Zero hours contracts - what is the Government proposing?

As we have reported previously, the UK Employment Rights Bill (the 'Bill') is the most ambitious set of employment law reforms for more than a generation covering (amongst other things) unfair dismissal, fire and rehire and collective redundancies.  

The Government has begun consulting on aspects of the reforms, anticipating that the majority of them will take effect no earlier than 2026, giving employers time to plan.

One of the key areas addressed by the Bill is what the Government has called 'exploitative zero hours contracts'.  In the King's Speech, the Government promised to ban them.  The Bill falls short of an outright ban but grants certain workers significant new protections.     

Who will be protected?

'Qualifying workers' will have a right to a 'guaranteed hours offer' (see below).  To be a qualifying worker, a worker must:  

• be on a zero hours contract or on a 'low hours' contract; and 
• have worked in excess of the hours set out in their contract during a 'reference period'.  

According to the Bill, the right will only be triggered where the hours worked in the reference period satisfy certain conditions as to 'number, regularity or otherwise'.   

Much of the detail has been left to future regulations, for example, what constitutes 'low hours' and how long the reference period will be, though the Government has referred to a 12 week reference period.

As currently drafted, agency workers are excluded from the right to guaranteed hours, but the Government has commenced consultation about this.  Full details can be found here.  The consultation remains open until 2 December 2024.

What is a 'guaranteed hours offer'?  

A 'guaranteed hours offer' is an offer to the qualifying worker of a new contract, or a variation of their existing contract, to guarantee the worker a minimum number of hours that 'reflects' the number of hours they have worked during a reference period.   

In other words, if a worker works 100 hours over the reference period, the employer would have to make an offer to reflect that.  How to tell whether an offer 'reflects' the number of hours worked in a reference period is not clear and will be left for future regulations.  

The guaranteed hours offer cannot be less favourable than the worker's existing terms in other respects (e.g. increasing hours but reducing pay), save in limited circumstances where the worker had more than one set of terms in the reference period.  

What is the process to be followed?

The process is outlined in the Bill, but details will emerge in future regulations. Employers will need to comply with formalities in respect of timing, content, form and manner when making the offer, and the worker will be able to accept or refuse the offer during a 'response period', which is as yet undefined.  Workers who wish to remain on zero/low hours contracts will be able to do so.

Once the offer is made and accepted, if the worker remains a 'low hours' worker, they retain the right to a guaranteed hours offer if they work in excess of the hours set out in their new / varied contract - i.e. the cycle begins again.    

What happens if an employer does not comply?

If an employer does not comply with its duties to make a guaranteed hours offer, the worker will be able to present a claim to the Employment Tribunal.  It is currently unclear what the maximum compensation will be, but the Bill requires the worker to mitigate their loss, so the value of claims may be limited.   

Are there exceptions for businesses that need flexibility?

There is likely to be concern amongst employers who rely on the flexibility afforded by zero hours contracts, for example, for seasonal work or where work fluctuates.  For example, it seems from the Bill that a hospitality worker who is busy in the run up to Christmas would need to be guaranteed the same hours during the quieter post-holiday period.

That said, the Bill acknowledges that employers do sometimes need only a 'limited-term contract', but it must be reasonable for the employer to offer this (e.g. where there is a specific task to be carried out, or where the worker is only needed until the occurrence of an event).

Also, the obligation to make a guaranteed hours offer is not triggered if there is a termination of the worker's contract (with or without notice), subject to certain conditions.

Comment

There are already concerns about the complexity of this part of the Bill, and the prospect of the new rules applying to a wider range of situations than the 'exploitative' contracts that they target. 

These changes could be costly and difficult to apply for some employers and one hopes that there is sufficient consultation on the more detailed proposals to ensure that the final legislation strikes a balance between the need for flexibility in some sectors and the need to avoid exploitation of workers with little bargaining power.  It may be that software will emerge that enables employers to track working hours and produce appropriate communications to their workers, but the detailed rules will be needed before such tools can be devised.