Small Business, Enterprise and Employment Bill

Written evidence submitted by TUC (SB 14)

Zero-hours contracts – introduction

The UK has a growing problem of casualisation, with millions of workers failing to benefit from the recovery. Instead they are trapped in low paid, highly insecure jobs which offer poor career prospects. Many are forced to take out pay-day loans to cover household bills and to use foodbanks to feed themselves and their families.


Of particular concern is the growing use of zero-hours contracts. Statistics published by the Office of National Statistics (ONS) in April 2014 reveals that there are 1.4 million zero-hours contracts in use in the UK ( An additional 1.3 million individuals were not offered any work by their employer during the two week period when the ONS carried out its survey of employers was undertaken.


As worrying as these statistics are, they do not capture the full extent of casualisation in the UK. For example, the statistics do not include all agency workers, those who are falsely self-employed or individuals who are employed on short hours contracts who cannot earn enough to make ends meet.


Zero-hours contracts and unenforceable exclusivity terms

There is increasing public concern about growing casualisation and its impact on working people. The recent BIS consultation on zero-hours contracts attracted more than 36,000 responses.


The Small Business, Enterprise and Employment Bill set outs the government’s limited response to the growing problem of casualisation, with Clause 139 of the Bill introducing a ban on the use of exclusivity clauses.


Whilst the TUC supports the principle of a ban on exclusivity clauses, new section 27A contains serious weaknesses:


· Employers will be able to avoid the ban on exclusivity clauses by offering workers a contract which guarantees one or two hours work each week or even each month.

· The Bill does not impose any penalties on employers who flout the ban. Instead new section 27A only provides that employers cannot enforce exclusivity clauses.

· Workers will have no redress if employers threaten to refuse them future work if they ignore an exclusivity clause and seek work with another employer. Many will simply be unaware of their rights and presume they are tied to one employer.

· The Bill offers no assistance to zero-hours workers who feel pressurised into remaining available for work, even though they are not subject to any contractual requirements.

The Government has committed to consult on how to prevent rogue employers from evading the ban on exclusivity clauses, for example by offering one hour fixed term contracts.


The Bill gives the Government the power to introduce regulations to address some of these issues. The regulations could extend the ban on exclusivity clauses to different types of contract (for example, short-hours contracts for 10 or fewer hours per week). The regulations could also impose financial penalties on employers or require employers to pay compensation to workers, although the Bill not specify in what circumstances.


During the consultation, the TUC has called for the introduction of effective sanctions. The ban on exclusivity clauses should be extended to all workers and employees. Alternatively, legislation should be introduced requiring employers who use exclusivity clauses to compensate workers for loss of potential earnings by paying them on a full-time basis.


Wider abuses experienced by zero-hours contract workers

Whilst the proposal to clampdown on exclusivity clauses is welcome, the TUC believes the government needs to go much further to tackle the abuses experienced by zero-hours contract workers. These include:


· Low pay: TUC research, based on the Labour Force Survey, reveals that the average hourly wage for a worker on a zero-hours contract was £8.83 an hour – a third less than the average for staff on permanent contracts (£13.39). [1] The majority (57.6 per cent) of workers on zero-hours contracts outside London earned less than the living wage of £7.65 an hour, while more than three-quarters of those working in the capital earned less than the London living wage of £8.80 an hour.

· Income insecurity: Workers on zero-hours contracts were nearly six times as likely to have differing amounts of weekly pay compared to staff with other kinds of work arrangements. [2] Two in five zero-hours workers reported having no usual amount of pay. Receiving a varying amount of take home pay each month makes it difficult to meet rent or mortgage payments and other household bills, to access credit and to plan financially for the future.

· Under-employment: Zero-hours workers tend to work shorter hours than other staff and are more likely to want more working hours than other workers. Despite the inadequacy of their income, the need to be available for work when required by the employer, often at short notice, hinders the ability of zero-hours workers to take up additional employment.

· Impact on families: While employers argue that flexible working arrangements assist individuals with caring responsibilities, the lack of a work guarantee, and related unpredictability of work from week to week (and day to day) can put a strain on families and their ability to arrange childcare or elder care.

· Lack of employment rights: Many zero-hours contract workers lose out on basic workplace protections, because they fail to qualify as employees, lack the necessary continuity of service or because their employer takes advantage of their uncertain employment status to evade employment rights obligations.

