Jersey's Royal Court sheds light on zero hours contracts

13 July 2015

With a headline like that we could be talking potatoes but no, a court has held that the key to identifying a genuine zero hours contract is whether there is mutuality of obligation.

Legal Week Law has written a useful summary of the case.

The Royal Court of Jersey has held in Marchem (Europe) Limited v Carre that the key to identifying a genuine zero hours contract is whether there is mutuality of obligation. This means not only that the employer has an obligation to offer work, but that the employee is obliged to accept that offer.

Ms Carre was a bookkeeper who had been engaged by Marchem on 7 July 2012 under the terms of a standard contract that stated that it was a "zero hours" contract. Initially she worked less than eight hours per week alongside another job, but in early 2013 she resigned from her other employment and requested additional hours from Marchem. In April 2013 the following words were inserted into the contract "[w]e shall offer you a minimum of 30 hours of extended work per week…".

Ms Carre's employment was terminated on 6 January 2014 and she subsequently lodged a claim for unfair dismissal. Marchem defended the claim on the grounds that she was a zero hours worker, not an employee, and therefore was not protected against unfair dismissal

The JET identified the test of a genuine zero hours contract as there being no mutuality of obligation, meaning that the employer is not obliged to provide work and the employee is not obliged to carry it out. It found that in this case there was a genuine expectation of provision of work by Marchem on the part of Ms Carre; therefore, she was an employee and had the benefit of protection from unfair dismissal. The Tribunal commented that Marchem's director had "misunderstood the nature of a 'zero hours' contract and had instead negotiated a contract of employment which gave Ms Carre the right to work flexibly. This error serves as a reminder to employers to seek legal advice before trying to enter into 'zero hours' contracts."

Marchem appealed the decision to the Royal Court, which found that the JET had erred in law. The JET had used the correct test— mutuality of obligation—but had applied it incorrectly. The test does not only require obligation to be absent on one side, but on both. Moreover, "an expectation is different from an obligation". While there was ample evidence that Marchem was indeed obliged to offer 30 hours of work per week, the JET had failed to consider whether Ms Carre was obliged to accept that offer and work those 30 hours. One key piece of evidence that was not mentioned in the JET's judgment was a graph showing that for more than half of the weeks that followed the renegotiation of the contract Ms Carre had worked less than 30 hours.

The Royal Court has remitted the case to a differently constituted JET to decide the matter afresh, and this time pay due attention to both sides of the mutuality equation.

Easier said than done

A case considered by the JET in the light of the Royal Court's finding shows how difficult it is to apply the mutuality test. In Burger v Silvio Alvez Motor Repairs Ltd, the JET could not reach a unanimous decision over whether there was a genuine zero hours contract or whether Mr Burger, a skilled car mechanic, was an employee and therefore entitled to bring a claim for unfair dismissal. He had been hired on a zero hours contract, but was told at interview that he would be given at least 30-35 hours work per week on average.

Two of the JET panel members concluded that there did exist a sufficient mutuality of obligation for there to have been a contract of employment, albeit one which involved flexible working hours. They were swayed by evidence that Mr Burger would not have accepted the role if it had not approached full-time hours and that, although he accepted that some days he would not have work, he would have left the job if that had happened too often. Similarly, Silvio Alvez said if Mr Burger had been unavailable for work on a "continuous basis" he would have sought to replace him. In addition, the contract required either party to give notice to terminate the contract and for Mr Burger to provide doctor's notes if he was ever ill for more than two days, all of which pointed to the existence of an employment contract.

The Deputy Chair of the JET disagreed. In his view, the relationship was founded on a mutuality of expectation rather than of obligation. Both parties expected the offer of work to be made and accepted, but were not obliged to provide the work or carry it out. Moreover, he argued, the parties had entered into the contract of their own freewill, and Mr Burger could have left at any point—the need to give notice was a courtesy, rather than an obligation.

Since the majority view prevails, Mr Burger is entitled to bring a claim for unfair dismissal.

Comment (Legal Week Law)

The Royal Court decision provides some welcome clarity on the treatment of zero hours contracts in Jersey. It confirms that mutuality of obligation is the test the courts will use to see if a zero hours contract is genuine, but that the test needs to be applied both to the employer and to the employee.

The case should not, however, provide succour to employers who use zero hours contracts to circumvent employee protections. There are situations where zero hours contracts are appropriate, such as where a business has a "bank" of workers upon which it can call during busy times. But if regular work is offered over a period of time an employer-employee relationship may well be created notwithstanding that the words "zero hours" are written on the contract.

Zero hours contracts continue to be regarded as controversial since they strip workers of rights and a guaranteed income stream. Yet they can be essential for businesses with irregular workflows, and can provide welcome flexibility for employees as well. We would recommend caution (and proper advice) if you think zero hours contracts might be suitable for your business needs.