ZERO-HOURS AND SHORT-HOURS CONTRACTS

Scottish Affairs Select Committee

USDAW SUBMISSION

SUMMARY

Zero-hours contracts are a big issue of concern in UK workplaces.  The use of zero-hours contracts in some situations may be legitimate, fitting the needs of business and employees.  However, the widespread overuse of these contracts indicates that they are being misused.

Usdaw has recently surveyed over 2,000 members to get a better picture of what is happening with zero-hours contracts. We also looked at the connected issue of short-hours working which is directly linked to the problem of under-employment.

The good news is that only a small percentage of Usdaw members appear to be employed on zero-hours contracts.  Usdaw is the recognised trade union in Tesco, Morrisons and Sainsbury's and these businesses, some of Britain's most successful, do not use zero-hours contracts.  Instead flexible contracts have been negotiated that provide workers with guaranteed hours but still deliver the flexibility to meet the demands of the business.

If Tesco, Morrisons and Sainsbury's can respond to business fluctuations without resorting to zero-hours contracts then why can't many of the businesses that currently use these contracts?

Whilst most Usdaw-organised workplaces don't have zero-hours contracts, one in every four Usdaw members knows someone – a friend or family member – who is employed on a zero-hours contract.  This suggests that these contracts are widespread especially in workplaces that don't have a trade union. Usdaw believes the estimates that there are around one million workers on zero-hours contracts are correct. 

Large numbers of workers are employed on zero-hours contracts, not because businesses need the flexibility, but because some employers want to have their staff on insecure contracts with no guaranteed hours.  Many zero-hours contract workers are working broadly the same number of hours each week.  This suggests that these contracts are convenient for employers and not a necessity for the business.

Usdaw believes the misuse of zero-hours contracts needs to be tackled.  Usdaw's proposal is that employers should be under a legal obligation to offer workers contracts that reflect their normal working hours.  In order to identify an individual worker's normal working hours, Usdaw believes the starting point should be to look at the working pattern and the hours worked in recent weeks – a 12-week reference period.

Zero-hours contracts are not an isolated issue.  Short-hours contracts are a big issue of concern.  Again, short-hours may fit the needs of some individual employees.  But there are many short-hours workers who would like longer hours and would like any regular additional hours guaranteed.  The Coalition Government is boasting that unemployment has fallen but under-employment is a big problem facing many workers in 2014. 

If we are looking at workers on insecure contracts and no guaranteed hours, there is the ongoing issue of employers using the 'Swedish Derogation' loophole in the Agency Workers Regulations to avoid equal pay for agency workers.  This loophole in the Regulations needs to be addressed by a future Labour Government.

1. ZERO-HOURS CONTRACTS –

TACKLING THE ABUSE OF ZERO-HOURS CONTRACTS

Usdaw believes there are one million workers in the UK who are on zero-hours contracts.  Today one in every four businesses employs people on zero-hours contracts.

Workers on Zero-Hours Contracts

Workers on zero-hours contracts have no guaranteed hours and agree to be available for work as and when required. They have little job security - their working hours can disappear with no notice.

They have no guaranteed income. Pay packets can vary from one week to the next.  They may also have problems accessing mortgages, loans and renting as it is difficult, if not impossible, to show a secure income.

Workers on zero-hours contracts are not defined as 'employees' and as a result lose out on important employment rights, including:

•          Statutory Redundancy Pay
•          Statutory Notice Periods
•          Unfair Dismissal Rights
•          TUPE Rights
•          Collective Redundancy Consultation
•          Family-Friendly Rights

Employers Using Zero-Hours Contracts

Companies widely using zero-hours contracts include:

•          McDonalds
•          Burger King
•          Sports Direct
•          Domino's Pizza
•          Subway
•          Cineworld
•          JD Wetherspoon

Zero-hours contracts are also widespread throughout the social care sector with an estimated 300,000 care workers on these contracts.  Other businesses using zero-hours contracts include the Tate galleries and Buckingham Palace.

