Nick Le Riche and Kevin Poulter: Exclusivity Clauses in Zero Hour Contracts Banned

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Various employment provisions of the Small Business, Enterprise and Employment Act 2015  came into force last month, including a ban on exclusivity clauses in zero hours contracts.  Zero hours contracts were one of the hot topics during the recent General Election campaign and how will the new provisions affect employers’ use of workers on this type of contract.

What are ‘zero hours contracts’?

The term ‘zero hours contracts’ is in itself misleading and attempting to pin down exactly what type of contracts are covered by this term can be difficult.  The new sections of the Employment Rights Acts 1996 introduced by the Small Business, Enterprise and Employment Act have though attempted to do this and define ‘zero hours contracts’ as follows:

a contract of employment or other worker’s contract under which

(a) the undertaking to do or perform work or services is an undertaking to do so conditionally on the employer making work or services available to the worker, and

(b) there is no certainty that any such work or services will be made available to the worker.”

This definition reflects the general understanding that this type of contract covers arrangements between an employer and a worker whereby the employer is not obliged to provide the worker with any minimum hours of work, and the worker is not obliged to accept any hours that are offered.  This lack of obligation, typically an essential element of an employment contract, has led to uncertainty and allegations of exploitation, particularly given that many of these contracts have historically tied the individual to the organisation under an ‘exclusivity’ clause.  These ‘exclusivity’ clauses have brought particular criticism in relation to zero hours contracts given that there is no obligation to provide work to individuals under these contracts but they would be prevented from securing extra work from other businesses as well, thereby potentially making them entirely reliant on one employer. 

New Restrictions

This type of clause is now specifically banned by section 27A(2) of the Employment Rights Acts which sets out that any provision of a zero hours contract which seeks to prevent an individual from performing services under any other contract or arrangement, or from requiring the employer’s consent before doing so, are now unenforceable. 

What will be equally important though will be the implementation of anti-avoidance measures for these restrictions which the Government has announced that it intends to introduce.  Although exclusivity clauses are now banned, as matters currently stand, unscrupulous businesses are able to circumvent the restrictions by placing individuals on contracts which guarantee only a very small number of hours a week or simply to refuse to offer work, or fewer work opportunities, to individuals because they work for other organisations.  The Government intends to introduce a right for zero hours workers not to be subjected to a detriment (such as being offered less work or having their contracts terminated) on the grounds that they work or have worked for another organisation. The ban on exclusivity clauses will also be extended to cover all contracts where the individual is not guaranteed a certain level of weekly income. There will be an exception to this provision where the rate of pay for each hour worked under the contract is at least £20. The right not to suffer a detriment will also apply to those individuals earning less than this income threshold.

Those individuals who have suffered a detriment on the grounds that they have attempted to work for other organisations will be able to bring a claim on this basis to an Employment Tribunal in a similar way as they could had they been subject to unlawful discrimination.  The Employment Tribunal will be able to award compensation based on the financial loss suffered by the individual as result of the detriment, together with a potential award for “injury to feelings”.  Organisations may have to pay a further financial penalty if the Employment Tribunal decides that there were aggravating features  related to the breach of the individual’s employment rights in this regard, eg that the disadvantage suffered for accepting other work was particularly severe.

What now?

Given that the latest figures from the Office for National Statistics indicate that up to 1.8 million workers are now employed under zero hours arrangements, the provisions brought in by the Small Business and Enterprise Act could have a significant impact on businesses which rely heavily on zero hours staff.  Although the anti-avoidance measures in relation to exclusivity clauses have not yet come into force, the Government has committed to introducing them and they are likely to come into effect later this year. In light of these provisions, businesses whose zero hours contracts contain exclusivity clauses would be recommended to amend them now to bring the contracts in line with the new legislation and to ensure that they do not disadvantage any of their zero hours staff who work for other organisations too. 

Businesses should also look to update their standard settlement agreements to add these new rights to the list of employment rights settled under these agreements. As well as introducing these rights, it may have been helpful if the Government had also committed to introducing a statutory code of practice on zero hours contracts to give guidance to organisations on the use of these arrangements. At the moment though such guidance has been left for business representatives and trade unions to develop sector specific codes of practice.

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About Nick Le Riche

Nick Le Riche is a partner at London law firm Bircham Dyson Bell LLP.

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About Kevin Poulter

Kevin Poulter is a Legal Director at London law firm Bircham Dyson Bell LLP.

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