Hyper-flexible employment contracts should be reformed, not banned

Too often zero-hour contracts are a license for exploitation

Five years ago there were only around 100,000 people employed on “zero-hours” contracts offering them no guarantee of work. The number has risen steadily since. Last week, the Office for National Statistics upped its estimate by a quarter to 250,000. Now, a professional body puts the figure nearer to one million – more than 3 per cent of the labour market. Nor are such tactics restricted to sectors with sharply fluctuating demand, such as hospitality; the NHS, Amazon, and even Buckingham Palace also use them.

On paper, there is much to be said for zero-hours contracts. Employers benefit from arrangements under which they have a workforce on tap but must pay only when it is active; and some employees appreciate the flexibility, too. More important still, in times of economic uncertainty, when companies might otherwise not be hiring, it is better to have unpredictable hours than no job at all. For small businesses, in particular, such adaptability can be crucial, and their expansion, in turn, commonly drives much-needed growth.

The problem is that too often zero-hours deals are a licence for exploitation. Complaints include employees being required to be permanently available, despite there being no certainty of work; and staff not receiving standard benefits such as sick pay or pension contributions. There is also an unhealthy concentration of power in the hands of individual managers, who may allocate hours or withdraw them according to personal preference. Although workers can theoretically turn down work, most assume – probably rightly – that such a refusal would mean no further offers, with no hope of redress.

As estimates of the extent of the phenomenon inexorably rise, there are calls for zero-hours contracts to be banned. The Business Secretary – who is reviewing the situation – is resisting. He is right to do so. The issue is not the deals themselves, it is how and why they are used.

A case in point is social care, which has long been disproportionately reliant on zero-hours arrangements. Why? Because government funding is too low to pay anything but the meagrest wages. As the population ages, the situation will only worsen. But super-flexible contracts are the symptom, not the cause, and banning them is to allow the specifics of one, very particular sector to skew a policy affecting all.

That is not to say there is nothing to be done. Vince Cable’s first priority is to establish the true scale of the issue. There is also a strong case for reform. Staff required to be always “on call” should be compensated. Businesses above a certain size – perhaps 50 employees – should be required to provide a minimum number of hours. (Larger companies have no excuse for passing on risks they can well afford.) Finally, basic employee rights must be enforced.

Before attempting anything more radical, however, it would be as well to see what happens as the economy improves. It is no surprise that the number of zero-hours contracts rose during a period of recession and stagnation. But it is essential that, as the outlook improves, staff are given more typical terms. If the current spike is no cyclical occurrence but, instead, presages a newly insecure, low-wage workforce, then the price of flexibility will be too high.