Zero Hours and ‘Low Hours’ contracts

A right to guaranteed hours

The Bill introduces amendments to the Employment Rights Act 1996 which introduce the right for workers on zero hour contracts or a low hours contract (to be defined in further regulations) to be offered a ‘guaranteed hours’ contract if they have worked regular hours over a specified reference period under a qualifying arrangement that exceeds the number of hours provided for in their contract. Initially, agency workers were not covered by the Bill, but it was announced in March following a consultation exercise that they would be covered by the new regime.

The meaning of ‘regular’ hours is not set out in the Bill and will be subject to consultation. The Bill is also silent on the length of the reference period, which is again, to be subject to consultation. However, in the ‘Next Steps to Make Work Pay’ policy briefing, Labour has stated that a 12-week period is likely, and this would mirror similar reference periods within the Employment Rights Act.

If the requirements are met, the employer must offer a contract for guaranteed hours. This must be for the hours worked over the reference period and must be on no less favourable terms than the worker had during the reference period. In circumstances where a contract already existed, terms can only be changed to reflect the guaranteed hours of work.

In relation to agency workers the obligation to offer a contract for guaranteed hours will fall on the end user/hirer.  

Where a worker has worked under contracts with differing terms, the employer can only issue the worker a guaranteed hours contract on the least favourable of these terms where it can justify this as a ‘proportionate means of achieving a legitimate aim’. If they choose to do this, they must issue a notice alongside the contract stating why it is felt this requirement is met. There will be an exception in relation to agency workers in respect of this. This is on the basis that agency workers are often better paid than direct hires.

The guaranteed hours contract can be for a fixed term only if the employer can show this is reasonable. The Bill sets out specific circumstances where it may be viewed as reasonable, such as a contract in relation to a specific time-limited task or event, and where they can show there is a genuine need for temporary workers. These provisions are no doubt intended to ensure that employers can recruit staff when they need extra workers, such as seasonal requirements or in relation to a specific source of work.

While not set out in the Bill or the ‘Next steps ‘ policy briefing, Labour have also committed to consulting on putting in place ‘reference review periods’ where the guaranteed hours contract no longer reflects the reality of the working arrangement.

It’s hoped that the requirement on employers to show that these exceptions are met should reduce the potential for employers to exploit these caveats to circumvent the act. Workers do not have to accept the guaranteed hours contract. If they wish to remain in their previous working arrangement, they can do so without guaranteed hours.

In the run-up to the Bill, the focus was on zero-hours contracts (contracts where the employer can offer work, but they are not obliged to do so). However, in its ‘Next Steps’ policy briefing, Labour clarified that they also wish for the legislation to apply to ‘low hours’ workers. The stated aim is to ensure that employers cannot avoid the legislation by offering contracts for a low number of guaranteed hours, but expecting workers to work significantly longer hours.

The Bill, therefore, focuses on zero-hours contracts and also qualifying ‘minimum’ hours contracts. This means those working over and above the minimum hours in their contracts have a right to a guaranteed hours contract reflecting their actual working pattern over the reference period. There is still no definition in the Bill of what qualifies as ‘minimum’ hours contract in terms of hours, this will be subject to consultation and made clear in subsequent regulations.

However, it is positive that there is focus on trying to counter avoidance in the Bill. The Bill also provides several exceptions to the Right to Guaranteed Hours. These include where a worker has resigned during the reference period, where their assignment has been terminated, and where the assignment has ceased at the end of a fixed term.

In relation to workers who have had their assignment terminated this will only exempt an employer from the requirement to provide a guaranteed hours contract where the employer has acted reasonably in terminating the contract in line with a ‘qualifying reason’, the details of which will be announced under the Regulations. It is hoped that in due course this may include provisions to prevent employers from dismissing workers for seeking to rely on their rights under the Bill, but this remains to be seen.

The Bill also sets out provisions that an employer must provide a worker with reasonable notice of when they require them to work and also reasonable notice if they need to cancel, change or rearrange a shift. Currently, under zero-hours contracts, there is often no restriction on this, and shifts can be cancelled at short notice with no compensation, leaving workers in financial hardship. What constitutes reasonable notice is not specified, again this will be clarified in regulations following consultation.

The Bill makes clear that the worker will have a right to compensation if these provisions are breached. In relation to a breach of the minimum notice period to work this is stated as compensation that is just and equitable. However, in relation to cancelled or changed shifts the Bill states that the employer must compensate the worker.  

The Bill states that the amount of compensation will be set by regulations, but will not exceed the financial loss of the worker and therefore will not be punitive. In effect, this should mean that employers will no longer be able to cancel the shifts of casual workers on short notice without having to pay, at least, some compensation.

The Bill makes provision for claims to be brought to the tribunal in relation to breaches of the legislation. The remedies available for breaches include a declaration and compensation. The levels of compensation appear to be broadly on a ‘just and equitable’ basis and focused on the financial loss of the worker and the maximum amount will be specified in further regulations.

The Bill stops short of an outright ban on zero-hour contracts. It recognises that for some people, the flexibility of a casual contract meets their needs and that the issue is the clear and frequent exploitation of these contracts for ongoing working arrangements.

Following the release of the Bill, it’s clear that changes will not be imminent. In its ‘Next Steps’ policy briefing, the government stated that it will need to consult with trade unions and businesses regarding the finer points of the proposed legislation, and further regulations will follow. The legislation should not be expected to be in force until at least early 2027.

The ONS estimated that between April and June 2024, 1.3 million people in the UK were on a zero-hours contract as their main employment, and many more in other types of employment. Given this, the Bill has the potential to significantly improve the financial stability of a large proportion of the UK workforce, leading to improved circumstances for them and their families. The clarification that agency workers will be covered by the regime is also positive, as without this employers would have been able to avoid the provisions by switching its workforce to agency workers. Therefore, while the Bill leaves many questions unanswered and is not due to come into force until early 2027, this mustn’t be overlooked.  

An amendment has been passed in the House of Lords which would change the requirement from an obligations on employers to offer guaranteed hours to an obligation to grant them if they are requested. This is expected to be repealed by the House of Commons.