Zero hour contracts


Zero hour contracts have a large role to play in the modern labour market but there are still a few questions to look at before taking them on – what kind of, and how big, a role will it play and for whom / which businesses are they suitable for?


A small 2 person start-up business which is still precariously balanced between success and failure may well be suitable for a zero hour contract. However a large national or multinational business which has a long trading history and the ability to model its demand profile will most likely not be suitable.


A teenage student looking to earn some additional spending money will perhaps be suitable for a zero hour contract, however a single income parent for whom discussions about 45% or 50% top rates are completely meaningless will probably not.


“Legislative interference in the arrangement and conduct of business is always injurious, tending to check improvement and to increase the cost of production.” Changing zero hour contracts to ensure that all employees have entitlements of some form of holiday and sick pay will have a cost for businesses that use such contracts. They will, in an economic sense, be costs which reduce the efficiency of those businesses.


But is ‘efficiency of business’ really the yardstick by which we should measure all legislation? The quote above is from the silk magnate Samuel Courtauld, putting forward one of the arguments against the 1833 Factories Act. The Act sought to establish a normal working day for child employees; for instance children between 9 and 13 could work no more than 9 hours a day. Of course this legislation made the textiles business less profitable – but this paid for something of far greater value to the rest of society.


We need to be careful if we want to raise the fluttering standard of ‘efficiency and profitability’ to oppose any legislation which affects businesses.  As with many questions of economics and ethics, Adam Smith often provides words of guidance; and on the fundamental principles underlying the question of zero hours contracts the following seems particularly worthy of our current consideration:


Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters. – Wealth of Nations Book 1 Chapter x, Part II, p. 168.


If you would like some more information on this topic, please call Stephen Gregson on 01772 821021.