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Last year saw Employment Tribunal decisions brought by individuals working for entities such as; Uber, Pimlico Plumbers, Addison Lee and City Sprint Couriers. The Central Arbitration Committee offers its own opinion, in relation to Deliveroo riders, and HMRC has its own systems in place. All of these entities are bound by the same law, the statutory and common law provisions of English law, so why are the results so unpredictable and uncertain?
Article by Yvonne Gallagher, Partner in the employment team – Harbottle & Lewis
Identifying the correct employment status of individuals working in the so-called “gig economy” continues to present significant challenges for those seeking to manage correctly a company’s obligations, in relation to the people who work for it. Part of the problem in identifying employment status in the gig economy lies in the differing use of terminology. Employment rights arise under a number of statutes, most significantly the Employment Rights Act 1996 – which governs rights relating to Unfair Dismissal, Redundancy, Whistle-blowing, and rights to be accompanied at disciplinary hearings, the Equality Act – primarily concerned with prevention of unlawful discrimination – the Working Time Regulations which confer a right to paid annual leave as well as setting limits on working hours and the Minimum Wage legislation. All of these statutes and regulations grant rights to two categories of people- employees and workers, with employees having the greater level of protection. They exclude from protection entirely the genuinely self-employed. HMRC, by contrast, recognises only two categories, being employees, to whom the PAYE system applies, and the self-employed, to whom it does not. An individual can therefore be properly regarded as self-employed and so fall outside the scope of PAYE and yet still be entitled to a number of significant employment rights such as holiday pay and minimum wage (Worker Rights”).
“The claims brought by Uber and Addison Lee drivers, and by City Sprint and Deliveroo riders all seek to assert worker status, which brings with it a right to minimum wage rates and periods of paid annual leave”
For employment statute purposes, a worker is someone who undertakes to perform services personally for another party who is not the client of a business or professions carried on by them. The obligation to perform the service personally is critical to worker status. Uber drivers were recently held to be workers, since they are required to be personally identified and must carry out an accepted booking themselves. By contrast, the Central Arbitration Committee accepted that riders working with Deliveroo were entitled to appoint a substitute to provide services if they so wished and could not therefore be regarded as workers for the purposes of an application for Trade Union recognition. For this reason contracts which purport to characterise individuals as either self-employed or as workers rather than employees will typically include a right on the part of the individual to send a substitute to carry out work. The Courts and Tribunals have, however, proved willing to interrogate the reality behind such clauses and will typically refuse to take account of an express substitution right which is in fact never exercised.
The way in which the gig economy Tribunal cases to date have been reported is often unhelpful and adds to the level of confusion around employee and worker status. The claims brought by Uber and Addison Lee drivers, and by City Sprint and Deliveroo riders all seek to assert worker status, which brings with it a right to minimum wage rates and periods of paid annual leave. The cases did not generally concern full employment status. The individual who succeeded in his claim against Pimlico Plumbers for holiday pay succeeded because he was found to be a worker, but it is noteworthy that he was unsuccessful in his unfair dismissal claim which required that he prove that he was an employee. The Tribunal accepted that he was not employed by Pimlico plumbers, having regard to the same tests as HMRC uses to assess employment status. This takes into account a range of factors, making prediction of the outcome in any individual case extremely difficult. An organisation wishing to identify the correct basis on which to treat its staff must have regard to a number of features of the relationship between the Company and the person performing work are examined by the Court. These include: Economic reality; is the individual really trading on their own account or are they part of the alleged employers business? Does the individual bear any financial risk? Do they provide their own equipment and tools, to the extent that these are required? Is the individual under the direction and control of the alleged employer, or are they free to provide the services they provide in such manner as they see fit without supervision, and at times of their own choosing? Penalties for non-availability, such as those asserted by Uber drivers, indicate a high level of control by the Company which is inconsistent with genuine self-employment. Is the individual properly to be regarded as integral to the alleged employer’s organisation or can they properly be viewed as sitting apart from it as independent contractors?
HMRC has recently updated its employment status indicator tool with a view to enabling organisations to understand more clearly whether they should be operating PAYE. The results of the tool are not binding on either HMRC or the user, but careful use of this tool will provide at least a level of comfort that the correct tax approach is being taken. In terms of risks to those operating in the platform and gig economies, the risk of challenge by HMRC is likely to be by far the most significant, bringing, as it does, the risk of a claim for arrears of tax and social security contributions due from the alleged employer. It is worth keeping in mind the nature of the risks which arise. If an individual is found to be an employee, then they may have rights to protection from unfair dismissal, to receive a redundancy payment and, for example, maternity rights, but if the workforce in fact consists of a large population of transient workers who typically works for a few hours or days here and there and returns only after periods of absence of their own choosing, the continuous service required to qualify for these rights may never arise.
By contrast, if there are many individuals working consistently and continually for the company on a near daily basis, it will be more difficult to avoid the conclusion that they are core to the company’s business. If an individual in fact always earns significantly more than minimum wage for any time spent working then the risk of claims for minimum wage arising is unlikely to be a concern in practice. However, the definition of working time for minimum wage purposes is extremely complex so even a relatively high hourly rate of pay may leave open risk of claims if those seeking to earn that rate of pay are obliged to be available to the company for significant periods during which they are not paid. Workers also have a right to be accompanied at disciplinary or grievance proceedings and this is often overlooked. A meeting at which a contract might be terminated by reference to poor levels of performance will be disciplinary meting for these purposes and a penalty of up to two weeks’ pay can be awarded by a Tribunal for failure to permit an individual to be accompanied.
An organisation which chooses to treat all those individuals supplying services to it as employees will not face the risk of challenge by either HMRC or by the individuals. The certainty thereby reached does, however, come at a cost- namely acceptance of liability to administer PAYE and pay employers NI contributions and the acquisition by employees of rights such as protection of employees from Unfair Dismissal after two years’ service and maternity and paternity leave rights. In assessing levels of risk, looking at typical patterns of work will assist employers in assessing the right way to manage the risks which continuing uncertainty places upon their business models. The employers NI cost is 13 percent of pay, which is a significant additional cost, but it applies only to pay above a basic threshold – currently £157 per week – so if few workers in fact earn in excess of the threshold, the true additional cost to an organisation will be lower. Similarly, if workers tend not to provide services continually for long periods, the real cost of accepting unfair dismissal and maternity/paternity rights may not be so significant overall. With innovation and digital disruption continuing to push the boundaries, both employers and employees must get to grips with new ways of working, a challenge not helped by the continuing lack of certainty in the legal position. With many innovative business models relying on flexibility to provide the services that consumers want, and attract workers who also value flexibility, the balance of rights is tricky, and companies will almost inevitably find difficulties when assessing employment status. Political pressure is growing and, following the much-heralded Taylor Review, we can expect further flux and change as well as more litigation as individuals assert their rights in this brave new world.
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