Should we raise the minimum wage for workers on zero hours contracts?

Author: Darren Newman

The Workers (Predicable Terms and Conditions) Act 2023 has now received Royal Assent. But will it fix the problem of zero hours contracts and precarious work? Probably not, says HR & Compliance Centre consultant editor Darren Newman, who casts an eye over Labour's plans for a "New Deal" and points to a forgotten proposal with the potential to make a real difference.

Way back in the summer of 2017 the Taylor review of modern working practices produced the Good Work report. This made a huge number of recommendations focused on the rights of workers engaged in precarious work - in the gig economy, agency work and on zero hours contracts. The report described its overall ambition as being that "all work in the UK economy should be fair and decent, with realistic scope for development and fulfilment".

One proposal from the Good Work report that has not been taken forward by the Government - and which is not mentioned in Labour's policy - strikes me as potentially effective. That is to provide for an increase in the minimum wage where hours are not guaranteed.

A proposal for predictability

Government take-up of the report's recommendations has been patchy, and many of its more ambitious proposals are yet to be adopted. But one proposal has been revived in a Government-backed Private Members' Bill that received Royal Assent in September this year.

The Good Work report recommended that "zero hours workers should have the opportunity to request a fixed-hours contract". This was not an idea plucked out of the air: the EU Directive on Transparent and Predictable Working Conditions (EU 2019/1152) required EU member states to introduce this right by August 2022. Following Brexit, of course, the UK was not obliged to follow suit. Nevertheless, what is now the Workers (Predictable Terms and Conditions) Act 2023 creates a right to request a "predictable work pattern" for all workers whose contract with the employer currently has a "lack of predictability" when it comes to their working hours.

Like the right to request flexible working - only different

The new right works in much the same way as the existing right to request flexible working, the main difference being that it applies not just to employees but to workers - including agency workers who have been engaged on an assignment for 12 weeks or more. As with the right to request flexible working, the employer must deal with a request for a predicable work pattern in a "reasonable manner". This provision is carefully phrased. The obligation relates to the way in which the request is handled, not the decision to either grant or refuse it. An employee can complain about how the employer has gone about making the decision - but not about the reasonableness of the decision itself.

Any refusal of the request must be for one of the specified reasons set out in the Act. These reasons are drafted even more widely than under the right to request flexible working and include not just the burden of additional costs or the impact on the employer's ability to meet customer demand but also a "detrimental impact on other aspects of the employer's business". So any reason based on the needs of the business rather than simple prejudice or personal preference will be sufficient.

Incorrect facts and a compensation cap

The worker can, however, challenge a decision that is based on incorrect facts. So, if an employer turns down a request because it would increase costs, the worker can argue that this was not the true reason for the refusal or that the calculation made by the employer is incorrect. What the worker cannot do is argue that, even though the request would lead to increased costs, these are so modest that the employer should be required to bear them.

If the employer fails to handle the request reasonably, then - as with the right to request flexible working - a tribunal can order it to reconsider the request. It cannot, however, require the employer to change its mind. Compensation can also be awarded subject to a cap to be imposed by regulations. With the right to request flexible working, that cap is set at eight weeks' pay, so I would expect the same limit to be imposed for this new right.

Too much time, too many words

All of this has yet to come into force. The Government has indicated that employers will be given a year to prepare, which seems like a very generous timescale given that the new Act does not really require them to do much.

Acas is also consulting on a new code of practice on how to handle requests under the Act. I was dismayed to see that it is almost 5,000 words long, which means the chances of it being read by the employers that it is aimed at are not high. The equivalent code of practice for the right to request flexible working is less than one-fifth of that length and I would hope that one of the results of the consultation is some judicious editing.

The possibility of discrimination claims

Will the right to request predictable terms do anything to provide better-quality work for those in precarious employment? With the right to request flexible working, there is an additional incentive for the employer to comply with a request: the threat of a discrimination claim. Since women are more likely than men to need to work flexibly in order to accommodate caring responsibilities, the refusal to allow this may amount to indirect sex discrimination if the employer cannot show that the refusal is a proportionate means of achieving a legitimate aim. This sets the bar much higher than simply showing a genuine business reason for not granting the request.

I don't see a similar argument in relation to the right to request a more predictable work pattern. The reality is that without a potential discrimination claim to back it up, this new right lacks any real substance. Granting the request will almost inevitably have some impact on the business and so an employer will not have to worry too much if it is minded to reject it.

Labour's "New Deal"

As we enter a general election year, it is worth looking at what Labour proposes to do about this issue. Its proposals - set out in a detailed policy document, "A New Deal for Working People" - go much further. Labour promises, for example, that zero hours contracts will be banned altogether. This proposal has never made much sense to me. How many hours would an employer have to guarantee in a week? Would one be enough? I suspect that the idea of an outright ban will eventually be dropped as being impracticable.

A related proposal that makes rather more sense is to ban one-sided flexibility. So, if an employer were under no obligation to offer work, the employee could be placed under no obligation to accept it. The issue here is that although employees may welcome the freedom to reject work, that freedom may not mean much if they rely on that work for their livelihood. Of more significance for such workers would be the proposal that employers who cancel shifts without appropriate notice would be required to pay for such shifts in full. It is hard to argue with the justice of that, but the difficulty here would be the risk of incentivising employers to avoid scheduling work too far in advance in case it needs to be cancelled. That would be counterproductive.

Labour also says that anyone who works regular hours for 12 weeks or more will gain a right to a regular contract (not just a right to request one) that reflects the hours they normally work. The problem with this proposal is that it will create a clear incentive for employers to avoid providing employees with a regular work pattern - the very opposite of what the proposal is designed to achieve.

Increase the minimum wage for non-guaranteed hours

Fixing the problem of zero hours contracts and precarious work is not easy. Not every labour market problem has an employment law solution. But one proposal from the Good Work report that has not been taken forward by the Government - and which is not mentioned in Labour's policy - strikes me as potentially effective. That is to provide for an increase in the minimum wage where hours are not guaranteed. In other words, hours that are guaranteed under the contract of employment could be paid at the level of the minimum wage, but hours that are not guaranteed would attract a premium. That would clearly incentivise employers to guarantee hours where they could and go some way to compensating employees for their flexibility in working hours as they are offered by the employer.

I doubt very much that the Workers (Predictable Terms and Conditions) Act 2023 will have any real impact but it does at least try to address a real problem for many low-paid workers. If there is a change of Government, however, then it is likely that much more radical change will be on the way.

Related resources

Legal timetable: Right to request more predictable terms and conditions of work

Right to request flexible working

What is the status of workers engaged on casual or zero hours contracts?

Employment law changes 2023: Progress report for HR