· Abuse at work: Zero-hours contracts are more vulnerable to mistreatment and exploitation at work than regular permanent contracts. For example, there is a growing evidence of breaches of the National Minimum Wage in the home care sector, with care workers losing out on pay for travel time. [3]

· Difficulties accessing benefits: The variability of individual’s earnings can create difficulties over eligibility for various forms of benefit.

The government should take urgent action to provide a better deal at work for those in casual, insecure employment including:


· Providing increased access to permanent employment on decent pay

· Ensuring workers are fairly paid, including for all time spent on-call for the employer

· Providing all workers with the same basic fall of rights, including statutory redundancy pay, the right to request flexible hours and the right to return to work following maternity or paternity leave.

NMW penalties

The Bill will increase the civil penalties imposed on all employers that underpay their workers in breach of the national minimum wage legislation by imposing them on a per worker basis.


Employers caught underpaying the national minimum wage must pay back workers at the current rate of the NMW. In addition, a few have been prosecuted for aggravated offences under the act. In addition, in 2009 Labour introduced a civil penalty for all employers caught cheating. The penalty was to match the total arrears owed, by with a cap at £5,000 per offence and a 50 per cent discount for rapid payment. Last year, HMRC imposed 708 penalties, totalling more than £750,000


In April 2014 the coalition changed the regulations to make the maximum penalty per offence £20,000, and discontinued the rapid-payment discount. They also announced their intention to bring forward primary legislation so that the penalties could be applied on a per-person basis.


Whilst the average penalty is less than £5,000, as most minimum wage cases involve relatively small amounts, these changes will allow much bigger penalties to be imposed in the larger cases. For example, a call centre owner in Hull owed 200 workers £96,000 in a case last year. He received a penalty of £5,000. If the same offence took place now, the penalty would be £20,000, and if the proposals in the current bill applied the civil penalty would be £96,000.


This measure is welcome. However, it is not the last word in minimum wage enforcement, as more funding is certainly needed for advertising and enforcement. In addition, there is a substantial minority of cases where the cheating employer simply vanishes to avoid paying up. The TUC has argued that the government should guarantee minimum wage earnings in such cases, as it does for redundancy payments. In addition, it should be noted that Employment Tribunal fees are higher than average minimum wage arrears, thus discouraging workers from enforcing their rights.


Financial penalties for failure to pay employment tribunal awards

Clause 136 of the Bill will allow for the imposition of financial penalties on employers who fail to pay compensation awarded by employment tribunals. The penalties will also apply to the non-payment of sums owed under settlement agreements reached following Acas conciliation.


Under the proposed system, where an enforcement officer considers that an employer has failed to pay, he or she may give the employer a warning notice stating the officer’s intention to impose a financial penalty. If the employer does not pay by a specified date, the officer may give the employer a penalty notice requiring the employer to pay the Secretary of State a financial penalty of 50% of the unpaid amount (subject to a minimum of £100 and a maximum of £5,000)


The TUC welcomes the government’s decision to tackle the serious problem of non-payment of Employment Tribunal awards. Research commissioned by BIS in 2013 revealed that only 49 per cent of all individuals who were successful at an employment tribunal were paid all the compensation due to them. 16 per cent of successful claimants were paid in part by their employers; whilst 35 per cent did not receive any compensation at all. [4]


The TUC agrees that measures set out in the Bill represent a welcome step in the right direction. However, the Bill does not state how, or by whom, the financial penalties will be enforced. It is vital that recalcitrant employers who refuse to pay employment tribunal awards are similarly not able to avoid the payment of financial penalties. The measures contained in the Bill also will not provide much assistance to individuals who were employed by businesses which became insolvent. The TUC believes that any recovered financial penalties should be paid to the workers whose rights were breached rather than to the Exchequer.


We would call on the government to consider additional measures. These include:


· Committing to ‘naming and shaming’ employers who fail to pay employment tribunal awards on time

· Requiring the HMRC to play an active role in recovering unpaid employment tribunal awards.

· Ensuring that companies which fail to pay employment tribunal contracts are not awarded public contracts.

· Preventing bosses from placing their companies into insolvency in order to avoid paying employment tribunal awards only to start trading through ‘phoenix’ companies. Individuals who are found guilty of such practices should be barred from acting as company directors.

