What is the ‘gig economy?

The gig economy describes a section of the labour market that is characterised by the use of short-term contracts or freelance work, as opposed to permanent jobs.  Businesses pay individuals for each assignment (or ‘gig’) that they perform, which might be a courier service (e.g. Hermes), a car journey (Uber) or a food delivery (Deliveroo).

It is estimated that up to 2.8 million people work within the gig economy*, a significant figure which should be borne in mind when considering the validity of the Government’s official ‘unemployment rates’.

(*Department for Business, Energy and Industrial Strategy Report: The Characteristics of Those in the Gig Economy, Feb 2018).   

Why has it grown so rapidly?

There are a number of social and economic factors which having given rise to the prevalence of short-term jobs including market competition, public attitudes to consumerism and the differing career expectations of the Millennial generation.

But perhaps the significant engine for change has been the digital revolution.  The workforce is increasingly mobile and can often receive instructions, and perform tasks, from anywhere with wi-fi or a mobile connection.  At the same time, the introduction of sophisticated software platforms and mobile apps has enabled many jobs to be streamlined – cutting out the need for middle managers and placing customers directly in contact with the service provider.  The software also enables the services themselves to be commoditised and delivered as discrete, self-contained packages, often with very little training or supervision required.

So what’s the problem? 

For businesses, the obvious advantage of the gig economy is that they only have to pay for work actually undertaken.   They do not incur staff costs when demand is low and can rapidly increase their workforce when demand is high.  Some business models would simply not be competitive without this form of workforce ‘stopcock’.

From the workers’ perspective, the benefits are more controversial.  For some, it represents the opportunity for truly flexible working, giving the individual much greater control over their work-life balance.   For others, it is nothing short of exploitation – the businesses gain a cheap source of labour whilst the workers (many of whom would prefer regular employment) are forced to live a life of uncertain income with little prospect of career progression.

But the most contentious aspect of this model is that workers in the gig economy are often classed as self-employed, ‘independent contractors’.   This means they do not benefit from fundamental employment rights such as paid holiday or the right to receive the national minimum wage.  Some workers in the gig economy have been found to be earning as little as £2.50 an hour.

Is that fair?

Many workers think not, and have pursued claims in the Employment Tribunal to challenge their employment status.   To date, the most high profile of these has been the case brought against Uber (Uber BV v Aslam).

What happened to Uber?

In October 2017, the Employment Tribunal decided that Uber drivers were not independent contractors at all, but should be classed as ‘workers’, a decision that was subsequently upheld by the Employment Appeal Tribunal.

Considering that Uber engages some 40,000 drivers, the implications are huge.  Not only will they have to fund 5.6 weeks of holiday for each worker, but will potentially face large claims for historical, back-dated holiday pay.   They may also have to increase their basic rate of pay.  This is because the Tribunal held that the drivers were engaged in ‘working tine’ not just when they were actually on a job, but during any time when they were within their operating territory, signed into the Uber app, and were ready and willing to accept bookings.

Unsurprisingly, Uber are seeking to appeal the matter in the Court of Appeal.

Isn’t there a limit on claims for back-dated holiday?

Potentially not.   On the face of it, the Deduction from Wages (Limitation) Regulations 2014 do limit claims for back pay to a maximum of 2 years.   However, in the case of  King v Sash Windows, the European Court of Justice ruled that in any situation where a worker has been unable to take leave through no fault of their own, (which incudes situations where the worker believed they would not be paid for it), then the leave will roll over indefinitely until they are able to take it, right up to termination if necessary.  Upon termination, the worker would then have a claim for payment in lieu of all accrued holiday, potentially going back as far as 1996 when the EU Working Time Directive came into force.  Following this decision, the legality of the Regulations has now been thrown into doubt.

What’s the difference between an employee and a worker?

