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Zero-Hour Contracts - Zero Hassle?

08/04/2015

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Ireland

Thousands of workers in Dunnes Stores went on strike last week over the company’s practice of using “casual contracts” or “zero-hour contracts” whereby an employee might be offered 15 hours of work in any one week but only 5 hours the following week. The industrial action comes not long after the announcement made by Minister Ged Nash, the Chairperson of the Low Pay Commission, that the Commission has charged the University of Limerick with conducting a study on the use and impact of zero-hour and low-hour contracts in Ireland with a view to making policy recommendations to the Government.

Employment Law Specialist Julie Austin explores the benefits and limitations of zero-hour contracts, as well as looking at the position in the UK. What is a zero-hour contract? A true “zero-hour contract” is where there is no obligation on the employer to provide work and, equally, there is no obligation on the employee to accept work. These types of contracts are also commonly referred to as “casual contracts”. However, the term is also commonly used to refer to “low-hour contracts” whereby an employee is guaranteed a limited number of hours per week with scope for further hours should they become available or where an employee is expected to be available as and when required. The benefit to employers of using zero-hour contracts Despite their bad reputation, legitimate business reasons do exist for using these contracts. They are often used in sectors where there are seasonal fluctuations in work, where it is difficult to predict the minimum level of staff required or where the need for urgent cover can arise. Casual contracts are invaluable in these cases as employers can reduce any “wasted wages” for inactive employees. It is only where zero-hour type arrangements are abused by employers or used by those who do not require flexibility that any real criticism can be aimed at these contracts. Rights of zero-hour workers Zero-hour workers generally have the same employment law rights as permanent workers. That said, the terms and conditions of their employment are often considered unfair as employees have little certainty regarding their hours of work and income. It is for this reason that unions have sought additional protections to be introduced for zero-hour workers. At present, some protections do exist for “low-hour” employees. Section 18 of the Organisation of Working Time Acts 1997-2012 (the “Act”) gives low-hour employees an entitlement to receive compensation in respect of the hours they are not required to work. It does this by providing that where an employee has not been required to work their contracted hours, they are still entitled to some remuneration. The entitlement is calculated on the basis of 25 per cent of the “contract hours” or 15 hours, whichever is lesser. The protections afforded by the Act have been criticised as not going far enough. Firstly, section 18 of the Act does not apply to “casual contracts”. It only applies to employees whose contracts of employment require the employee to be available to work:
  1. a certain number of hours per week; or
  2. as and when required by the employer; or
  3. both a certain number of hours per week and otherwise as and when required by the employer.
The protection does not apply to true “zero-hour contracts” whereby an employee has no guaranteed number of hours. If a contract provides that an employee is not obliged to accept work, and, importantly, this is supported in practice, section 18 of the Act does not apply. Secondly, employers can circumvent the Act by understating the minimum number of hours per week in the contract of employment. For example, the contract might provide that an employee is only contracted to work 8 hours per week, but in reality, the employee works an average of 15 hours per week. If an employee never works less than the minimum contracted 8 hours in any week, they will not be entitled to any compensatory payment. Union opposition to zero-hour contracts in Ireland Over the last number of years, trade unions have challenged the use of zero hour contracts in certain sectors. MANDATE has previously negotiated collective agreements that guarantee minimum hours in the form of “banded hours” whereby an employee is guaranteed a certain band of hours, for example, 11 to 14 hours per week (Band A). If the employee consistently works in excess of the upper end of the band, they will move up to the next band, for example, 15 to 19 hours per week (Band B). It has been reported by ICTU that “banded hours” arrangements have been negotiated in Tesco, Penney’s and Supervalu. MANDATE is fighting for similar arrangements to be introduced in Dunnes. In order to address the loopholes provided for in the Act and to provide additional protections for casual employees, trade unions are currently calling for the following:
  • Closing the loophole which allows employers to circumvent the right to compensation provided for in section 18 of the Act.
  • Provide a right to request full-time work and allow refusals only where the employer can demonstrate a real need for zero-hours type practices.
  • Limit the length of time a post can be filled with workers on zero-hour type arrangements.
  • Provide a right for employees to an overtime premium for hours worked in excess of “normal contracted hours”.
  • Provide that employees cannot be called into work for excessively short periods such as periods of less than four hours.
The position in the UK The use of zero-hours contract in the UK, where it is estimated that up to 1.4 million workers are on zero-hour contracts, has been scrutinised closely by the Government over the last number of years with public consultations taking place on the issue in 2013 and 2014. Certain parties called for the abolition of zero-hour contracts in their entirety.  The UK Government, instead of introducing an outright ban on the use of such contracts, enacted the Small Business and Employment Act 2015 (the “SBE Act”) on 26 March 2015, which bans exclusivity clauses in zero-hour contracts. While UK employers can continue to use zero-hours contracts, employees concerned cannot be prevented from working for other employers, the idea being that employees can supplement their income by working for a number of employers. There is a concern in the UK that employers could circumvent the law by offering workers a “token minimum” number of guaranteed hours so that they are not considered to be on a zero-hours contract. In an effort to prevent this, the SBE Act allows for regulations to be introduced in the future to tackle anti-avoidance measures that might be identified in the future. Many commentators believe that the UK legislation falls far-short of what is needed to protect zero-hour workers in the UK and that a major opportunity to make substantial changes was lost.  While Minister Nash has said that the Government will act if the study finds that the use of “zero-hour” type arrangements have “a serious and detrimental impact on citizens”, trade unions fear that the Irish Government will also shy away from making any significant changes in this area, certainly in the near future. It remains to be seen however if the study will in fact find that the use of zero-hour arrangements have “a serious and detrimental impact on citizens”! Remember that this article is for information purposes only and does not constitute legal advice. Case law is fact specific and readers should understand that similar outcomes cannot be assumed. Specific advice should always be taken in given situations.