Drafting masterclass: zero-hour contracts

The final instalment of our drafting masterclass series concludes with a look at zero-hour contracts. In this article we will discuss the key factors in drafting a zero hour contract.

The term zero-hour contract is used to indicate a contract for casual work under which a company is not obliged to provide a minimum - or any- amount of work to a worker. In essence, zero-hour contracts require individuals to be available for work when required, but with no obligation on the company to actually offer work and sometimes with no obligation on the worker to accept the work.

Employment status

Before engaging an individual under a zero-hour contract, take a moment to consider what exactly your business needs. If the requirement is for someone to work at least eight hours per week, it may be better to consider issuing a permanent contract of employment which includes an obligation on the employee to undertake compulsory overtime, when required; thereby granting certainty for both parties. Whereas, if the business requires a worker to truly cover ad hoc hours, then a zero-hour contract may be the most appropriate option. However, it should be borne in mind, that what may start out as an ad hoc arrangement could develop into a regular pattern of work, which could lead to a zero-hours worker gaining employee status.

Below we set out some of the most fundamental terms which should -and should not- be included in all zero-hour contracts:

• Individuals engaged under a zero-hour contract can be employees or workers. Given that employees are provided with greater statutory rights and protections than workers, it is important to confirm whether the individual is a worker or an employee within the contract and, if they are a worker, to confirm that the contract is not a contract of employment
• If the individual is engaged as a worker, make sure any definitions or terminology used in the contract reflect this status. For example, do not refer to the company as the Employer; either use the name of the company or refer to it as the Company
• Set out the business need behind the adoption of a zero-hour contract, such as fluctuating business demands, so that the individual has clear understanding of how the contract will work in practice. This also helps to demonstrate why a zero hours contract is appropriate and has been offered
• Set out what the worker will be paid if they undertake work (normally an hourly rate) and when they will be paid. Zero-hour contract workers are now entitled to itemised payslips showing the number of hours paid where the worker is paid on an hourly rate basis
• Zero-hour contracts are absent of the usual mutuality obligation that exists between an employer and an employee so it is important to explain when and how work may be offered to the individual and the circumstances in which an offer of work may be turned down -if the contract allows the individual to do this. However, as a company would expect a zero-hour worker to be available to work when they are offered work, including a limitation on the amount of times work could be refused within a certain time period serves to provide improved certainty for the company
• Clauses which require a worker to work exclusively for one company, known as exclusivity clauses are unenforceable following the ban by the coalition government in May 2015. This was done to ensure that individuals engaged under zero-hour contracts, with no guarantee of work, are not prevented from working elsewhere
• The regulations relating to National Minimum Wage and Working Time Regulations apply to both workers and employees and any contract should reflect these rights
• Termination of the contract – this can be automatic on completion of each assignment of work (on the basis that the contract has no presumption of continuity meaning that each assignment is a new and severable contract, thereby making it clear that the worker is not working under an umbrella contract and, as such, has no continuity of work) or, in the case of employees, following the statutory minimum periods of notice.  Also, make it clear that just because work has previously been offered, does not infer an entitlement to, or expectation of, future work

Holiday

Zero-hour workers have the same holiday rights as employees, being 5.6 weeks, inclusive of public holidays (pro-rated where applicable). Calculating holiday entitlement for a zero-hour worker can however prove difficult. Most commonly, the calculation is based upon 12.07% of the hours worked in that holiday year. But this only takes into account the periods which have actually been worked, which provide unreliable results when calculating holiday entitlement for a zero-hour worker.

Naturally, a company will not wish for zero-hour workers to take holiday during a period of appointed work and, whilst a company cannot prevent a worker from exercising their right to annual leave altogether, a contract should be drafted in a way which requires the worker to accept work when it is offered but to then apply for annual leave from that work utilising the number of hours of leave they have accrued to date.

Therefore, the main issues to watch out for with holiday for zero-hour workers are as follows:

• Calculating accrued holiday
• Deciding when holiday is taken
• Calculating holiday pay by reference to the 12-week period prior (to be increased to 52 weeks as of 6 April 2020)

Further rights coming... Right to written statement of terms to be provided before the first day of work (to come into effect in April 2020)

• Right to request a more stable contract (date to be implemented is currently to be confirmed but it is a promise further reiterated in the Conservative 2019 manifesto).