Business

Thursday 5 December 2019

Zero hour contracts question a minefield for lawmakers

Ged Nash, TD, Super Junior Minister of State for Business and Employment .
Picture By David Conachy. 28/8/2014
Ged Nash, TD, Super Junior Minister of State for Business and Employment . Picture By David Conachy. 28/8/2014
Dan O'Brien

Dan O'Brien

What rights and responsibilities do we have? How are rights balanced when there exists a natural difference between distinct groups' interests (landlords and tenants are an example)? How and when should rights be put into law?

Thinkers and law-makers have been wrestling with these questions for centuries. Earlier this week, the Government began to wrestle with the controversial topic of "zero hour contracts", whereby employees must be available for work at certain times but employers have no obligation to give them work, or, in Ireland's case, a limited obligation.

Balancing the competing needs of workers and employers is no easy task in general, and getting the balance right with zero hour contracts, which are inherently unfair to workers, is a nightmare.

Maximum flexibility allows employers to match the supply of labour as closely as possible with demand. In sectors where demand fluctuates a lot, it can be difficult to predict how many employees will be needed in advance.

For such industries, it is in the employers' interests to have resort to zero hour contracts or similar arrangements. Bosses will also argue, not implausibly, that if labour regulations are too strict, they will hire less. From a public policy perspective the question is: are bad jobs worse than no jobs?

From the individual workers' perspective, zero hour contracts make both the flow of income and the daily routine unpredictable. Employees need certainty about working hours to maintain financial stability, make childcare arrangements, and enjoy leisure time. Longer term life planning is also made more difficult by such contracts. Employees on zero hour contracts are likely be viewed less favourably when applying for a mortgage, or even agreeing a lease on a rented property.

This week, the junior minister responsible for business and employment, Ged Nash, announced a study of zero hour contracts. It will examine the prevalence of this type of employment contract in Ireland and the effect on employees. There is politics aplenty in all this. Nash is on the Labour party side of the coalition. His party has been outflanked on the left by many rival parties and independents.

Labour must be seen to be standing up for the working poor and, come the next election, cannot afford to be portrayed as a party of the left who did the bosses' bidding when in power and failed the working poor.

One need only look across the water to see the potential for the issue to become a hot political potato. Last week UK Labour Party leader Ed Miliband declared his opposition to zero hour contracts and pledged to bring in regular contracts for those working regular hours if elected next year.

It is not hard to see why. As the first chart shows, the prevalence of zero hours contracts in the UK has soared. One of the reasons the government here is right to conduct the study announced earlier this week is because similar figures are not available in Ireland and they are needed in order to understand the prevalence of such contracts. But what we do know is that Ireland differs in one very important respect from the UK - there are no pure zero hour contracts. Irish legislation provides for compensation where workers are required to be available, but are not called into work. In such cases, workers must be paid for 25pc of the hours when they were effectively on standby (or paid for 15 hours, whichever is less). This is a much better balance between workers' and employers' rights than in Britain. The balance in Ireland seems to be better when all aspects of non-permanent employment contracts are considered. The second chart shows how countries rank according to an OECD scorecard of temporary work regulation.

In Ireland, there is much more protection than in the UK and more even than countries such as Sweden and the Netherlands. It should also be noted that the countries with most regulation also tend to have the highest rates of joblessness and the lowest share of their adult populations at work.

Generally speaking, therefore, it would appear that the balance in Ireland is about right. We don't have the high rates of unemployment of, say, Spain where employers have too few rights to manage their businesses; but nor do we have a US-style situation whereby employees have too few rights and can be fired on a boss's whim.

Without pre-empting the findings of the study, two things can be said. First, a pure zero hour arrangement is unbalanced, and there is good reason for maintaining the prohibition on such contracts. Second, there is a case for differentiating between big, well established employers and small, young companies.

The evidence from research internationally and in Ireland suggests that all or most net new employment is accounted for by startup companies. It is also known that these companies are most at risk of going to the wall in their early years.

The case, therefore, for allowing young companies leeway to use the current form of zero hours contracts is strong, and if the study finds there is indeed a need for more workers' rights, that should be taken into account.

That could be done by, for instance, allowing zero hour contracts in companies employing fewer than a certain number of people or that have been in existence for fewer than a certain number of years. In the former case, a reasonable number might be 25, on the basis that if a business employs that number it has achieved a sustainable size.

In terms of the company age, three to five years from startup could be a limit, again on the basis that if a business survives the highly uncertain first years, it has established itself and can offer its employees greater security in pay and conditions.

Making it a dual requirement - both the number of employees and the age of the firm - would ensure any perverse incentives, where hiring the 25th worker imposes a regulatory burden, expire after a certain period.

Whoever wins the tender to carry out the research will have their work cut out. They face the age-old challenge of balancing rights. They can be sure of only thing when they publish their work - not everyone will be happy with their findings.

Irish Independent

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