Tax law tends to divide people into two broad categories – either employed or self-employed.  Employment law, however, has a third category of ‘worker’, which falls somewhere in the middle.   Workers are people who perform a personal service (i.e. they cannot send a substitute to do the job in their place) but who cannot truly be said to be operating their own business.   Typically, in this situation, the business behaves more a traditional employer (in a master/servant sense), rather than behaving like a client of the individual’s business.   Crucially, however, these relationships tend to lack the necessary degree of supervision or control for the individual to be classed as a full employee.

The distinct is critical for determining what employment rights are afforded to the individual.   Workers benefit from some, but not all, employment rights. The most important of these are paid holiday entitlement, sick pay, discrimination and whistleblower protection, a workplace pension and the right to receive the national minimum wage.   Employees, on the other hand, enjoy all of these rights plus some additional ones, such as protection from unfair dismissal and redundancy pay.

Why is it so hard to determine employment status?

That question is really at the heart of this article.  There are several complicating factors, but these two are perhaps the most important:

Firstly, the technological developments referred to above have meant that working arrangements have become increasingly flexible and more remote, making it difficult to clearly define the edges. Uber, for example, argued that it was merely a technology platform acting as an ‘agent’ for drivers by putting them in touch with passengers, and that it was in no way a provider of taxi services.   That argument was unsuccessful, the EAT finding that the drivers were ultimately working for Uber, not for themselves.

Secondly, the law itself offers no single test (or presumption) for determining employment status.  Rather, it requires a careful analysis and balance of a wide range of factors within the employment relationship, such as: the obligations on each party; payment and tax arrangements; the degree of control and supervision (e.g. regarding working times, place of work, working methods and deliverables); the degree of integration in the workforce; exclusively; rights of substitution; which party is providing tools and equipment; insurance arrangements; and the degree of financial risk/reward borne by each party.

The written contract between the parties is also a matter for consideration, but is not determinative.   Employment status is a question of substantive over form – how the relationship operates in practice will generally override the label that the parties have chosen to give it.

Due to all of these variables, decisions on employment status can be unpredictable and usually depend on the facts of the specific case.  That said, there certainly seems to have been a recent trend for Employment Tribunals finding that individuals engaged as self-employed contractors were, in fact, workers.   In addition to the Uber drivers, this has included cycle couriers (Dewhurst v Citysprint UK Ltd and Boxer v Excel Group Services Ltd), drivers (Lange v Addison Lee Ltd) and plumbers (Pimlico Plumbers Ltd v Smith).

A key feature in many of these cases was the degree to which individuals appeared to be an integrated part of the employer’s business, e.g. having to follow company rules and processes, wearing a uniform and/or driving a company branded vehicle.

It is perhaps surprising then, that in the case of Deliveroo (whose riders wear a very distinctive uniform), the riders to held to be self-employed (Independent Workers’ Union of Great Britain (IWGB) and RooFoods Limited T/A Deliveroo).

Why the different outcome?

Why have individuals delivering taxi rides or courier services been classed as workers, whilst those delivering takeaway food were deemed to be self-employed?

Firstly, it should be noted that the Deliveroo case was not a decision of the Employment Tribunal, but rather the Central Arbitration Committee (CAC), who were responsible for determining whether Deliveroo riders were entitled to trade union recognition.  This depended upon the riders first establishing that they were ‘workers’, rather than self-employed, and so the usual indicators of employment status still needed to be considered (as described above).

The critical factor in this case was the existence of a substitution clause.  This afforded the riders the right to send someone else to complete the delivery in their place, without the need to gain authorisation from, or even inform, Deliveroo.  They could even abandon the job part-way through. Provided that the food was delivered, it did not matter who delivered it, even if that created potential reputational and regulatory risks for Deliveroo.

Many businesses include a substitute clause to try and defeat ‘worker’ status, but these are often dismissed by Courts and Tribunals as being disingenuous or unworkable in practice.   In this case, however, there was genuine evidence of substitution being used in practice and the CAC found that the “almost unfettered right of substitution”, meant that there was no obligation of ‘personal service’, and so the riders could not be held to be workers.

