Zero Hours Contracts – what does the future hold?

There has been a lot of noise about the use of ‘zero hours’ contracts and the unfairness of this practice for some of New Zealand’s more vulnerable workers.  People have expressed surprise that this type of arrangement is operating in New Zealand. So with changes afoot, what does the future of zero hours contracts look like?

The first point to note is that not all zero hours contracts are the same. Some are more unfair than others.  In the UK, a typical zero hours contract will be based around a central clause stating: “The company is under no obligation to provide work to you at any time and you are under no obligation to accept any work offered by the company at any time”.  This more balanced approach (similar to casual employment arrangements here), if entered into freely by the parties, seems reasonable, and may actually work well for some people (such as retirees) with flexibility to pick up work on an ‘as and when’ basis. Seemingly though, here in New Zealand, zero hours contracts have morphed into something – else.

In New Zealand, it has been reported that a typical zero hours contract will (as in the UK) provide that the company is under no obligation to provide the employee with work, but where we our zero hours contracts differ is they do not extend the same flexibility to the employee. New Zealand clauses, it seems, require the employee work when they are called upon, despite having no guarantee that they will be offered any work at all (i.e. to be at the employer’s beck and call just in case they are needed, without any compensation if they are not). The really unfair ones also demand exclusivity, that is, they say the employee cannot work anywhere else, even though they may not be given any work. The unfairness of this is obvious and it is not hard to see what all the fuss is about.

In the UK, the issue of exclusivity was discussed as part of a consultation document, circulated by the Ministry of Business Innovation and Skills and it was suggested that in some circumstances, exclusivity clauses may be useful and justifiable, such as when an individual is entrusted with confidential commercial information which would make it problematic, should that person decide to work with a competitor business at the same time. This is, of course, true of certain categories of employees, but generally speaking, the types of workers engaged on zero hours contracts would rarely be privy to commercially sensitive information.

Our own Ministry of Business Innovation and Employment is also looking to address the issue of zero hours contracts, with the Employment Standards Legislation Bill currently sitting before the Transport and Industrial Relations Select Committee. The Bill proposes changes to the law to address the one-sided nature zero hours contracts and require flexibility on both sides of the relationship, rather than allowing the employer to dictate unreasonable terms. The Bill also aims to provide more clarity, as both parties will be aware of the commitment they are making from the outset.

In particular, the Bill proposes the following key changes:

  1. If hours are agreed when the employment agreement is entered into, these must be specified in the employment agreement. This does not require the parties to agree the number of hours.
  2. Employers cannot require employees to be available for work without compensation. As a result, the nature of the arrangement is likely to be brought more in line with traditional casual employment arrangements (and UK zero hours contracts), whereby there is no requirement on the employer to offer work and correspondingly no obligation on the employee to accept work.
  3. A clause in an employment agreement which restricts an employee’s secondary employment will be unenforceable unless the employer has a ‘genuine reason’, ‘based on reasonable grounds’ and the ‘reason’ is set out in the employee’s employment agreement. The Bill sets out several examples of potential ‘genuine reasons’ such as: protecting commercially sensitive information and preventing a real conflict of interest. Whether the reason is genuine and reasonable will depend on the particular circumstances, and generally speaking, the bulk of scenarios in which zero hours contracts are used, are probably unlikely to meet requirements of a valid exclusivity clause.
  4. Employees who refuse an offer of work cannot be treated adversely.
  5. Employers may cancel a shift only with reasonable notice or compensation.
  6. Employees will be entitled to bring a personal grievance for breaches of these new provisions.

The Bill has been criticised for not going far enough to outlaw the use of zero hours contracts. Rather than make these contracts illegal, the Bill provides rights to compensation and to bring claims if the practice continues, but critics say that this is unrealistic and is weighted in favour of the employer. They say employees in these types of arrangements are unlikely to stand up and demand compensation, or to bring a personal grievance if their unavailability for a shift results in less offers of work in future, so the Bill simply dresses up the issue, but does nothing to fix it.

Whether or not the Bill will be tweaked to further address these concerns remains to be seen, but at the very least, the draft legislation is certainly a step in the right direction.

If you would like to discuss this issue in more detail, please contact a member of our specialist employment team.


Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.