Opinion: Do zero hours contracts breach the mutual obligation principle?

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Zero Hour contracts have become a topic of discussion lately. In essence, the contract is worded to allow an employer to vary the amount of hours which an employee is able to work. It is at the discretion of the employer and could potentially range from a full time working week to “zero hours” in any given week.
There is no legal definition of what a zero hour contract is. It is a relatively new concept which was introduced after the global financial crisis hit, and enables an employer to manage employee associated costs by determining the number of hours worked by its employees at any given time. Historically, it has been favoured by students and retirees who do not have an expectation to a guaranteed income.
The concept of a zero hour contract appears to be a hybrid between what we would consider in New Zealand as a casual contract of employment and a permanent employment agreement.

Casual contracts typically concern those who are employed on a “if needed basis” with no expectation to be provided with continuing work. These contracts are flexible and give an employee the opportunity to refuse work without facing sanction. On this basis, there is a mutual understanding that the employer is not obliged to provide the employee with on-going work.
Permanent employment agreements generally stipulate an agreed (if not more as required by the employer) number of hours to be worked per week. This can either be recorded in the form of part time or full time agreements. These contracts are not as flexible as casual contracts as the mutual obligations by the employer and employee as to hours are made clear from the get go. For example, an employee who refuses to work the amount of hours specified in his or her contract will face sanction in the form of a disciplinary investigation. Relatedly, an employer who does not provide its employee with the contractual number of hours worked (and therefore assumingly a cut in salary) may face a personal grievance for breaches to the Employment Relations Act.
The zero hour contract appears to be a hybrid of the two because it enables an employer to enjoy the characteristics of a casual agreement (or part thereof) in that there is no expectation of on-going employment, while also requiring that employee to undertake working the hours proposed to him/him or face sanction (which is characteristic of permanent employment).
As anticipated, zero hour contracts have invited criticism from not only unions but also Members of Parliament. The crux of the criticism lies in the one sided nature of the contracts: the requirement that an employee is to accept the number of hours provided with no expectation of continuous work, having little or no regard for an employee’s expectation to a stable income, the promotion towards a culture of favouritism and restricting workers from undertaking alternative employment.
There is also an argument that a duty of good faith is breached in exercising zero hour contracts. The courts have ruled that parties to an employment relationship must have mutual obligations during periods of actual work or engagement. Within these mutual obligations, on-going employment should consist of the obligation to offer an employee further work and that employee, the obligation to carry out such work. If zero hour contracts were to be tested by the courts and found to be permanent, on-going employment relationships, then it may be in contravention with the principle of mutuality of obligation. The Courts have also noted that employment agreements have a social dimension in making sure employees have a function within a business.
While the appropriateness of zero hour contracts have come into question, there is no denying that businesses have the right to structure their affairs and make financial decisions how they see fit for the purposes of enabling business efficacy. It will be interesting to see how businesses choose to structure its affairs and employment arrangements if the stigma around zero hour contracts continues to be broadcasted in New Zealand society.

About the author

Glen D’Cruz is a solicitor at Corban Revell Lawyers.

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