· Abolishing employment tribunal fees which pricing many workers out of justice. Since the introduction of fees, employment tribunal claims have fallen by 79 per cent, with women and low paid workers being the principal losers.

Employment Tribunal postponements

Clause 137 will provide powers for the government place a limit on the number of successful applications for postponements which claimants or respondents can be granted in any case. Judges will still be able to grant postponements in exceptional circumstances. The government will also be able to required Employment Judges to consider issuing making cost orders where a late application for a postponement is made.


The TUC supports these measures. It is often difficult for witnesses to get time off work in order to attend employment tribunals when hearings are repeatedly put back. This proposal is also likely to speed up the employment tribunal process and will reduce costs for all parties.


Regulations about procurement

· The overarching objective of this part of the Bill is to create a simple and consistent approach to procurement across all public sector authorities so that small businesses can gain better and more direct access to this market.

· The stated benefits of this legislation include "less bureaucratic process", "reduced bidding costs" and no extra burden or cost on suppliers.

· The TUC supports public procurement that seeks to maximise value for money for the taxpayer by ensuring that suppliers are able to meet a range of economic, environmental and social objectives that are in the interests of the public and the commissioning authority, e.g. provision of apprenticeships, payment of a living wage.

· We would also want to see suppliers excluded, wherever possible, from the procurement process if they have a track record of breaching UK employment law, health and safety and environmental obligations, e.g. non-payment of tribunal awards, evidence of blacklisting activity.

· We also support greater transparency and accountability in the procurement process, including Freedom of Information coverage for all supplier of publicly funded services and ‘open book accounting’ as standard on all contracts and public sector equalities duties extended to all contractors.

· As such, we would be concerned if the drive towards streamlining the procurement process for small businesses was used as a pretext for not effectively managing and monitoring the requirements set out above.

Investigation of the exercise by contracting authorities of procurement functions

This legislation aims to provide the Minister for the Cabinet Office or the Secretary of State with a general power to investigate procurement processes and practices carried out by UK Government Departments and other contracting authorities, as defined in the Public Contracts Regulations, who are not wholly or mainly undertaking devolved functions.


These measures will enable the effective monitoring of the implementation of the changes to procurement practice proposed in this Bill as well as other modernised procurement policies and practice.


The TUC supports greater transparency and accountability in the procurement process. Far too much information of interest to the general public regarding public funding of contracted out services is hidden through the use of commercial confidentiality.


Both private sector contractors and the relevant public bodies commissioning services have been complicit in this and we welcome any move that empowers the government to investigate the procurement process further.


We would welcome stronger moves in this regard, including the extension of Freedom of Information to all suppliers of public services, ‘open book accounting’ as standard on all contracts, extension of public sector equalities duties and disclosure on joint ventures, ownership, partnerships, supply chains and remuneration.


We would like these powers to be used to oblige commissioning authorities to disclose the fullest possible range of issues of public interest and not focus exclusively on the procurement process itself.


Company transparency

The TUC supports the aim of boosting transparency on company ownership. The proposed measures are a small, but nonetheless welcome, step towards this. At present, it can be very difficult to find out who the beneficial owners of companies are and therefore who is ultimately benefitting from the extensive rights that shareholders have in relation to UK companies.


Limiting the use of corporate directors is a positive move that should help to promote greater clarity about who is running UK companies.


Directors’ disqualification

It is too easy for directors to move from one failed company to another, leaving behind them a trail of damage to workers and suppliers who frequently get only a fraction of the money they are owed by a company that becomes insolvent. Strengthening the director disqualification regime is important to prevent directors who have behaved irresponsibly as a company director from acting as a director for another company.


It is very important that creditors – especially workers and suppliers – should receive sufficient compensation when companies that owe them money fail. It is not fair that the workforce and suppliers – who often themselves have tight balance sheets and cash flows – should pay the price of company failure that they have played no part in creating.


October 2014

[1] TUC, (2014) Casualisation and Low Pay available at

[2] Ibid

[3] I Bessa et al (2013) ibid

[4] BIS (2013) Payment of Tribunal Awards: 2013 Study IFF Research for the Department of Business Innovation and Skills available at:

Prepared 15th October 2014