Zero-Hours Contracts in the UK Workforce

There are about one million zero-hours workers in the UK, according to a report published in November 2013 by the Chartered Institute of Personnel and Development (CIPD).[1]

The report found that one in four employers use zero-hours contracts.  Private sector companies that use zero-hours contracts estimate that nearly a quarter of their workforce are employed on these contracts. In the hotels/catering and leisure sector, over a third of the total workforce are employed on zero-hours contracts.

Some people may believe that a zero-hours contract is a good starting point in employment – a stepping stone to a more permanent secure job.  But the facts suggest this is not the case. More than half of zero-hours workers have been working for their current employers for more than three years. 

Working Hours of Zero-Hours Workers

Many people, understandably, assume that the hours of workers on zero-hours contracts vary a lot from one week to the next, but this is often not the case.

One in every five employers using zero-hours contracts admit that workers on these contracts work broadly the same number of hours each week.  This is double the number of businesses who state that 'hours vary greatly each week'.[2]

The Office for National Statistics estimates that the average hours worked by someone on a zero-hours contract is 21 hours per week.  CIPD arrives at a broadly similar
figure – 24 hours per week. 

Nearly one in every five zero-hours workers are on short hours – 8 hours or less per week.

38% of zero-hours workers taking part in the CIPD survey say they would like to work more hours.  That equates to 380,000 workers on zero-hours contracts who are under-employed and want to work longer hours.

Nearly half of the zero-hours workers reported that they receive little or no notice when work is cancelled.

Government Underestimates Zero-Hours Contracts

The Coalition Government have continually underestimated the number of workers on zero-hours contracts.  In the summer of 2013 they released a report from the Office for National Statistics (ONS) claiming there were 250,000 zero-hours workers – less than 1% of the total workforce.

In the face of criticism that this ONS figure underestimated the problem Vince Cable admitted "It is clear that they [zero-hours contracts] are much more widely used than we had previously thought".  He also wrote to the ONS to raise concerns about 'the lack of reliable statistics that are available on zero-hours contracts'.

The Office for National Statistics acknowledged, 'We have followed the debate on zero-hours contracts, and there is a clear need for better statistics.'

No Business Need for Zero-Hours Contracts

It is argued that zero-hours contracts provide business with the flexibility needed to meet fluctuating demands.  Some commentators also claim that these contracts play a vital role in keeping people in employment.

However, some of the biggest, most successful employers – such as Tesco, Sainsbury's and Morrisons – do not use zero-hours contracts.

Many of the businesses where Usdaw has trade union recognition do not have
zero-hours contracts.  All businesses need flexibility.  But Usdaw has negotiated flexible contracts to provide workers with guaranteed hours but still deliver the flexibility to meet the demands of the business. 

There is no legitimate business need for the widespread use of zero-hours contracts.

2. SHORT-HOURS CONTRACTS –

THE GROWING PROBLEM OF UNDER-EMPLOYMENT

Over the past 12 months we have seen increased media attention surrounding zero-hours contracts. However, it is fair to say that for many workers the problems of
short-hours contracts and under-employment are just as important.

What are Short-Hours Contracts?

Short-hours contracts are where an individual is employed for a small number of hours, for example for 8 hours or less.

Whilst short-hours contracts will not work for everyone, they do provide some individuals with the opportunity to work who may be unable to work longer hours.  Short-hours contracts allow some workers to combine work with other commitments such as parental/caring responsibilities.  These contracts may also suit, for example, students who need an income to supplement their student loan but may not want long working hours.

Short-hours contracts work for some people but it is clear that they can be misused.  A significant number of workers on short-hours contracts are regularly and consistently working additional hours. This can be a problem for several reasons:

• There is no guaranteed level of regular earnings and this can create uncertainty regarding bills and planning for the future.

• Many employee benefits are based on contractual earnings/hours therefore employees who consistently work additional hours may lose out on holiday pay/entitlement, maternity pay, sick pay and pension provisions.

• They have no guarantee of any additional hours they regularly work.

What is Under-Employment?

Under-employed workers are those people in employment who want to work longer hours.  While the Government's official figures show that unemployment has fallen, there is clear evidence that under-employment has increased.

Over the past four years, the UK jobs market has seen a dramatic rise in under-employment.  It is estimated that 1.5 million people are working part-time only because they cannot get full-time work.  This shows that the jobs crisis is worse than the headline labour market figures suggest.

