“Zero hour” contracts in the past required employees to be available for work offered, without compensation for being available, and without some guaranteed hours. 

Under the new rules such zero hour contracts are illegal.  The changed rules aim to make it fairer to employees, while still allowing flexibility for an employer by allowing “availability clauses”.

The rules changed back in April 2016 and all employers must comply with the much tighter laws on these clauses.  However, we have noticed that several employers are still failing to comply with the changed requirements for “zero hour contracts”.  This article sets out some of the changed rules about zero hour contracts and some potential pitfalls to avoid.

Agreed hours

Employers are now required to include into any employment agreement the hours of work which have been agreed between the parties, including:

  • Guaranteed hours;
  • Days of the week on which work is to be performed;
  • Start and finish times; and
  • Any flexibility in any of these factors.

Flexibility

An availability clause allows the parties to have some flexibility in the agreed hours.  For example, where the employer cannot know in advance exactly how many hours the employee will be required for.

An availability clause requires the employee to be available to accept work over and above some guaranteed hours of work. 

Availability clauses are only enforceable if:

  • The employer has genuine reasons, based on reasonable grounds, for including the clause into the agreement;
  • The employee gets reasonable compensation for making him or herself available; and
  • The employee also has some guaranteed hours.

What is considered as “genuine reasons, based on reasonable grounds” depends on:

  • Whether it is practical for the employer to run the business without the availability clause;
  • The number of hours the employee is required to be available; and
  • The number of guaranteed hours.

What is considered as “reasonable compensation” depends on:

  • The number of hours the employee is required to be available;
  • The number of hours the employee is required to be available compared to guaranteed hours;
  • The nature of restrictions on the employee (e.g. stay within proximity, no drinking, etc.); and
  • The remuneration for availability.

If there is no “availability” clause in the agreement, any additional hours offered to the employee can be refused, and the employee must not be treated adversely (differently from other similar employees).

Employers need to be careful that they are not confusing permanent employees subject to an availability clause, with casual employees or vice versa. Casual employees have no obligation to be available, unlike employees subject to an availability clause. 

If you are uncertain, it is best to get advice early to avoid problems later on, because the amendments have also increased the powers of Labour Inspectors to ensure compliance with the new rules.

The penalties have also been increased to motivate employers to follow the new rules.  In some instances penalties may be up to $50,000 for an individual; or for a company up to $100,000, or three times the financial gain made as a result of the breach. 

A person may also be banned from entering into an employment agreement as an employer, being an officer of an employer, or being involved in the hiring or employment of employees, for up to 10 years if they commit serious or persistent breaches. 

It is clear that getting things right is important.  Employers are advised to check all their employment agreements currently in place to make sure that they do not need updating and to get assistance from an experienced employment professional to get the wording right if necessary.

 

Jaenine Badenhorst

Employment Lawyer

Wellington