The “gig economy” is a term that is being used more and more, both in the news and in employment tribunals. Although there is no precise definition, it generally refers to arrangements where individuals are engaged by businesses on a flexible, ad hoc basis, and are paid separately for each piece of work that they carry out. Article from Liam Lane is an Associate in the employment team at Brodies LLP.
Recently, a number of individuals working in the gig economy have raised Employment Tribunal claims about their status and rights. In doing so, they have challenged contracts describing them as genuinely self-employed contractors (a status which attracts limited statutory rights) and claimed that they should be recognised as workers and/or employees (and therefore entitled to increased protections and benefits). The trend towards individuals asserting employment/worker status is an important development for business of all kinds, and not just those in the gig economy. The importance of the subject has also been recognised by various political parties, who have referred to it in their manifestos ahead of the upcoming General Election.
The different types of status that individuals may have
Recent cases on the gig economy have focused on three key statuses that individuals carrying out work may have: “employee”, “worker” or “genuinely self-employed”. Each category attracts a different level of statutory rights and protections.
Employees
Of the three categories, employees – who are often seen as representing the “traditional” model for businesses to take on staff – attract the highest level of rights and protections. They have access to the full range of statutory rights, such as the right not to be unfairly dismissed, the right to receive a statutory redundancy payment, and “family friendly” rights such as maternity and paternity leave.
In order to pin down exactly who counts as an employee, the appropriate starting place is section 230 of the Employment Rights Act 1996. This defines an employee as “an individual who has entered into or works under… a contract of employment”, and a contract of employment as “a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing”.
At this stage, however, the statutory definitions run out, as there is no definition of a “contract of service”. It is generally thought that the key distinction to draw is between a contract of service (under which the individual agrees to serve another person or organisation) and a “contract for services” (where the individual merely agrees to provide them with certain services). When deciding whether or not a specific arrangement is a contract of service or a contract for services, the Employment Tribunal will traditionally consider: Personal service – this involves considering whether the individual is required to carry out the work personally (or whether he or she can send a substitute instead); Mutuality of obligation – this involves whether there is some sort of obligation on the organisation to provide work to the individual, and an obligation on the individual to perform work that is provided; and Control – this involves considering whether it is the individual or the organisation who has control of the manner in which the work is done. In general, if the Employment Tribunal is satisfied that these three criteria are met, the arrangement will amount to a contract of service (and so the individual will have the status of an employee, and access to the various employment rights).
Workers
Workers fall between employees and genuinely self-employed contractors, and attract an intermediate level of rights and protections. Whilst they do not have some of the “flagship” statutory rights (such as the right not to be unfairly dismissed), they are entitled to the National Minimum Wage, up to 28 days’ paid holiday per year, and the ability to raise claims with the Employment Tribunal alleging unlawful deductions from wages. The Employment Rights Act 1996 defines a worker as “an individual who has entered into or works under… (a) a contract of employment; or (b) any other contract… whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of that contract that of a client or customer of any profession or business undertaking carried on by the individual”. Traditionally, this has been interpreted to mean that there are two key criteria for an individual to be classed as a worker:
Personal service – i.e. whether the individual undertakes to personally perform work or services (or whether he or she can send a substitute); and the absence of a business relationship – the organisation receiving the individual’s work must not be doing so as a customer of a business being operated by the individual. It is worth noting that anti-discrimination law under the Equality Act 2010 protects individuals who are in “employment under a contract of employment, a contract of apprenticeship or a contract personally to do work”. This is generally interpreted to cover both employees and workers, as both categories are contracted to perform services personally.
Genuinely self-employed contractors
Genuinely self-employed contractors provide work and services to other individuals or organisations in a true “business to business” relationship. There is no precise definition of this group; if an individual who provides services is not an employee or a worker, they are likely to constitute a genuinely self-employed contractor. This category is at the opposite end of the scale as employees, and individuals who are genuinely self-employed are only entitled to limited rights and protections.
Tax treatment
Although employment law has three categories, tax law draws a binary distinction between (i) employees, and (ii) those who are not employees (there is no “intermediary” category of workers). Although there is often an overlap between an individual’s status in employment law and their status in tax law, these are not necessarily the same. It is technically possible for an individual to be classed as an employee for tax purposes, whilst not being classed as an employee for tax (and vice versa).
Why the distinction is important for businesses
The question of individuals’ status is important for businesses of all kinds. If a business has individuals who it wrongly considers to be genuinely self-employed (and who are in fact employees or workers) it could be sitting on significant liabilities such as arrears of holiday pay or the National Minimum Wage. If a member of the workforce goes to the Employment Tribunal and establishes that they are in fact an employee or a worker, these latent liabilities could suddenly “crystallise” and give rise to a large bill.
Similarly, if a business is found to have wrongly characterised individuals for tax purposes, arrears of tax and national insurance contributions (with added interest and penalties) could potentially be demanded by HMRC.
Recent case law
Recently, there have been a number of high-profile gig economy cases being heard in the Employment Tribunal. Although the cases concern different individuals and businesses, there has been a substantial overlap in terms of the issues raised (and the way that the Employment Tribunal has responded).