The scale and severity of the crisis in the economy means that many workers who were made redundant or faced an uncertain future are taking jobs on fewer hours than they need.  At the same time employers are looking to find ways to keep their wage costs down, the result is a reduction in the permanent hours available and contracts for shorter hours becoming more common.

Whilst short-hours contracts and under-employment are often discussed together, it is important to understand that not everyone on a short-hours contract is under-employed. Under-employment is about getting fewer hours than you need – therefore it can apply to someone who works 20 hours just as much as it does to someone who works
5 hours.

Usdaw's Position on Short-Hours Working

Times are tough and we know that many workers are struggling financially to make ends meet.  The Union wants to see people getting the hours they need to support themselves and their families. 

Under-employment is about workers not getting the hours that they need.  This can apply to part-time workers working a number of days just as much as to workers with contracts for only a few hours. 

A key solution to under-employment is a return to solid economic growth, which is why Usdaw believes that the Coalition Government must be focusing more of its attention on growth and investment rather than cuts and austerity.

The Union also wants to see workers getting contracts that reflect their normal working hours.  Too many workers regularly work additional hours but these extra hours are not guaranteed in their contracts. 

3. USDAW MEMBERS' EXPERIENCE – THE HEADLINE FINDINGS OF THE SURVEY

The Union has recently carried out a zero-hours and short-hours survey of Usdaw members. The survey was completed by 2,223 Usdaw members.

Zero-Hours Contracts

The survey found that only a small proportion of Usdaw members (less than 5% of those surveyed) are employed on zero-hours contracts. The vast majority of members (just over 95% of those surveyed) have contracts with guaranteed hours.

Of the respondents to the survey who are on zero-hours contracts, the overwhelming majority (96%) would prefer contracts with regular hours.  The evidence is that workers do not like zero-hours contracts.

Whilst only a very small minority of Usdaw members are on zero-hours contracts, nearly a quarter of respondents know family or friends who are zero-hours workers.  This would seem to confirm the estimates that around one million workers are on zero-hours contracts.

Short-Hours Contracts

In the survey, we took the opportunity to ask members about their experiences and views on short-hours working.

The survey found that a very small number (less than 2%) of respondents were employed on contracts of 5 hours and less.  Just under 9% of respondents are contracted for between 6 and 10 hours per week.

Short-hours contracts are being used in many parts of retail but despite this the majority of Usdaw members are employed on contracts for more than 17 hours per week, with nearly a third of respondents contracted for 30 hours or more.  

The survey results show that the majority of Usdaw members are still employed on traditional part-time or full-time contracts.  This suggests that workplaces where Usdaw is recognised are only using short-hours contracts in a very limited number of situations. 

Under-Employment

The survey found that a significant number of workers are under-employed.  They would like more hours and they would like additional hours to be made regular and guaranteed.

Over half of respondents regularly work additional hours above their contracted hours. Of these, three in every four would like to have these additional hours guaranteed. 

One in four respondents who work additional hours only work a few additional hours per week.  Another quarter regularly work 5 to 8 additional hours.  A third of those who work additional hours work a large number of additional hours (9 to 16 hours).  A small but still sizeable group of members (17%) regularly work a very large number of additional hours (more than 16 hours) each week.

Nearly a third of those who indicated that they do not currently work any additional hours stated they would like to have more hours.

Overall, the survey confirms that there is a serious under-employment problem in the UK.  The average respondent to the survey wants to work more hours and where members currently work additional hours they would like to see these additional hours guaranteed.

4. THE ZERO-HOURS CONTRACTS AND SHORT HOURS WORKING SURVEY –

THE DETAILED RESULTS

5. AGENCY WORKERS – WINNING EQUAL PAY AND TREATMENT

One of the biggest groups of workers affected by zero-hours or short-hours contracts is agency workers. Agency worker contracts are typically offered without any guarantee of work or even rate of pay.

Agency work has for many years been among the most vulnerable and insecure employment. Agency workers have also typically been engaged on lower terms and conditions than permanent staff.

It has been estimated that over a third of all employers use agency workers in their business.  Usdaw believes the real figure might even be higher.

