Zero-Hour Contracts Under Review: What the Upcoming Legal Changes Mean for Your Business

The UK government has proposed changes that will affect how businesses engage with workers on zero-hour contracts. While details are still pending, now is the time for SMEs to prepare for the evolving legislative landscape.

1.      What is a zero‑hour contract?

The Chartered Institute of Personnel and Development (CIPD) defines a zero-hour contract as a type of employment contract where an individual is not guaranteed any set number of working hours by the employer. However, when they do work, they are considered an employee or worker, depending on the nature of the arrangement, and are entitled to:

• National Minimum Wage

• Holiday pay

• Rest breaks

• Protection from unfair dismissal (if classed as an employee)
  CIPD: Zero Hours and Casual Contracts

Importantly, the CIPD distinguishes between zero-hour contracts and casual worker agreements:

Zero-Hour Contracts

Formal employment contract in place

Worker may be an employee

Some expectation of ongoing availability

Subject to more employment rights

Casual Worker Agreements

No continuing contract of employment

Typically classified as a ‘worker’ only

Engagement on an ad-hoc basis

Fewer statutory protections

This distinction is critical. Misclassifying a worker can lead to legal exposure, including tribunal claims or backdated holiday pay, especially if the individual is found to be an employee in practice.

2.      What’s changing and why it matters

As part of the Employment Rights Bill, the government is seeking to address “one-sided flexibility” - a term used to describe working arrangements where only the employer benefits from unpredictability.

Key proposed changes include:

• A legal right for zero-hour or low-hour workers to a guaranteed-hours contract that reflects the number of hours regularly worked based on their average hours over a reference period (likely 12 weeks).

• Reasonable advance notice of shifts and compensation for cancellations, movement or curtailments, similar to minimum notice periods.

• Extension of these protections to agency workers.

The aim is to reduce precarious employment and ensure people aren’t locked into unstable work without pathways to secure income.

While the law is still under review, it's anticipated that implementation may begin in Autumn 2025.

3.      Potential Implications

• Increased administrative burden - Organisations will face a greater need for ongoing administrative oversight. Regular reviews of working patterns for staff on zero-hour contracts will be essential to ensure compliance. It will also be necessary to clearly identify which employees the revised rules apply to.

• Rising Costs - Compliance with the new requirements could lead to higher direct and indirect costs. These include potential overstaffing, administrative efforts to manage the changes, and the risk of increased misclassification of employment status.

• Reduced Flexibility - The ability to scale staffing levels in response to fluctuating demand may be compromised. Employers could be locked into providing a more consistent wage bill, even during periods of reduced business activity.

• Risk of future redundancies - A more rigid staffing model may lead to redundancies if work volumes drop significantly, as employers may no longer be able to adjust hours as needed

• Potential Overstaffing - The unpredictability of demand, coupled with new obligations, could result in excessive staffing levels. Employers may be required to offer hours even when there is insufficient work to justify them.

• A need for workforce planning - The changing landscape will necessitate a more strategic approach to workforce planning. Employers must evaluate how best to utilise zero-hour contracts and consider alternative working arrangements that align with long-term business needs

4.      Exclusivity Clauses: What you can and cannot do

In addition to new proposals, employers must also comply with existing law surrounding exclusivity clauses.

Under the Small Business, Enterprise and Employment Act 2015, employers:

• Cannot restrict zero-hour contract workers from working for other employers.

• Cannot require workers to seek permission to take on other work.

• Cannot enforce exclusivity clauses in zero-hour contracts.

This means:
If you don’t provide regular hours, your zero-hour contract workers have the legal right to seek additional income elsewhere and any attempt to prevent this is unenforceable by law.

Even including an exclusivity clause in a contract doesn’t make it valid. The law explicitly allows individuals to ignore it, and tribunals have backed this protection repeatedly.

For SME owners: Check your current zero-hour agreements. If they contain exclusivity terms, these should be removed or rewritten to reflect current legal obligations.

5. What SMEs should do now

Whether you’re using zero-hour or casual arrangements, now is the right time to:

1. Audit Your Contracts and Undertake an Impact Assessment

Review which staff are on zero-hour or casual agreements. Ensure contracts are up to date and reflect legal requirements. Carry out your own impact assessment: how will these reforms impact the business?

2. Start Monitoring Hours

Track actual hours worked over 12-week periods. This will help you comply with any future rights to guaranteed hours.

3. Remove Any Exclusivity Clauses

Ensure none of your contracts unlawfully prevent workers from seeking other work. This is a legal requirement today - not a future proposal.

4.  Consider Alternative Models

Audit current workforce and carryout scenario planning. For roles with consistent demand, think about moving to annualised hours, part-time contracts, or fixed-term arrangements.

In summary

Zero-hour contracts offer flexibility but increasingly, the law (and public opinion) demands that this flexibility be mutual, not one-sided.

Whilst we do not yet have the specific details of the proposed changes to zero hour contracts and casual worker agreements, by understanding the difference between contracts, ensuring compliance with the exclusivity clause ban, and planning for upcoming reforms, SME owners can avoid risk, stay ahead of the law, and maintain a responsible employer brand.

Get in touch with Regent HR if you need support with your staff documentation and follow us on our socials to keep up to date!