IWGB are seeking judicial review of this decision.

What Next?  

In February 2018, the Supreme Court heard the appeal in the Pimlico Plumbers case.  So far, worker status has been found as there was no unfettered right of substitution or delegation, with individual plumbers being an integral part of Pimlico’s operations and subordinate to Pimlico.

Many businesses are eagerly awaiting the outcome of this hearing.  As we have seen, however, these cases tend to be fact sensitive and it is unlikely that the Pimlico decision will result in any fundamental changes to the rules that currently govern the determination of employment status.   Any substantive progress in this area will need to be driven by a change in legislation.

What is the Government doing about it?  

When individuals are underpaid, the Government earns less in taxes and national insurance, and pays out more in credits and benefits. As such, there is a clear financial incentive (if not a moral one) for the Government to address this issue.

On 30 November 2016, a team led by Matthew Taylor, Chief Executive of the Royal Society of Arts, was tasked with considering the implications of new models of working on the rights and responsibilities of workers, as well as on employer freedoms and obligations.   The subsequent report: ‘Good work: the Taylor Review of Modern Working Practices’ was published on 11 July 2017 and contained a range of innovative ideas for developing the law on employment status to make it suitable for the digital age and to meet the challenges of the gig economy.   This included having clearer statutory definitions of employees/workers, as well as creating a presumption of worker status – shifting the burden of proving self-employed status onto the employer.

What was the Government’s Response to the Taylor Review?

Broadly supportive, albeit with a distinct lack of clarity or any immediate action.

The Government’s response indicated the likely introduction of the following measures:

  • Extending the right to written particulars under S.1 of the Employment Rights Act 1996, (currently available only to employees), to all workers from day one;
  • Giving all casual and zero-hours workers the right to request a ‘more predictable contract’, most likely after a certain qualifying period;
  • Extending the period during which a lack of work will break continuity of service beyond the current period of one week;
  • Defining ‘working time’ for app-based platform workers;
  • Quadrupling employment tribunal fines from £5,000 to £20,000 for employers displaying aggravating behaviour (e.g. malice or gross breach of employment procedures);
  • Penalties for ‘repeat offenders’ (employers who have previously lost similar cases) and the naming and shaming of employers who do not pay tribunal awards; and
  • Developing an online tool to determine employment status.

However, on many of the substantive proposals, such as whether we need new rules for determining employment status; the Government has kicked the issue into the long grass by determining that there should be further consultation.   This is very disappointing.  The Taylor Review itself was prepared after months consultation with interested groups and offered sufficient evidence and clarity for the Government to have moved forward.  Brexit must take some blame for this.  Whilst the Government spends a vast amount of time negotiating transition arrangements, exit terms and future trade agreements, domestic legislation will undoubtedly take a back seat.

The government has therefore launched four separate consultations, dealing with:

  • the enforcement of employment rights;
  • agency workers;
  • measures to increase transparency in the UK labour market; and
  • employment status.

To date, the only concrete action taken is the improvement of itemised payslips for casual and zero-hours workers.  The Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) Order 2018 will, from 6 April 2019, require payslips to state the number of hours being paid where wages vary according to the time worked.

The Future?

The relentless charge of technology suggests that, in many industries, gig workers will become the norm.   But unless we want a future based upon a lack of job security, lower pay and fewer protections, we have to hope that the Government will act upon these consultations sooner rather than later.

It is not just the workers who will benefits from the proposed changes – employers do not want to be hit with surprise claims for years of back-dated pay just because they innocently used the wrong type of contract.  Clarity on worker status, and certainty regarding which employment rights apply, is surely in everyone’s interest.

Action Stations

Do you have workers engaged on a casual basis? freelance? zero hours? bank staff? consultants?    Are you confident about their employment status and their employment rights? When was the last time you reviewed their contracts?

For clear and sensible advice on reviewing of your workforce arrangements and contracts, contact Tim Davies at TJD Law:  info@tjdlaw.co.uk or tel. 01392 346146.