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Zero Hour Contracts and Exclusivity

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Does your business employ people on zero hour contracts? The Small Business, Enterprise and Employment Act 2015 came into force on 26 March 2015 and one of its main aims is to offer greater protection for zero hour contracted employees by banning exclusivity clauses in their contracts. Although the Act is now in force, no commencement order has yet been made to ban exclusivity clauses in zero hour contracts. However this is expected to happen in the near future, bringing greater protection for those employees who work under zero hour contracts. So should you be concerned about this; and what do you need to be looking out for?

A consultation paper published by the Department for Business Innovation & Skills found that the use of zero hour contracts has increased dramatically over the last 5 years, and they are now at their highest use within the last 12 years. Consequently these contracts are now a relatively common feature of today’s labour market, with 250,000 estimated to be in place. The government is keen to ensure that workers are not exploited or suffering a detriment arising from their increased use.

Two of the main objectives of the government’s mission have been to ensure that such contracts do not unduly provide for exclusivity of employment, and also to increase their transparency so that workers are clear on their rights and obligations arising from their contract. Exclusivity has been a particular concern because if an employee is prevented from working elsewhere but is not guaranteed hours by their zero hour employer, this is clearly unfair and detrimental for the employee. A CIPD study found that 9% of employees were prevented from working for another employer even where there was no work available for them under their zero hour contract.

New rules to counter this will be enacted into the Employment Rights Act 1996, and will make exclusivity in zero hours contracts unenforceable. A new section will also allow the Secretary of State to introduce anti-avoidance measures to ensure that the new law is not then circumvented, for example by offering a guaranteed one hour per week contract.

The government has consulted widely on the issue of exclusivity and the possible loopholes that might exist, and they did so formally between August and November 2014. Draft regulations have since been published to indicate how anti-avoidance measures might be implemented. This will mean that should a worker suffer a detriment on the grounds that they have done work or performed services under another arrangement, they will be able to seek redress through the Employment Tribunal. If such a case is upheld, the Tribunal will be able to award compensation.

The same rules will also apply to those working under prescribed contracts, which are defined in the legislation as a contract that guarantees the worker less than a prescribed weekly income. This income is calculated by an agreed number of hours multiplied by the minimum wage. Any exclusivity clause in such a contract would also be unenforceable, the same as a zero hour contract. The only caveat to this being that where an individual’s basic pay is more than £20 per hour under the contract, the prohibition on exclusivity will not apply.

Once the changes come into force this might mean changes for your business. In order to update your employment contracts to take account of the new law, or for general advice on what consequences this legislation might have for you, contact a member of our Employment Team for help and guidance.