The Uber case (October 2016)
In this case, the Employment Tribunal concluded that Uber drivers fell “full square” within the definition of “worker”, and dismissed Uber’s assertion that they were genuinely self-employed contractors as “faintly ridiculous”. The drivers argued that they should be classed as workers, and therefore entitled to the National Minimum Wage and paid holidays.
During the case, Uber pointed to contractual documentation which suggested that they were self-employed contractors. The Employment Tribunal was prepared to look beyond the contracts, however, as it found that they did not correspond to the reality of the relationship.
The Employment Tribunal relied on various findings to conclude that drivers had the status of workers during periods when they were in the territory in which they were authorised to drive, had turned on the Uber app, and were ready and willing to accept fares. These findings were:
Uber interviewed and recruited the drivers;
Uber set the drivers’ default routes when taking a passenger to a destination, and it was hard for the drivers to depart from those default routes; Uber controlled the drivers’ performance, and subjected them to disciplinary sanctions; Uber accepted the risk of loss which would ordinarily fall on drivers if they were genuinely self-employed (e.g. if a passenger failed to pay the fare); and Uber could not be classed as a client or customer of the drivers, and it was not a case of two independent business undertakings contracting at arm’s length. The Uber case is currently in the process of being appealed, with the appeal hearing at the Employment Appeal Tribunal expected to take place on 27 and 28 September 2017. A decision is expected later on this year.
Dewhurst v CitySprint UK Limited (January 2017)
In this case, a bike courier claimed that she was a worker (and so entitled to paid holiday). As it did in the Uber decision, the Employment Tribunal stressed that simply labelling someone as genuinely self-employed does not mean that they are – what counts is the practical reality. Although the courier company pointed to contractual documentation suggesting that the courier was a genuinely self-employed contractor, the Employment Tribunal said it had “no doubt” that the courier was a worker during periods when she was logged into the courier company’s electronic work allocation system.
In reaching this decision, the Employment Tribunal found that, despite the terms of the contractual documentation, the courier: could not determine how her jobs were performed (for example, she was instructed to greet customers in a particular way, wear approved uniform and follow instructions on what to do if a particular parcel could not be delivered); could not pick and choose the jobs she carried out when working; could not accept and undertake work for others at the time she was working; and would find it very difficult in practice to appoint a substitute (which in effect meant that she was obliged to provide personal service). The Employment Tribunal held that the courier had been recruited by the courier company to work for it, and was integrated into its business. Again, it was not a case of two independent businesses contracting with each other.
Boxer v Excel Group Services Limited (March 2017)
In a relatively similar situation to the Dewhurst case, a bike courier claimed that he was a worker (and so entitled to paid holiday). This was in spite of contractual documentation that was drafted on the basis that he was a self-employed contractor. In holding that the courier was a worker during periods when he was on shift, the Employment Tribunal found that: he had to work five days per week, nine hours per day; he had to keep himself available throughout the five days per week; he could only change his hours (or have time off) after giving the company advance notice and obtaining its agreement; he had limited ability to agree terms with clients (and, in particular, carried out his work for a fixed tariff set by the courier company); and he would find it difficult in practice to appoint a substitute to carry out his work.
The Employment Tribunal held that in reality, the bike courier was not running his own business and was in fact working under the courier company’s direction. What can be learned from recent case law? The key warning that recent case law gives is that contractual documents cannot themselves be relied upon when determining what status an individual has. In all three cases, the Employment Tribunal found that contractual documentation suggesting that the individual was a genuinely self-employed contractor did not represent the true relationship, and made a finding of worker status.
As the Employment Tribunal stated in the Uber decision, “any organisation… resorting in its documentation to fictions, twisted language and even brand new terminology, merits… a degree of scepticism”. Given the potential risks, this seems a good time for businesses to review the status of their workforce and (in particular) any individuals who are treated as genuinely self-employed contractors. If it seems that individuals may be wrongly categorised, it might be necessary to carry out further investigations on the possible liabilities that the business may be exposed to. As acknowledged by the Employment Tribunal in the Uber case, it is possible to devise a business model whereby individuals are genuinely self-employed contractors. However, this cannot be achieved solely by way of “carefully crafted documentation” but must be reflective in the “real dealings and relationship between the parties”. How the area might develop
Taylor review
The UK Government’s Department for Business, Energy and Industrial Strategy is currently carrying out a review of “employment practices in the modern economy”. The review is being led by Matthew Taylor, a former adviser to Tony Blair and Chief Executive of the Royal Society of Arts. The review’s remit is to “consider how employment practices need to change in order to keep pace with modern business models”, including consideration of “the implications of new forms of work, driven by digital platforms, for employee rights and responsibilities, employer freedoms and obligations, and our existing regulatory framework surrounding employment”. The deadline for the submission of evidence to the review was 17 May 2017, but as yet no firm date has been given for publication of the review’s conclusions.
It seems clear that the gig economy will be an ongoing hot topic for 2017 and beyond. Although it is not clear how the law on employment status will develop – with the Uber case being heard in the Employment Appeal Tribunal later this year, the Taylor review still to report, and the General Election soon to take place – the issues raised in relation to employment status will be important for a range of businesses.