The use of agency staff has been defended on the basis that it gives business the flexibility to respond to short-term business fluctuations.  The evidence is that agency workers are being used increasingly on a semi-permanent basis.  One in every four employers admits to employing agency workers for periods of more than 12 weeks.

The big increase in the numbers of agency workers means there is a growing population of workers who have no guarantees of working hours or a regular pay packet.

Agency Workers Regulations

Following a tripartite agreement between the last Labour Government, the TUC and the CBI, the Agency Workers' Regulations were introduced to the UK in 2011. The Regulations stated that agency workers should receive equal pay and treatment with permanent staff after 12 weeks in the same role.

The Regulations were supposed to tackle the exploitation of agency workers.  This would also stop employers using agency staff to undercut the existing terms and conditions of permanent employees.

Swedish Derogation

Unfortunately, many employers across the UK have taken advantage of a loophole in the Agency Worker Regulations known as the 'Swedish Derogation'.

Under the Swedish Derogation, agency workers can be employees of the agency rather than agency workers.  As such, they are not covered by the Regulations' provisions for equal pay. 

The 'Swedish Derogation' was agreed at a European level to cover specific types of agency contractors who would be worse off if they were given equal pay and treatment to permanent staff. This could occur in certain parts of Europe where people in industries such as journalism and computer software design are given a premium in exchange for accepting temporary short-term contracts.

The Agency Workers Directive contained a safeguard that Swedish Derogation agency workers would be paid for at least four weeks when in between assignments. Unfortunately in the UK, these Swedish Derogation agency workers are only entitled to half as much as they received during their last assignment or minimum wage rates.

As agency workers are typically employed on a zero-hours contract, agencies can also avoid having to pay a worker between assignments by offering a minimum of one hour's paid work per week.

The number of agency workers on Swedish Derogation contracts has grown rapidly since the Regulations came into force in 2011. The Recruitment and Employment Confederation estimate that one in six agency workers in the UK are now employed on a Swedish Derogation contract.

The Swedish Derogation has been used to avoid giving agency workers equal pay, which is clearly against the spirit of the Directive. The Directive states that countries must prevent the misuse of the 'Swedish Derogation'.

The TUC Challenge over the Agency Worker Regulations

The TUC has now lodged a formal complaint to the European Commission against the use of these 'Swedish Derogation' contracts.  Usdaw is supporting the TUC complaint over the Directive not being fully implemented in the UK. 

Any complaint to the European Commission is a lengthy process.  Usdaw will continue to provide full support to the TUC's efforts to challenge this abuse of the Directive.

The Union is also calling on the Labour Party to make the Agency Worker Regulations effective regulations that will deliver equal pay, tackle the exploitation of agency workers and stop employers using agencies to undercut existing terms and conditions.  Usdaw believes Labour should give a commitment that a future Labour Government will remove the Swedish Derogation loophole from the Regulations.

6. USDAW PROPOSALS

Usdaw wants to see workers on zero-hours contracts having rights to contracts that guarantee their normal working hours.  We want all workers to get the working hours they need, and we want these working hours to be guaranteed in their contracts. 

Contracts That Reflect Normal Working Hours

Usdaw is campaigning for employers to be under a legal obligation to offer workers a contract reflecting the employee's normal working hours.  In order to assess what the individual worker's normal working hours are, Usdaw believes the starting point should be to look at the working pattern and the hours worked in the previous 12 weeks – a
12-week reference period.

This proposal would not just give some basic rights to zero-hours workers but it could also benefit short-hours and part-time workers who regularly work longer hours.

Some Guaranteed Hours

The Union wants to see all workers being given a clear indication at the start of the contract as to the hours they are likely to be expected to work. 

Usdaw would like to see workers having a guaranteed minimum number of hours from the first day of employment. Some guaranteed hours from day one is attractive for two reasons.  Firstly, it gives workers at least some guarantees of work instead of none.  Secondly, if workers have contractual hours, they have more employment rights than if they were on a zero-hours contract.

Limited Exceptions

There would need to be exceptions for the small number of circumstances where the use of zero-hours contracts might be legitimate. However, many of these potential exceptions could be dealt with by the use of annualised hours and other flexible contracts.

