What are zero-hour contracts?

After the introduction of the Agency Workers Regulations in 2010, many companies started to use more zero-hours contract workers than Agency temps. Here we look at what they are, but first we need to explain ’employment status’:

There are basically three different types of working individuals and it’s crucial for the individual and the employer to establish their employment status, so it’s clear what their employment rights are and their tax, national insurance obligations and benefit entitlements. The different types of working individuals are:

• employees
• workers (someone who works on a casual basis for the employer or is an agency temp)
• Someone who is self-employed (i.e. a freelancer or contractor).

Employees generally have more employment rights than workers or those who are self-employed (see our guide to your Employment Rights here).

If you employ someone on a zero-hour contract, what are they?

They’ll generally be a worker if employed on a zero-hour contract (some zero-hours contracts can be full employee contracts, although this is more unusual). A worker is a broader category than an ‘employee’, and can be anyone who works for an employer under a contract of employment (but this may or may not be a written contract and the contract may not come directly from the employer) and performs the work personally (which can include some freelancers).

Workers are usually:

• Agency workers (‘temps’) – the Agency who finds the individual work pays their wages, and the company who hires the individual pays a fee to the Agency for your work.
• Short-term casual workers hired directly by the employer (often with a written contract and usually paid via PAYE, with tax and national insurance contributions deducted) – casual workers aren’t usually part of the permanent workforce but supply their services on an irregular or flexible basis or have a ‘minimum guaranteed hours’ or ‘zero-hour’ contract.
• Some Freelancers and Contractors – there are occasions when those who are self-employed for tax purposes may be classified as ‘workers’ for employment rights purposes – including when a self-employed person is personally providing a service under a contract for another party to a client (i.e. not providing services directly to the client or business).

What are zero-hour contracts?

They’re contracts that give businesses a high degree of flexibility, as they give no guarantee to the individual worker of a minimum number of working hours. The individual worker can be used as and when required and is only paid for the hours they work.

The worker won’t obtain ‘employee’ status generally, and won’t build up any continuity of service (if the contract is appropriately written and accurately reflects the relationship between the employer and the worker).

The worker shouldn’t be required to undertake any work that is offered and there should be no detriment to them if they decline work or work for another company. This would otherwise indicate they have employee status. (‘Mutuality of obligation’ is a key requirement for a contract of employment – where the employer is obliged to offer and pay for work and the employee is obliged to accept and perform the work0.

For a zero-hours contract to be legitimate there must not be any mutuality of obligation between assignments given to and accepted by the worker (and this means that holiday entitlement shouldn’t accrue between assignments, only during the period of an assignment).

Exclusivity clauses

On 11th January 2016, exclusivity clauses in zero hours contracts became illegal which means that any clause that stops a worker “doing work or performing services” under another contract (with another employer) or stops the worker from doing so “without the employer’s consent” will be unenforceable. This means that zero-hours workers will have a right not to be unfairly dismissed if the reason for this dismissal is that they failed to comply with an exclusivity clause (no qualifying period needed); they also have the right not to face any detriment because they failed to comply with an exclusivity clause.

However, in May 2022 the Government has said that they will extend the existing ban on exclusivity clauses in zero hours contracts, to all types of contracts, where a worker or employee has a guaranteed weekly income at or below the lower earnings limit for National Insurance purposes (currently £123 per week).   The legislation came into effect on 5th December 2022.

Other developments

The Labour Government’s Employment Rights Bill will bring in further changes for zero-hours contracts…… more details to follow when this becomes law (in 2026 or 2027).

Does a temporary/casual worker ever become an employee?

Unfortunately, there’s no simple answer to this question.

If an employer engages people on an ad-hoc basis to help out during staff shortages or at busy times of the year, or when an emergency arises, knowing full well that the individual may or may not be available when the employer needs them, then they won’t be employees.

But, if the employer regularises the arrangement with those workers and undertakes to provide them with work on specified days and at specified times of the week, on the understanding (accepted by the individual) that they will present themselves for work on those days and at those times, the chances are that the relationship between the employer and the workers will change to that of employer and employee.

As always, it will be for an employment tribunal to determine the true nature of the contractual relationship between an employer and a worker, if an agreement cannot be made between the employer and worker.

An important Tribunal Case at the end of 2012 found that six individuals employed on ‘zero hours contracts’ were actually employees.

Pulse Healthcare Limited v Care Watch Care Services Limited

In Pulse Healthcare Limited v Care Watch Care Services Limited plus others, the six individuals were engaged by Carewatch to provide 24 hour care to a severely disabled individual. Pulse took over the service contract from Carewatch and the individuals claimed they were employees and that their employment transferred under TUPE. Pulse argued they were not employees and did not have sufficient continuity of employment to claim unfair dismissal but the Employment Tribunal disagreed.

