Zero-hour Contracts and Redundancy Pay

A guide to deciphering whether a zero-hour worker is entitled to redundancy pay.

Introduction

Advising a client who is facing redundancy is an increasingly common scenario. We continue to see a large number of people seeking our help with redundancy issues, with the rate of redundancies still at a higher level than before the start of the coronavirus (COVID-19) pandemic in March 2020.¹ The rise in casual working arrangements has made it important to understand the connection between the right to redundancy pay and employment status.² This article will cover the common hurdles zero-hour workers may face when claiming redundancy pay. Please see separate sources cited below for a more general introduction to employment status and redundancy.³

Zero Hour Workers

Section 27A of the ERA 1996 defines a zero-hour contract as follows:

(1) In this section “zero hours contract” means 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.

The nature of zero hour arrangements can mean individuals have weeks when they do not work. When advising those working under these arrangements on their right to redundancy pay, the first hurdle will be establishing whether intermittent assignments of work can amount to continuous employment.

Hurdle 1: Employment Status

The issue of determining employment status is approached objectively by the courts and tribunals. They will always look to the reality of the relationship, regardless of what the contract states.

First the contract between the two parties must be established. A contract can be oral or in writing. There are five elements present to form a contract:

• offer
• acceptance
• consideration
• intention to create legal relations
• certainty

Employment status is then determined by deciding what sort of contract it is.

While there is no fixed test for employment status, there are four key features which the courts will consider:-

• control
• mutuality of obligation
• personal performance
• whether the other characteristics of the agreement are consistent with it being a contract of employment

For those on zero-hour contracts mutuality of obligation is likely to prove the most difficult factor to establish. This requires there to be an ‘irreducible minimum obligation’ between the employee and employer. The characteristic of the obligation remains a grey area and may vary according to the circumstances. A recent case has outlined the minimum obligation required:-

• For the employee, the minimum requirement is to perform at least some work and to do so personally.
• For the employer, the minimum requirement is an obligation to provide work, a retainer or some form of consideration in the absence of work.
• The obligations must continue throughout the whole period of the contract.⁴

In effect, the minimum level of obligation on the employee must be to personally perform some work, and the minimum level of obligation on the employer must be one that results in the employee being paid on a regular basis while the contract persists.

The very definition of zero hour contracts seems to deny the presence of mutual obligation outright; ‘there is no certainty that any such work or services will be made available to the worker’. But remember, use of the label ‘zero hours contract agreement’ is not conclusive.

Hurdle 2: Continuity of Employment

To be eligible for statutory redundancy pay an individual must meet four conditions:

• they are an employee
• they have been continuously employed for at least two years
• they have been dismissed
• the dismissal was by reason of redundancy.

Employment starts on the date an employee starts work and ends on the date employment is effectively terminated. The duration of these periods are calculated with reference to weeks (Sunday to Saturday). Any weeks where there is a contract of employment will count towards the total period of employment, regardless of the hours worked. Any week where no contract is present will break the continuity of employment, subject to certain exceptions.

Often, while a zero hour worker is actually working they will meet the requirements for employee status. This raises the issue of whether, over time, they can bridge gaps between assignments and accrue sufficient continuity to be entitled to a statutory redundancy payment.

Solutions

A client may be able to overcome these hurdles and establish a right to redundancy if they can show:-

• The zero hours term is a sham — they are an employee at all times; or
• Although the employer has no obligation to provide work they do have other obligations which continue during gaps and which are enough to form an ‘umbrella contract’; or
• they are an employee only when working but can bridge the gaps between their employment.

Proving the zero hours term is a sham

The employment tribunal will disapply a zero hour provision if an individual can show that this label is a sham.

The Supreme Court case Autoclenz v Belcher established that an employment tribunal must consider “the relative bargaining power of the parties” when deciding the truth of any working arrangement.⁵ This requires taking into account “all the circumstances of the case of which the written agreement is only part”. So, a zero hour provision may be disapplied if the reality of the working relationship indicates otherwise.

While the main focus of the recent Supreme Court case Uber BV v Aslam was assessing worker status, the judgment also provides a full explanation of the Autoclenz decision.⁶ Here, the court confirmed that assessing employment status is a matter of statutory interpretation, not contractual interpretation. That is, the tribunal will consider the reality of the working relationship, rather than contractual documents, to assess whether it is characterised by the necessary subordination and dependency to create the need for statutory protection.

Where an individual is transferred from an employee contract onto a zero-hour contract it will be important to find out if there have been any material changes in the working relationship. For example, in Bailey v The Old Vicarage the worker was transferred from a part-time employee contract onto a zero hour contract.⁷ In practice, the worker continued working regular shifts and considerable hours each month. This created a mutuality of obligation between the parties and the worker was held to be a part-time employee for the full period.

Umbrella Contracts

If an individual can show that mutuality of obligation exists between them and their employer during gaps between work, they may be able to establish employee status under an ‘umbrella’ employment contract.

For example, in Pulse Healthcare v Carewatch Care Services.⁸ Here the workers were engaged under a ‘zero hour contract agreement’. In practice, they worked fixed hours, under a rota they had to agree to in advance, on a regular basis, over some years. The workers also had to attend compulsory meetings every Thursday without pay. The nature of the employer’s business was also relevant. Here, Carewatch was providing a critical care package and it was ‘fanciful’ to suppose that the employer relied on ad hoc arrangements to provide continuous care for disabled individuals. These factors combined created a mutuality of obligation between the parties during gaps between work and the workers were held to be employees.