Employment Rights for All

In line with TUC policy, Usdaw believes that all workers should have the same floor of employment rights. This includes unfair dismissal protection, statutory redundancy pay, rights to paid time off for trade union duties and family-friendly rights such as maternity leave and paternity leave, and the right to request flexible working.

Currently, workers on zero-hours contracts are not defined as employees and lose out on important employment rights.  Usdaw would like to see a single definition of 'worker' used to determine who qualifies for all statutory employment rights.

Close the Loopholes in the Agency Workers Regulations

The aim of the Agency Workers Directive was to deliver equal pay and treatment for agency workers.  However, since the Regulations came into force, the Swedish Derogation loophole has been widely used by employers in the UK to continue paying agency workers less than permanent employees.  Usdaw fully supports the TUC complaint to Europe.  The Union also believes Labour should commit to removing the Swedish Derogation from the UK Regulations.

The Government Needs To Act

The Coalition Government has continually underestimated the numbers of workers on zero-hours contracts.  They have announced a series of reviews and consultations but there are no proposals.  In the face of growing evidence they have refused to recognise there is a problem and consistently failed to act.

Campaigning With Labour

In a speech to the TUC Congress, Ed Miliband stated "We'll end zero-hours contracts where workers are working regular hours but are denied a regular contract".  At Labour Party Conference Chuka Umunna stated "We will act to outlaw zero-hours contracts where they exploit people".

Ed Miliband announced in September 2013 that a Labour Government would tackle the abuse of zero-hours contracts by taking action to:

• ban employers from being able to require zero-hours workers to be available over and above their contracted hours on the off-chance that they will be needed;

• ban employers from being able to require zero-hours workers to work exclusively for them;

• ban the use of zero-hours contracts where employees are in practice working regular hours, unless employees specifically request it; and

• introduce a new Code of Practice, providing clarity for employers and employees about their rights and responsibilities.

Usdaw fully supports these commitments.  If we are going to make significant progress on zero-hours contracts we need a strong commitment in Labour's manifesto.

7. CONCLUSION

Zero-hours and short-hours contracts are serious issues of concern.  One million workers on zero-hours contracts is a clear indication that these contracts are being abused.

Usdaw believes that zero-hours contracts are justified in only a very limited number of situations.  Their widespread overuse shows that employers are exploiting workers fears about the present economic uncertainties to put pressure on them to sign up to insecure contracts.  This abuse needs to be tackled.

The Coalition Government have continually underestimated the numbers of zero-hours contracts.  They have launched consultations and reviews and this has become an excuse for inaction.  Their failure to act has given the worst employers a green light to exploit vulnerable workers.

For many workers, short-hours contracts and under-employment are even bigger issues of concern.  The Coalition Government are quick to advertise small falls in unemployment but they fail to mention the problem of under-employment. 

Short-hours contracts suit some workers, but a far greater number of workers are struggling to get the hours they need to support themselves and their families.  Many workers are constantly trying to get additional hours. This is under-employment.

Many workers who get additional hours face the uncertainty of not having these additional hours guaranteed in their contracts. This is also a major problem that needs attention. 

If we are looking at workers on insecure contracts and no guaranteed hours, there is the ongoing scandal of the loopholes in the Agency Workers Regulations that allow agencies to avoid equal pay for agency workers. 

Usdaw's proposals to tackle the misuse and abuse of zero-hours and short-hours contracts include following key proposals:

• Usdaw wants to see more rights for workers on zero-hours contracts.  The Union is lobbying for a legal obligation on employers to offer all workers contracts that reflect their normal working hours.  In order to assess what the individual worker's normal working hours are, Usdaw believes the starting point should be to look at the working pattern and the hours worked in the previous 12 weeks – a 12-week reference period.

• An obligation to offer contracts that reflect workers normal working hours would also have a positive impact for short-hours and part-time workers who regularly work longer hours.  Too many workers regularly work additional hours without these extra hours ever being guaranteed in their contracts. 

• Usdaw is fully supporting the TUC's efforts to challenge the Swedish Derogation loophole in the Agency Workers Regulations that deny agency workers access to equal pay. Usdaw believes Labour should commit that a future Labour Government will abolish the use of the Swedish Derogation in the UK.

February 2014