Guaranteed hours contracts — how employers should prepare

The Government has pledged to end insecure employment and contracts that provide for ‘one-sided’ flexibility, such as ‘exploitative’ zero-hours contracts. However, with an outright ban considered to be unworkable, under the Employment Rights Bill employers will have to offer a ‘guaranteed hours contract’ to relevant workers that reflect the average number of hours they normally work.

As the Bill makes its way through Parliament, our experienced employment lawyer Lee Jefcott explains what employers need to know about guaranteed hours contracts and outlines three key steps they could take now to get prepared for the new contract landscape.

Zero-hours & low-hours contracts explained

The new provisions around guaranteed hours contracts will apply to those working under a zero-hours contract or a low-hours contract. A zero-hours contract is where there’s no obligation on the employer to offer work. A low-hours contract is where an employer is obliged to make work available for a minimum number of hours which is less than a specified number of hours (this will be set out in forthcoming regulations).

Zero-hours or low-hours contracts are common in the retail, hospitality and leisure sectors, where there’s often a fixed number of hours to cover and these can be flexed up or down due to factors like seasonal demand. However, many workers are routinely working longer hours than those fixed by their contract. Employers will therefore be obliged to offer a contract with a fixed number of hours that reflects the actual number of hours worked in a given ‘reference period’ (likely to be 12 weeks).

Example:

Jon is employed by XYZ Ltd on a ten-hour per week contract. He regularly works 40 hours a week.

On the basis that ten hours a week is a low hours’ contract, XYZ will be obliged to offer him a contract that guarantees him 40 hours of work per week.

Jon doesn’t have to accept the offer — he may decide to continue his current arrangement rather than commit to working 40 hours per week. However, XYZ must offer him a guaranteed hours contract of 40 hours a week.

The issue with guaranteed hours contracts

There are a number of problems in practice with this approach. Perhaps the most obvious is where work is seasonal. Hospitality businesses see peak demand in December and/or over the summer, so when the peak is over they’ll still be obliged to offer guaranteed hours to workers that reflect the hours they worked during the peak. Yet of course there’ll be much less work available. 

This isn’t something that appears to have been addressed by the Government in its response to the consultation over the draft legislation. Indeed, there’s no ability for the employer to ‘contract out of’ the requirements unless this is contained in a collective agreement with a recognised trade union — though such formal recognition agreements are relatively uncommon in the retail, hospitality and leisure sectors.

Fixed-term contracts — one potential solution

However, under the draft legislation it’s possible to make an offer of a fixed-term contract that contains the guaranteed hours. This is designed to cover a situation where the contract is designed to cover a specific event or task or where there’s a temporary need for work. While these provisions may ultimately provide some scope to manage peaks and troughs, it remains to be seen how these would operate in practice. Under the draft legislation, it must be ‘reasonable’ for an employer to believe that fixed-term contracts may be used. It’s possible that we’ll see a ‘two tier’ workforce, with one body of workers on permanent contracts with guaranteed hours and another on fixed-term contracts to cover fluctuations.   

There are also ‘anti-avoidance’ provisions built in, which mean that it won’t be possible to manipulate the number of hours worked in a reference period to try to avoid or reduce the effect of the provisions — for example, by artificially reducing the number of hours worked to reduce the number of guaranteed hours to be offered.

FAQs — guaranteed hours contracts

Do we have to continue offering guaranteed hours contracts?

Yes. Provided that an employee continues to be a zero-hours or a low-hours worker, employers must continue to make an offer after the end of each reference period. This will be the case until either the employee accepts an offer or no longer qualifies as a zero-hours or low-hours worker. 

Do I need to tell employees about guaranteed hours contracts?

Yes. Employers must inform workers who are eligible for guaranteed hours contracts about their rights.

How are agency workers affected by guaranteed hours contracts?

The draft legislation will apply to agency workers, with the obligations falling on either the hirer, agency or both.

Can employees bring employment tribunal claims about guaranteed hours contracts?

Yes. Employees will be able to bring claims in the employment tribunal in a number of situations. For example, it’ll be unlawful to dismiss a worker or subject them to a detriment if this was done to avoid employer obligations under the provisions.

How to prepare for guaranteed hours contracts — three top tips

It’s anticipated that these new legal requirements will come into force in Autumn 2026. In the meantime, there are many things that employers could do to prepare for the new landscape.

1. Review your existing arrangements. Do you have zero-hours workers? Do you have workers on low guaranteed hours who regularly work more hours? If so, consider moving them onto contracts that reflect the hours they regularly work. Where you can offer contracts with a minimum number of guaranteed hours, consider how you’d reduce situations where employees are working fluctuating hours in excess of these.
2. Track seasonal fluctuations in demand. Consider how this could be resourced to comply with the requirements. For example, if there are well established fluctuations in work, it may be possible to use fixed-term workers to meet this demand.
3. Understand the new requirements. These provisions go hand-in-hand with proposed new rights to receive reasonable notice of shifts and compensation for cancelled or curtailed shifts. It’s important to familiarise yourself with these new requirements and consider how your organisation currently deals with shift rotas and cancellations.

Talk to us

Our specialist employment law solicitors provide the full range of legal services, with significant experience supporting employers in sectors that will be impacted by the new guaranteed hours requirements including leisure and hospitality and retail.

Arrange a no-obligation chat with us today by calling 0333 004 4488, emailing hello@brabners.com or completing our contact form below.