees according to CIPD (2013) workers are more likely to be on lower pay and have less benefits, less time and training is invested in the worker as they are called in only when needed, there is also an uncertainty of hours the workers will be required, this produces a lack of job security, which in turn can mean being unable to claim certain benefits this is a common feature of this type of working life, as is running out of money during the month, debt then becomes routine for these individuals who then face, having to look for alternative sources of income to make ends meet, which in turn all add to the stress, not able to save so that there is no money to fall back on and no access to credit all make these contracts detrimental to the workers employed on them. According to Unite the Union (2013)

For individuals with financial and family commitments these contracts may not be so suitable due to the lack of financial stability, unstable work pattern and child care issues, as when employed on these contracts the individual is classed as being available for work the uncertainty and fluctuating hours can throw up problems with benefit entitlement and overpayments leaving the individual with debts and even more uncertainty about their income, according to Unison (2014)

CIPD (2013) and Unite the Union (2013) both agree that employees on these contracts have an uncertainty of income are unable to save, and have no access to credit, this then has a knock on effect on their wellbeing.

The effects on the wellbeing of people on these contracts can be harmful due to the uncertainty faced whilst in this type of employment as there is no guarantee of earnings, and this can make it very difficult to manage outgoings. The on call nature of these contracts can disrupt family life, and make it difficult to ensure child care. Many people feel obliged to take hours that are offered for fear of losing future income. The impact of zero hour contracts is not only felt by the individual employed on them, it also impacts on morale, and team bonding according to Pennycook, M, et al (2013).

These issues can in turn can affect people psychologically and lead to ill health due to stress when working flexible hours over long periods of time and can sometimes lead to long term illness according to Bender, K, et al (2013).

Pennycook, M et al (2013) and Bender, K et al (2013) agree that prolonged exposure to flexible contracts such as zero hour contracts can sometimes lead to ill health for the individuals employed on these contracts, they also have an effect on family life and how the employee performs and is treated at work.

The type of culture that surrounds people who are employed on these contracts, is that there seems to be a fear culture, due to the fact that workers on zero hour contracts can be easily replaced, so these individuals tend not to question contractual issues, or even health and safety issues, this fear can lead to poor performance at work, which could then affect how other workers treat them according to (Great Britain, Scottish Affairs Committee, 2013-2014

But there are also some workers on zero hour contracts who find that they are treated no different within the workplace to contracted staff, some of these workers are actually actively seeking out employment under these contracts according to Bowman, A, (2013)

The Great Britain Scottish Affairs Committee (2013-2014) and Bowman, A, (2013), Pennycook, M, (2013) disagree that workers employed on zero hour contracts are treated differently within the workplace, one states that there is a fear culture, that these contracts effects team bonding and morale within the workplace, and the other states that individuals actively seek this type of employment. There are conflicting views on this subject.

Research Methodology

To complete this literature review I used the internet search engines to gather as much information on zero hour contracts as I could, and to look at the history behind them to establish when they were first used. I then proceeded to look for research reports on the subject of how zero hour contracts and flexible working patterns could affect employee wellbeing.

As there has not been very much research done in the field of zero hour contracts, I used the internet to give me as much up to date information as was available. Some of the information came from the British Government due to demands for a consultation on zero hour contracts. Other information came from research reports and government bodies reports such as The Advisory, Conciliation and Arbitration Service (ACAS), Office for National Statistics (ONS), Workplace Employment Relations Study (WERS) to name a few.

Other sources used were research reports produced by various sources including university departments.

Conclusion

There is no one particular source of information available on zero hour contracts; although there is quite a lot of information on the internet, it varies form newspaper articles, advice pages from organisations such as the citizens advice bureau, through to journals that look at all manner of issues, including employment relations, and the effects of temporary employment.

The information on zero hour contracts varies from each source and is biased by the views each writer of each source, this is due to the conflicting emotions that the subject matter evokes as there has not been very much research completed on these contracts, and all that they entail, this literature review is a very narrow look at some of the issues that arise from the use of these contracts, and the effect that they may have on individuals employed on them.

References

Pennycook, M, Cory, G and Alakeson, V (2013) A Matter of Time: The rise of zero-hours contracts. June 2013. London: Resolution Foundation. Available at: http://www.resolutionfoundation.org/media/media/downloads/A_Matter_of_Time_-_The_rise_of_zero-hours_contracts_final_1.pdf) Accessed on: 13/2/2104.

Department for Business, Innovation and Skills (BIS) (2013) The 2011 Workplace Employment Relations Study (WERS). London: BIS. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210103/13-1010-WERS-first-findings-report-third-edition-may-2013.pdf) Accessed on: 3/3/2014.

Burchell, B, Deakin, S, and Honey, S (1999) The Employment Status of Individuals in Non-standard Employment. March 1999 (http://www.dti.gov.uk/files/file11628.pdf) Accessed on: 26/2/2014.

Jowett, A, Taylor, C, Hardie, M, Khan, Z, (2014) An International perspective on the UK-Labour Market Performance January 2014 (http://www.ons.gov.uk/ons/dcp171766_351306.pdf) Accessed on 27/2/2014.

CIPD (2013) Zero hour contracts: understanding the law November 2013 Available: (https://www.cipd.co.uk/binaries/6426%20Zero-hours%20contract%20guide%20(WEB).pdf) Accessed on 27/2/2014.

Office for National Statistics (2014) Zero Hours Analysis Available at: (http://www.ons.gov.uk/ons/search/index.html?newquery=zero+hour+contracts) Accessed on 20/3/2014.

Court of Session case of Docherty and another v S W Global Resourcing Ltd [2013] CSIH 72.) Court of session case Pulse Healthcare Ltd v Carewatch Care Services Ltd and ors EAT 0123/12.)

ACAS Zero hour contracts Available at: http://www.acas.org.uk/index.aspx?articleid=4468 Accessed 21/3/2014.

Department for Business Innovation and Skills (BIS) (2014) Making the Labour market more flexible, efficient and fair London: (BIS) Available at: https://www.gov.uk/government/news/zero-hours-contracts-consultation-closes-with-over-30000-responses Accessed: 21/3/2014.

Unison zero hour contracts (2014) Available at: https://www.unison.org.uk/upload/sharepoint/Briefings%20and%20Circulars/Zero%20Hours%20Factsheet.pdf Accessed: 21/3/2014.

CIPD (2013) Zero Hour Contracts: Myth and Reality November 2013 Available: http://www.cipd.co.uk/binaries/6395%20Zero-Hours%20(WEB).pdf Accessed: 12/2/2014.

Hoque, K (2013) Zero hour contracts harm economys long term health September 2013 Available at: http://www2.warwick.ac.uk/knowledge/business/zero-hours-contracts-harm-british-economys-long-term-health/ Accessed: 21/3/2014.

Amntea.co.uk available at: http://www.amortgagenow.co.uk/zero-hours-employment-contracts-and-mortgages Accessed: 30/3/2014.

Eleanor Rodgers (2013) Advice and Guides Available at: http://realbusiness.co.uk/article/23403-how-to-reduce-the-risk-of-zero-hours-contracts Accessed on: 31/3/2014.

Ian Brinkley (2013) The Work Foundation Available at: http://www.theworkfoundation.com/DownloadPublication/Report/339_Flexibility%20or%20Insecurity%20-%20final.pdf Accessed on: 31/3/2014.