1 May 2014

By Zoe Adams and Simon Deakin, Centre for Business Research, University of Cambridge

The casualisation of working life is a huge problem in Britain today and Zero Hours Contracts (ZHCs) are just its most extreme form. It is caused by a dysfunctional employment law and the disappearance of the safety net formerly provided by social security law.

We are told that ZHCs are a fact of life in a world where technology is making work insecure and intermittent. In reality, there has never been a better time for capital to absorb the social costs of employment. Systematic users of ZHCs include some of the most profitable private sector firms in the country. The public sector, supported by regular tax revenues, is also becoming increasingly reliant on ZHCs.

ZHCs are a problem because employers are exploiting gaps in the law to drive down wages and employment conditions. The solution lies in plugging the legal gaps, most of which are the result of deliberate policy choices which can be reversed. This won’t be easy because ZHCs benefit some powerful vested interests. But the idea that legal solutions are not available is misconceived.

A ZHC is a contract under which an employer agrees to pay for work done but makes no commitment to provide a set number of hours of work per day or week. ZHCs create uncertainty for workers. A ZHC worker will often have no reliable income from one day or week to the next. They may not be paid for waiting or on call time, or for travelling to work in the hope of being offered employment. They may be called off work at a moment’s notice.

Short-term engagements, lasting a day or so or even an hour or two, might suit people who have limited time because of family or educational commitments. It doesn’t make much sense to talk of ‘banning’ such contracts. It is a very different thing to allow employers to turn labour on and off like a tap when workers are dependent on them for security of income.

ZHCs have become widespread for two simple reasons. The first is that in the absence of a welfare safety net, there is no alternative for many people. Nearly forty years of reforms to social security law have brought us to the point where unemployment benefits (renamed ‘jobseeker’s allowance’ in the 1990s) no longer provide a floor beneath wages and conditions of employment. As replacements for wages, unemployment benefits in Britain are now among the lowest in the industrialised world. In real terms they are lower now than they were in past centuries when ‘outdoor relief’ was understood to be part of a functioning labour market. In today’s Britain, a worker with decades of regular employment, despite paying thousands of pounds to the state in national insurance contributions, has no real protection against loss of income through unemployment.

The government says that claimants for jobseeker’s allowance cannot be penalised for refusing to take a job in the form of a ZHC. But workers are currently being disqualified from receiving benefits for quitting ZHCs which do not offer them regular work. This problem will get worse when the government’s Universal Credit comes fully into force. The aim of that reform is to make sure that individuals can always access a given level of income by combining work and welfare. The likelihood is, however, that claimants will be denied benefit if they do not take up offers of intermittent and casualised work, often for very few hours at low rates of pay.

The second problem is with employment law. It is likely that most ZHC workers have employee status. However, because of the rigid and archaic statutory rules on continuity of employment, they are unlikely to acquire significant employment rights. Even the simple right to a written statement of terms and conditions requires one month’s continuous employment. Unfair dismissal and redundancy rights require two years of uninterrupted employment, an impossible prospect for ZHC workers. Excluding ZHC workers from employment rights is the result of Parliament’s decisions, over several decades, to ration access to job security.

The government’s consultation document on ZHCs sidesteps these issues. It states, correctly, that ZHC workers will normally have employee status, but fails to point out that this does not guarantee them effective employment protection. It suggests a code of practice to deal with the problem of exclusivity clauses. This is a non-existent problem since such clauses, if they relate to a period between hirings, are most likely in restraint of trade and therefore unenforceable.

Besides, employers don’t need to go to court to enforce exclusivity agreements. They have power because, in the absence of a floor of rights in the labour market, workers have no real choice but to accept casualised working conditions. The government consultation is entirely silent on this.

The response to the government’s ZHC consultation exercise has brought forth some good ideas. It would not be difficult, for example, to change the law to require an employer to pay for time spent waiting for work under a ZHC, or to tighten the definition of ‘on call’ time for the purposes of minimum wage law. Granting a ZHC worker the right to a regular hours contract after a certain period, as suggested by the Resolution Foundation and the Pickavance Report, could be made to work by analogy with existing rules for determining when fixed term contracts become permanent.

These reforms, while useful, will only take us so far, and may cause further problems. Defining a ZHC as a form of casual work which may at some point mature into a regular contract runs the risk of creating a new and inferior type of employment status, further fragmenting the coverage of employment law.

A simpler and more effective reform would be to amend the written statement law so that the employer is obliged to specify fixed hours of work from day one, in the same way that the same law currently requires the worker’s wage to be clearly defined. The one-month qualifying period for the written statement should be abolished and the right to receive it unambiguously extended to all employees and workers.

To address the wider causes of casualisation, a radical approach is required. Enhancing the real value of unemployment-related benefits and reducing conditionality are essential first steps in the reform of social security law. The rules on continuity of employment should be liberalised and qualifying periods reduced for some rights (unfair dismissal and redundancy) and eliminated for others (the written statement). Rather than inviting employers to sign up to a voluntary code of practice, we should make negotiation over the use of ZHCs mandatory through collective bargaining and/or employee consultation mechanisms.