What’s in a name - Employment status and the gig economy in 2018

The world of work has undergone a transformation over the last decade with an increasing number of people labelled as self-employed, rather than employed. Ten years ago being self-employed was more the preserve of professionals and tradespeople; now many of the self-employed work in the “gig economy”. Advances in technology have resulted in disruption to the labour market with both business and workers seeking more flexibility in ways of working and, therefore, resulting in the idea of workers moving from “gig” to “gig”.

While it is often the case that workers want flexibility, in some cases such flexibility has been forced upon workers, to the detriment of their security of employment and earnings. In turn, this has led to some so-called self-employed individuals challenging their classification in the courts and, sometimes, winning.

A significant chunk of media time has been dedicated to findings of the courts and tribunals in relation to the working practices at companies such as Uber, Addison Lee, City Sprint and Deliveroo and we all now query whether that person who just delivered us, our parcel or our dinner has been paid fairly for his time (albeit that we certainly don’t want to pay more for the service).

For employment law purposes, those who work are categorised into one of three groups: employees; workers; and the self-employed. Individuals typically challenge their classification in order to participate in statutory employment rights and protections. Employees have the greatest level of protection with the full suite of rights and protections. Workers enjoy more limited rights, which include holiday pay, the right to the national minimum wage, restrictions on working time and protection for whistleblowers and against discrimination. The self-employed enjoy few rights beyond those pertaining to their contract for services.

The battleground in most cases over employment status has been over the boundary between being categorised as self-employed and, in reality, being a worker. For the self-employed seeking to claim they are workers, the battle is worth the fight for at least 28 days of paid leave per year for those working full time, entitlement to the national minimum wage and limits on working time. However, they do need to take into account the difference in tax treatment of the employed and self-employed.

Legislative change

The Government, along with opposition politicians, has expressed concerns about the potential vulnerability of individuals who are categorised as self-employed, but in reality have little control or flexibility over their working arrangements. In particular, the Government was concerned about businesses forcing workers to be self-employed specifically to avoid employment law protections. The Government-commissioned Taylor Review of Modern Working Practices was published in July 2017. The report made a number of recommendations, many of which were aspirational and would require legislative change. These included:

Retaining the three tier approach to employment status, but rebranding the “worker” as “dependent contractor”.
Codifying the test for employment status, setting out the key principles that should be applied. As part of this, the main determinant of status should be the degree of control exercised over the individual.
Extending to dependent contractors the right to a written statement of terms and conditions (including statement of statutory rights together with a standalone right to compensation for failure to provide it).
A higher national minimum wage for non-fixed hours than for guaranteed hours to mitigate some of the risks of zero hours contracts and insecurity.
National minimum wage piece rate calculations should be used for gig economy dependent contractors so they are only paid when actually working, not when they are notionally available for work.
Extending the break required to end continuity of service from one week to one month.
The holiday pay reference period should be 52 weeks not 12 and rolled-up holiday pay should be permitted.
An online tool to determine employment status should be developed.
There should be no difference in the tax treatment of dependent contractors and employees.
The burden of proof should be reversed with the onus on the employer to prove that an individual is not an employee or worker and is genuinely self-employed.

With Brexit as the primary focus of Government and Parliament, many commentators expected little appetite for progressing or implementing any of the recommendations. However, in December 2017 the Parliamentary Committees for Work and Pensions and Business, Energy and Industrial Strategy published a joint report entitled “A framework for modern employment”.

The report proposed that there should be greater clarity in relation to worker status. In particular it pushed forward four of the above Taylor Review recommendations with a draft bill proposing:

Clearer statutory definitions of employments status which should emphasise the importance of control and supervision of workers by a company, rather than a narrow focus on substitution, in distinguishing between workers and the genuine self-employed.
A presumption that individuals are workers by default for companies with workforces over a certain size.
Guaranteed hours should be offered to those who work flexibly and the hours should reflect the periods worked each week, alternatively workers should be compensated for uncertainty by receiving a pay premium on the national minimum wage.
Extending the time required to break continuity of service from a week to a month, so that flexible but committed workers accrue rights.

Despite this further report, it still remains to be seen how far the Government, or the Parliamentary Committees, will be able to push forward any employment-law reform agenda in the current climate.

Case law developments

In addition to the seeming appetite for moving forward with legislative change, the courts have not been shy for their part in developing this area of law over the last few years and we expect more developments this year with a number of cases being appealed, including the Uber and Pimlico Plumbers decisions.

Many businesses have structured their business on the basis that these individuals are self-employed and documented the relationship as such. However, Employment Tribunals and the courts will always look beyond the documents to look at the facts of the day to day relationship. Tribunals have no reticence in re-classifying individuals as workers where they perceive that the relationship documented in the contract does not reflect the reality of the work performed.

The risk for businesses is that if nominally self-employed individuals are found to be workers they will have a basic level of employment rights. While those rights fall substantially short of the rights given to employees, they can have serious repercussions for a business. For example, workers are entitled to the national minimum wage for their working time, a minimum of 28 days of paid holiday each year, rest breaks and other limits on working time, protection from being subjected to a detriment for being a whistleblower or in connection with a protected characteristic and the right to seek compulsory recognition of a trade union.

All of these rights can have a significant effect on a business. For example, following the decision of the European Court of Justice in December 2017 in the Sash Window Workshop case, the company faces a claim from Mr King for £27,000 for unpaid holiday on termination for the entire period he worked for the company. He had taken some unpaid holiday during the period, but been deterred from taking holidays because he had been told he would not be paid.

This is certainly an area of employment law that will develop during the course of 2018 and it is worth taking advice when employing or engaging individuals to ensure assessments of the relationship are made at the time and appropriate documentation is put in place.

For more information, please contact Clare Davis or Kirsti Laird.