The ET said there was sufficient mutuality of obligation for the claimants to be employed (i.e. they were required to personally perform the work, they were obliged to do the work and Carewatch undertook to offer the work). The ET also disagreed that the claimants were engaged on a succession of individual contracts as opposed to an ‘umbrella’ contract and therefore did not have sufficient continuity of service – the ET felt they were employed under a ‘global’ contract to provide a critical care package.

If it’s established that the employment relationship has changed to that of an employer and employee then the start of the individual’s continuous period of employment will also need to be established, in order to determine what statutory (and perhaps contractual) rights the individual has.

Borrer v Cardinal Security Ltd

In an interesting 2013 case, Borrer v Cardinal Security Ltd, Borrer was a Security Guard for Cardinal Security for four years. His main place of work was at Morrisons in Brighton, where he worked for two years on a regular 48 hour week. His Contract with Cardinal (which could be described as a zero-hours contract) did not specify his hours of work but said “your working hours will be specified by your line manager”.

When working at Morrisons Brighton he was informed about his hours of work by text message from his manager or by contacting the control centre. In October 2011 Morrisons made a complaint about Borrer and requested that he be moved from the Brighton store (as they were entitled to under the contract with the security company).

Mr Borrer worked for other clients and a few weeks later was offered a full time position with Morrisons Seaford store, where he worked for the next few weeks The Manager of the Seaford store was also unhappy with him and eventually Cardinal found him shifts at another of their clients. Borrer told Cardinal he was resigning because he was not being offered enough hours – during that conversation he was offered a full-time position of 38 hours per week at another store in Brighton.

A week later he wrote to Cardinal confirming his resignation, claiming Cardinal were in breach of contract and rejecting their statement he was on a zero-hours contract.

The original Employment Tribunal found that there was nothing to imply that he worked a fixed number of hours per week (48) and there was no breach of contract, so he could not claim unfair constructive dismissal. The Employment Appeal Tribunal allowed the appeal and found that Borrer had been contractually entitled to work his claimed 48 hours per week (and there was no doubt he was an employee).

Smith v Carillion (JM) Ltd

In 2015, in Smith v Carillion (JM) Ltd, the Court of Appeal confirmed that a contract could not be implied between an agency worker and the end-user of his services unless it was necessary to do so. The Court also made it clear that it is not against public policy for an end-user to obtain services by using agency staff, even if the purpose of doing so is to avoid legal obligations (which would otherwise arise if the agency worker was directly employed by the end-user). Although, in this case, there were various potential indicators that Mr Smith had employee or worker status with the end-user, the Court decided that none of these factors were necessarily inconsistent with a genuine agency worker arrangement.

In August 2013 a legal challenge was taken out against SportsDirect for their use of zero-hour contracts – see the details here.

Can a worker on a zero hours contract be an agency worker?

An unusual question, as usually the question would be “am I an employee or a worker”. In Brooknight Guarding Limited v Matei, in September 2018, Mr Matei argued that he was an agency worker and so entitled to the same basic employment rights as permanent employees working at his employer’s client, where he provided his services. Matei was employed by Brooknight, who offer security services, as a ‘cover’ security guard, providing services to Brooknights clients, on a zero-hours contract. He was required to work at any site Brooknight sent him to, but he spent the majority of his working time for their client Mitie at a Citi Group site in London. He worked for Brooknight for 21 months before being dismissed. Matei’s claim was that as an agency worker, after 12 weeks he was entitled to the same employment conditions as if had been employed by the client.

The Employment Tribunal found in his favour and said that Brooknight was acting as a temporary work agency (within the meaning of the Agency Workers Regulations) as it engaged in the economic activity of supplying Matei to work temporarily for and under the supervision of and direction of Mitie/Citi Group. Brooknight appealed but the EAT agreed with the Tribunal. This successful claim meant that Mr Matei could claim additional remuneration (as he should have received equal pay, hours and holiday as a permanent worker at Mitie/Citi Group after 12 weeks). The key to this decision was that he was a ‘cover’ worker, so his placements were temporary – if a person was supplied on an indefinite or permanent basis, they wouldn’t meet the definition of an agency worker.

This judgement is important to any employer who supplies workers to clients, or employers who hire workers from other companies who specialise in supplying workers – if workers are being supplied on a temporary basis to a client, there is a risk they may be agency workers, and therefore after 12 weeks of working with the client in the same role, they may acquire the employment conditions of the clients, permanent employees.