Small Business, Enterprise and Employment Bill

Baroness Drake Excerpts

Wednesday 11th March 2015 Lords Chamber

I cannot believe that anyone would defend this practice of cancellation without pay, when the worker has turned up as required—often summoned overnight by text—and then finds themselves having to pay for the privilege of being denied work by paying for their costs out of their own pocket. I cannot believe that anyone in your Lordships’ House today would defend this practice. Along with the CBI, we all know that it is not right. With your Lordships’ help today, we could change that. I beg to move.

[Baroness Drake (Lab)]

My Lords, the drive behind the amendment is to encourage employers to give workers reasonable notice before work which has been offered is withdrawn and to require, where a shift is cancelled at short notice, that workers have the right to compensation.

The recession in 2008 led to lower levels of unemployment than anticipated, due in part to employers responding by using more flexible employment to manage the consequences of the downturn. Their response heralded significant changes in the UK labour market, including a sharp increase in the use of zero-hours contracts. The ONS annual business survey of employers conducted in early 2014 estimated that there were 2.7 million zero-hour contracts on employers’ books, of which 1.4 million provided work to people and 1.3 million did not. By August, those figures had risen to 1.8 million and 1.4 million respectively. Those contracts are now common among larger employers, with 50% of those with at least 250 employees using them.

Those findings are consistent with a survey conducted by the Chartered Institute of Personnel and Development. The Labour Force Survey estimated that in the last quarter of 2014, there were 697,000 people on zero-hour contracts in their main job, up from 586,000 in 2013 and 250,000 in 2012. Increased awareness following media coverage may partly explain that rise, but, as the ONS concedes, the survey may also significantly underestimate the true level because it is based on interviews with workers who often lack awareness of their type of contract. Whatever the qualifications about the data, the trend is undeniably upwards. With concentrations in sectors such as education, accommodation and food, and health and social care, women accounted for 55%, and young workers 50%, of those on those contracts.

The advantages for employers are clear: managing peaks and troughs in demand and cost-efficiencies from a supply of workers available at short notice. Zero-hours contracts may give some people choice, but others are offered them on a take-it-or-leave-it basis. The ONS Labour Force Survey confirms that zero-hours workers’ average weekly earnings were just £188, compared to £479 for permanent workers. One in three has no regular amount of income and is far more likely to want more working hours compared to other types of staff.

In 2008, 19% of zero-hours contract workers reported that they were in temporary work because they could not find a permanent job. By 2014, that figure had jumped to 41%. For those in the 25 to 29 age group, more than 58% said that that was because they could not find a permanent job—a depressing statistic.

Although there is a place for such contracts in the modern economy, their misuse causes real concern. In some sectors, they are becoming the default setting. True flexibility rests in a genuine reciprocal arrangement, but the increasing body of evidence reveals an imbalance in the employment relationship, not least when the promise of work is withdrawn at short notice, leaving the worker high and dry. The imbalance means that the employer reaps the benefit of flexibility and the risks and insecurity are transferred to the worker. Employers are required to pay zero-hour contract workers only for the time that they actually work. They are under no obligation to pay an individual who, at the behest of the employer, prepares to go to work or turns up but for whom work is not provided. The employee loses the chance to earn wages and may have paid for fruitless travel costs or childcare.

Findings from the survey revealed that 46% of zero-hour staff receive little notice or find out at the start of a shift that work has been cancelled. The CBI and the Chartered Institute of Personnel and Development recognise these problems. In its March 2014 zero hours briefing the CBI stated:

“An intervention which creates a simple formula for compensation … when a shift is cancelled at short notice … would be better targeted.”

Peter Cheese, chief executive of the Chartered Institute of Personnel and Development told the Bill Committee that people on zero-hours contacts had concerns,

“if they were called in to work at short notice and that work was then not subsequently provided. So, for example, they had to travel for half an hour … and then be told, ‘Really sorry, but the shift is not available’. We think there should be some form of compensation for that … a reflection of what we saw as good practice”.—[Official Report, Commons, Small Business, Enterprise and Employment Public Bill Committee, 14/10/14; col. 65.]

This amendment is not challenging flexibility or making the UK labour market uncompetitive; it addresses a real and deep unfairness. When an employee is offered work which they accept and then at short notice that work is not subsequently provided, they should receive compensation. Many zero-hours workers already face a pay penalty. The unpredictability of their earnings makes it difficult to access credit or secure mortgage and tenancy agreements. Constantly varying hours impacts on families, making it difficult to organise childcare and have a social life. Compensation for employees who are offered work which at short notice is not then provided is a most modest correction to the imbalance in the employment relationship, one which my noble friend Lady Hollis has confirmed that both the CBI and the Chartered Institute of Personnel and Development say they support.