The nature of this obligation remains a grey area but if both parties expect work to be offered and to a reasonable amount of this work to be undertaken, over time this may give rise to sufficient mutuality to establish a continuing contract. A non-exhaustive list of key factors which may point towards overarching mutuality of obligation include:-

• where a fixed rota is used
• where the work provided is time-critical
• where the provision of work at a particular time is key to business operations
• where the provision of work is key to the employer’s compliance with their obligations to third parties
• where the contract requires the worker to be available for work except where they have given advance notice of absence.

Bridging the gaps

A zero hour worker will be able to establish the necessary continuity of employment if they can prove they have done some work for the employer every week for two years. The contract of employment need not be in writing, nor does it need to be the same contract that applies over the period claimed as continuous. So, even if each assignment, or ‘stint’ of work, is considered a separate contract of employment, an individual can accrue continuity if they work at least once a week.

Failing the above, an individual may be able to rely on an exception to the rule that a week in which no work is performed breaks continuity. These exceptions include where the individual is incapable of work in consequence of sickness or injury, absent from work on account of a temporary cessation of work, or absent by arrangement or custom.

The ‘temporary cessation of work’ exception is likely to be the best avenue to establishing continuity of employment. That is, where gaps of a week or more between two separate ‘stints’ of employment still count towards continuous employment because the gaps are due to a temporary cessation of work. For this exception to apply, three requirements must be met:

• there must be a cessation of work
• the cessation of work must be temporary
• there must be a causal connection, ie the cessation of work must be the reason for the employee’s absence

For the cessation or work to be temporary it must last for a relatively short time. This is a question of fact for the tribunal, relevant factors may include:

• the nature of the employment
• the length of prior and subsequent service
• the duration of the break
• what was said when the break occurred
• what happened during the break
• what was said on re-engagement

For example, in Cornwall County Council v Prater.⁹ Mrs Prater had several individual teaching contracts with the council over a period of 10 years, with short gaps in between when there were no pupils for her to work with. She argued that all her separate contracts were individual employment contracts and the gaps between them were ‘temporary cessations of work’. This would give her continuity of employment from the first day of her first contract. The Court of Appeal agreed that each separate contract was a contract of employment. The gaps between them were bridged through the temporary cessation of work exception.

It is important to emphasise that here the absence of mutuality of obligation during the gaps between work is irrelevant. As long as there is mutuality of obligation during periods of work an individual will be able to establish employee status and continuity of employment.

Finally, continuity is preserved where an individual is absent from work due to some ‘arrangement or custom’. This may include where an individual is taking a career break or on sabbatical. The key issue here is going to be showing that both parties have agreed that continuity will accrue during the break.

Practicalities

When bringing a claim for redundancy pay on behalf of a client it is important to gather as much evidence as possible.

To show continuity of employment you will need to produce evidence of the existence of a contract for every week over two years. It will be important to gather evidence of your clients employment history and of any gaps between assignments. Where there are gaps it will be important to identify the reasons for these gaps and produce evidence to show continuity. For example, where your client has taken sick leave you may need to produce a fit note or medical certificate.

To disapply a zero hour provision you will need to show that your client is an employee. Evidence such as timesheets, payslips and rotas will help show the reality of the working relationship. It will be important to highlight any patterns of regular hours or assignments to a tribunal. This can help to show that contractual terms which deny mutuality of obligation are a sham. The nature of the employer’s business is another factor worth considering (see above).

It is also important to highlight the other hurdles that may exist.

For instance, for very casual workers, employment status is going to be harder to establish. For instance, it is common for those working in the gig economy to have substitution clauses included in their contracts. This can give rise to barriers to establishing status on the need for personal performance.

For the purposes of claiming redundancy pay an individual will also need to show they have been dismissed. Identifying a dismissal date for those working under zero-hour contracts can be difficult. This is because there is no obligation to provide work, and so no easily identifiable end date. In this scenario, it may help to identify the date any regular hours stopped being offered, and/or the date permanent staff were served their notice.

Conclusion

It is important to understand that sometimes there is no ‘right’ answer. Where a client’s working arrangement falls into a grey area it is sometimes impossible to determine their employment status. For those on zero hour contracts, it is very possible they will have a right to redundancy pay and is definitely worth pursuing if any of the situations above apply.

[1] Office for National Statistics, ‘Labour market overview, UK: March 2021’, 23 March 2021 https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/march2021#redundancies

[2] Office for National Statistics, ‘London and UK residents on zero hour contracts, from 2010 to 2020’, 8 October 2020https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/adhocs/12350londonandukresidentsonzerohourcontractsfrom2010to2019

[3] National Association of Citizens Advice Bureaux, ‘Check your employment status’, 1 March 2021
https://www.citizensadvice.org.uk/work/rights-at-work/basic-rights-and-contracts/check-your-employment-status/

National Association of Citizens Advice Bureaux, ‘Leaving a job’
https://www.citizensadvice.org.uk/work/leaving-a-job/

[4] HMRC v Professional Game Match Officials Ltd [2020] UKUT 0147 (TCC) https://www.gov.uk/tax-and-chancery-tribunal-decisions/the-commissioners-for-hm-revenue-and-customs-v-professional-game-match-officials-ltd-2020-ukut-0147-tcc

[5] Autoclenz Limited v Belcher and others [2011] UKSC 41

[6] Uber BV and others v Aslam and others [2021] UKSC 5

[7] Mrs M Bailey v The Old Vicarage (Ely) Ltd 3401439/2016

[8] Pulse Healthcare Ltd v Carewatch Care Services Ltd & 6 Others UKEAT/0123/12/BA

[9] Cornwall County Council v Prater [2006] IRLR 362

Lizzie Letley is a paralegal in the Expert Advice team at Citizens Advice.

The information in this article is correct as of the date of publication.

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