ERB Series: Zero Hours Contracts and Guaranteed Hours: A Zero-Sum policy?

In the last of our initial series of Insights on the transformative Employment Rights Bill (ERB) we look at one of its most complex and difficult policy initiatives; the proposal to offer guaranteed hours and increased security to ‘low hours’ workers.

Much of Labour’s pre-election rhetoric focussed on ending ‘exploitative’ Zero-Hours contracts, a phrase used to evoke arrangements where there is no minimum number of hours guaranteed to a worker, and it is perceived that the worker bears significant financial risk while the employer holds all the cards in terms of flexibility.

However, of course, not all Zero-Hours arrangements are ‘exploitative’, with many workers valuing their inherent versatility. Further, the ERB extends beyond Zero-Hours contracts to cover arrangements where guaranteed hours fall below a yet to be determined ‘low hours’ threshold.

We consider what we know so far, and how these changes might pan out.

Right to guaranteed hours

The measures in the ERB will require employers to offer ‘qualifying workers’ a guaranteed hours contract to reflect the hours they have worked during a reference period. The reference period will be set out in future Regulations but is likely to be 12 weeks.

Put simply, the term ‘qualifying worker’ will include Zero-Hours workers (with no contractual guaranteed hours) and those who are otherwise considered ‘low hours’ workers, because their guaranteed contractual hours fall below a minimum threshold. We don’t know what this ‘low-hours’ threshold will be yet. As with so much of the detail of these proposals, it will be specified in future Regulations.

Where the criteria are met, the onus will be on the employer to offer the new contract. The employee may either accept the offer or refuse it and remain on their existing contract.

Frustratingly, we don’t yet know what precise criteria will trigger the obligation to offer a new contract; again, future Regulations will hopefully fill that gap.

A key point, from the detail available to date, is that this will be a ‘rolling’ right. Making a ‘one-off’ offer of a guaranteed hours contract will not be enough to comply with the legislation (regardless of whether the employee accepts or refuses). An employer must review the hours worked every 12 weeks (if 12 weeks is chosen as the reference period) and offer a new contract after each review, if there is a disparity between the guaranteed contractual hours and the hours actually worked. This process continues until the worker’s guaranteed contractual hours exceed the ‘low hours’ threshold specified by the Regulations.

As well as consideration of the average number of hours worked, there is also likely to be some kind of ‘regularity’ requirement (for example, a stipulation that the worker must have exceeded their guaranteed minimum hours every week in the 12-week period, or for at least a prescribed number of those weeks). We will have to wait and see.

There is currently no option for a worker to ‘opt-out’ of the review process by stating that they are happy with a Zero-Hours arrangement or are not interested in increasing their guaranteed contractual ‘low hours’. Under current drafting, the employer must continue to make offers, even if the worker refuses each time.
Obviously, the level at which the ‘low-hours’ threshold is set will be central to how this new right will work, and how meaningful it will be. If the threshold is set at a very low level, it will not empower workers much at all. If the threshold is high, then the situation will be quite different: a ‘low hours’ worker who consistently works over and above their guaranteed hours might, if they wished, find their contractual hours increasing steadily (perhaps being offered several new contracts in relatively quick succession).

Some limited consultation on this proposal has already taken place at the time of writing, focussing on the discrete issue of how the new right will apply to agency workers. Further consultation is promised on the substance of the new right, before the keenly awaited Regulations are formulated.

Right to reasonable notice of shifts

The ERB also requires employers to provide ‘reasonable notice’ of shifts and of any changes to shifts that have already been scheduled. If an employer fails to give ‘reasonable notice’ when scheduling or changing a shift, the worker may bring an employment tribunal claim.

Crucially, we don’t yet know what ‘reasonable notice’ means. Future Regulations will state how much notice should be ‘presumed reasonable’, providing a starting point for the employment tribunal, which will have the final say on whether reasonable notice has, in fact, been given in a particular case.

It’s also anticipated that Regulations will set out the factors the employment tribunal should consider when considering whether notice was ‘reasonable’ and will provide some clarity on which workers are in scope.

Right to payment for shifts cancelled, curtailed or moved at ‘short notice’

Employers will be required to make payments to workers if shifts are cancelled, moved or curtailed at ‘short notice’. The detail of this requirement will once again be set out in future Regulations, including which contracts are in scope, the amount of the payment, and any exemptions.

The definition of ‘short notice’ is obviously key to the ‘workability’ of this provision and has also been reserved for future Regulations. Importantly, what constitutes ‘short notice’ of cancelled shifts may not be the same as ‘reasonable notice’ for the purposes of shift scheduling. We will only know how the two concepts overlap, if at all, when the implementing Regulations are published.

Comment

Our understanding of how these new rights will work is hampered by the fact that the ERB sets out only the bare framework. Once further consultation has taken place and Regulations are published, we will be better able to dissect the detail. What is clear, however, is that these changes may have very significant implications for sectors which rely heavily on Zero Hours contracts including hospitality, retail, health and social care.

All these proposals, especially the right to guaranteed hours, will potentially place a very onerous administrative burden on employers. To alleviate this, it has been suggested that granting workers a ‘right to request’ guaranteed hours, rather than imposing an obligation on the employer to offer them, might be less cumbersome and would prevent employers having to engage repeatedly with workers who are not interested in increasing their hours. An opt-out mechanism for these workers might also work well.

Alternatively, a longer ‘reference period’ of, for example, 36 weeks or even 52 weeks might cut down costs and management time. However, this would still represent a significant burden and might mean that low-hours workers who change jobs frequently might slip through the net.

As currently framed, the guaranteed hours proposal feels like a very heavy weight for employers to carry. The consultation exercise promised by the Government may be an opportunity to explore whether there are ‘gentler’ ways of making this work (rather than a ‘zero-sum’ approach, where any protection gained by workers comes at huge cost to the organisations that employ them).

The proposals requiring reasonable notice of shifts, and payment for short-notice cancellation, may be less disruptive. Many employers already commit to providing staff with reasonable notice of shifts, or offer some contractual compensation for late cancellation, so these aspects feel more closely aligned with current best practice. However, thought may need to be given to how ‘real-life’ workplace arrangements such as informal ‘shift-swapping’ between staff can be accounted for in the legislation.

Overall, translating the Government’s laudable policy intent of protecting vulnerable workers into practicable, effective legislation will be extremely challenging. The draft ERB likely just marks the start of a long conversation on this issue.

See our previous ERB Insights in this series

• Overview: ERB What’s In, What’s Out, What’s Next? (11 October 2024)
• ERB: Flexible Working: Further Flexion (21 October 2024)
• ERB: Day 1 right to claim unfair dismissal (25 October 2024)
• ERB: The Pendulum Swings on Industrial Relations (8 November 2024)
• ERB: The Fair Work Agency (15 November 2024)
• ERB: Dismissal and re-engagement - tying the hands of employers? (22 November 2024)
• ERB: Further rules on fair tipping (3 December 2024)
• ERB: First set of proposed amendments: what it means and what to expect (6 December 2024)
• ERB: Small but significant changes to the statutory sick pay system (13 December 2024)