An uncertain employment status can make it difficult for zero-hours contract workers to complain. If they do, they may be “zeroed out”, meaning they receive even fewer hours. This makes it even more important that regulations should require employers to pay compensation to workers whose shift is cancelled at short notice. This is not a challenge to flexibility but a call for simple fairness.

[Lord Stoneham of Droxford]

My Lords, no one wants to see exploitation of zero-hours contracts, but we need to see the wider picture. There are obviously some particular issues which need to be addressed but we need to have a wider view of the benefits of some of these practices. I obviously welcome what the Government are seeking to do on getting rid of the unwarranted exclusivity aspects of zero-hours contracts, but let us not forget that we are recovering from a recession and the most important thing in a recession is to find jobs for people. That gives them confidence and well-being. In previous recessions we found it much more difficult to get flexibility and enable jobs to be created at the pace that they have been in the last couple of years.

We may have certain concerns about the growth of zero-hours contracts, but they have certainly provided flexibility both for employers and employees in the labour market. As the labour market tightens, as we hope it will as growth picks up and productivity improves, we expect that the growth of these contracts will probably slacken because employers in a tighter labour market will have to offer permanent contracts to keep people in the jobs that they have offered them. They will obviously have to do that; that is the nature of the labour market at the moment and there has been a huge benefit to people in it remaining flexible.

We have had certain statistics about people on zero-hours contracts and we have to understand the nature of people who are doing this work. Some 17% are in full-time education, 6% are over 65; people on these contracts work more than 25 hours per week: there is no great resistance to them, in fact. We have already heard that a lot of people on these zero-hours contracts have been on them for some while. Maybe it is convenient to them as well. Some 60% have been on these contracts for more than a year, 66% do not want more hours, only 3% want additional jobs and only 10% want to change jobs to get more hours. So there are some benefits on both sides.

By all means, we should consult and review what is happening with zero-hours contracts, but wait a year or two and see whether we can maintain the growth of employment that we have had over the last couple of years and whether the economy is genuinely moving ahead before we start to interfere with these contracts in a way which could be detrimental to the growth of employment.

There are lots of other things we should be doing, such as looking at public sector contracts which are forcing some of these zero-hour practices in the public sector. I declare my interest as a director of Housing & Care 21, which is involved in the care sector, so I understand that we need to work on that area. We want also to look at the living wage but you cannot at the same time put your costs up, unless productivity is rising and we can sustain employment. There was quite an influential article in the Sunday Times a couple of weeks ago by David Smith, who said:

“People need to be safeguarded against exploitation but clamping down too hard on zero-hours contracts would risk throwing the baby out with the bathwater”.

I ask the House to be very cautious about supporting this amendment.

--- Later in debate ---

[Baroness Drake]

My Lords, I support Amendment 74C. It is an argument that many in this Chamber are familiar with. As my noble friend Lady Hollis so clearly explained, there is a group of workers caught by the rules whereby someone has to earn in a single job an amount above the lower earnings limit—the LEL—currently £5,700 a year, to come into the national insurance system. If, however, someone has two jobs, both of which pay below £5,700, but which may still involve them working, say, 30 hours a week, they cannot add the wages of those jobs together to get above the lower earnings limit and into the national insurance system. If they are not in the national insurance system, this affects their eligibility to statutory sick pay, statutory maternity pay and the accrual of the state pension.

In the past it was thought that perhaps 50,000 people, mostly women, were affected, but the scale of the problem is now far greater because of the increase in the use of minimal-guaranteed-hours contracts in the economy, particularly over the last five to six years. It is the scale of the increase in the problem in recent years that has made this such a significant issue on the agenda—not that it was not always significant for the 50,000 people who were previously affected.

Contracts with minimal guaranteed hours deliver little or no wages in some weeks, if little or no work is offered. Workers may need several casualised jobs to get an income and may then find that not one of them pays above the £5,700 entry level for the NI system. It is estimated that two in five zero-hours contract workers earn less than £111 a week, which is the approximate weekly equivalent of £5,700. The incidence of working zero-hours contracts, agency working and limited-hours contracts has, as I said, increased since the recession and brought with it the incidence of low and unpredictable pay. As I quoted in a previous debate, in August 2014 there were some 3.2 million zero-hours contracts on employers’ books, of which 1.8 million provided work to people in the period when the survey was undertaken.

A modern welfare state has to be responsive to the realities of the contemporary labour market. In the earlier debate on zero-hours contracts we heard arguments from the Benches opposite that one has to keep flexibility in the labour market. However, if that is the case, the welfare system has to be responsive to the realities of that contemporary labour market.