Zero hours contracts: myths and realities

Jo Faragher

Rarely out of the news in 2013, zero hours contracts are now the subject of a government consultation. But how are companies actually using them? Jo Faragher finds out

One of the most politically charged debates in the employment sphere during 2013 was the issue of zero hours contracts. Employers from Sports Direct to the London Mayor’s office at City Hall came under fire for using the contracts, with critics claiming they denied workers the same degree of rights and job security as permanent employees, and that staff working under these arrangements were being exploited.

In recent months, there have been calls from both the government and opposition parties for a review into the use and extent of these arrangements, and in December, business secretary Vince Cable launched a 12-week government consultation into the use of zero hours contracts. While it’s unlikely we’ll see a complete ban on their use, companies could be barred from having ‘exclusivity contracts’, where workers are prevented from working elsewhere.

Recruitment agencies, of course, are no stranger to controversy around employment status and fixed-term contracts. When the Agency Workers Regulations were introduced in October 2011, many agencies feared that employers would cut back on use of third-party suppliers because the equal rights granted to agency workers after a 12-week period would make hiring agency workers more expensive.

In fact, most agencies that place temporary workers do so on a contract of services (of which the content is not that different to a zero-hours contract, except the relationship is with the agency rather than the employer), or use exceptions such as the Swedish derogation clause (where workers are exempt from the 12-week rule providing they are paid between contracts) in order to place labour flexibly or satisfy short-term needs for clients.

However, recent research from the Chartered Institute for Personnel and Development points to how 20% of employers actually use zero hours contracts to avoid recruitment and employment agency fees where they need to bring people in on a fixed-term or casual basis.  According to Matthew Sanders, chief executive of temporary recruitment company de Poel, this is a false economy. “I’m not sure who zero hours contracts serve. There’s a perception that employers will be spending money on agency fees otherwise, but in reality they’ve still got high turnover and they have to spend time and money addressing that. Turnover is costly to any business.”

Sanders cites the example of a client that operates in the distribution sector – it has moved from employing a large proportion of staff on zero-hours contracts to a situation where new staff start on zero hours contracts, then move to a commitment of a certain number of hours and then possibly to a full-time, permanent contract. There has been a 60% improvement in retention and a 53% reduction in on-site incidents such as damaged goods. “Many employers use financial reasons to justify why they use zero hours contracts, when in fact they can save money by committing to staff and improving retention,” he says.

The CIPD’s research report, Zero Hours: Myth and Reality, claims that the huge volume of negative press around zero hours arrangements meant they were “unfairly demonised”, and that they have a valid role in helping employers meet their workforce needs while remaining flexible. It makes a number of suggestions for how organisations can use these contracts in an ethical and equitable way, particularly in situations where work has to be cancelled at short notice – an issue that many workers raised as a concern. “Good management practice needs to extend to how much notice zero-hours staff receive when work is arranged or cancelled,” advises the CIPD. “Policies are important in providing clarity for managers and zero hours staff over what is the organisation’s practice over scheduling work and cancelling work.

Law firm Lewis Silkin, which worked in conjunction with the CIPD to offer legal guidance on the use of zero hours contracts, suggests that their use should be limited to ad hoc situations rather than as a replacement for more permanent arrangements. “A zero hours contract should be used where the employer wishes to engage an individual on an ad hoc, as required, basis, and where the employer cannot guarantee work. In other words, where work fluctuates unexpectedly,” it says. 

Where zero hours contracts have been used in a more cynical, exploitative way, argues Sanders from de Poel, is where large employers who should have solid prior knowledge of their workforce needs use them for significant numbers of workers who are often working a full-time week on a permanent basis, but without the same level of job security as permanent staff. This leads to poor levels of engagement and high turnover. “If you’re not going to commit to these staff 100%, why should they commit fully to you?” he says.

Mark Glinwood, managing director of HR and management company Capital Insight, suggests that employers using zero hours contracts need to have a strategy in place to address engagement. “Ensuring that zero hours workers feel part of the organisation, are appropriately skilled and valued is key to maximizing the contribution that they will make,” he says. “A documented ‘commitment’ to zero hours workers that sets out the way in which the relationship will work both during working times and non-working times is crucial.”

Glinwood adds that, where there have been accusations of employees being exploited through the use of zero hours contracts, it is generally not the contracts themselves that have been the issue, rather a pre-existing cultural behaviour. “Where employers do ‘exploit’ workers in our experience, it’s rarely confined to the way in which zero hours contract works are managed,” he says.

In working with employers to ensure workers on zero hours contracts are treated fairly, it’s up to recruiters to make suggestions. A model where staff are transferred onto a permanent contract after a certain length of time, for example, or an agreement to commit ‘fully’ to a certain percentage of workers can benefit all parties involved.

As Kevin Green, chief executive of the Recruitment and Employment Confederation, concluded in response to the debate, legislation will not fix the issue. “The recruitment industry focus is to get people into jobs and the last thing we need is more regulation, which adds cost and complexity, when we already have so much protection for workers. Rather than regulation we would like to see a voluntary code of good practice for zero hours contracts.”

It will be interesting to see whether the outcome of Cable’s review into use of the contracts reaches the same conclusion.