updated on 28 August 2018
QuestionHow is the gig economy impacting employment status?
The 'gig economy' describes a working practice whereby individuals are paid for the 'gigs' they do rather than for their time. A 'gig' could be delivering takeaway food (for example, Deliveroo riders) or collecting and dropping off passengers (for example, Uber drivers). Gig economy businesses tend to use apps to connect individuals working for them with work.
Most individuals working in the gig economy do so on the basis that they are self-employed. As self-employed people, they have fewer employment rights than those falling within the two other categories of employment status that we recognise in the United Kingdom (workers and employees). Whether individuals working in the gig economy can rightly be classified as self-employed is the reason that the gig economy is currently the subject of so much scrutiny; it presents a new way of working that challenges the three categories of employment status (worker, employee and self-employed) we currently have in the United Kingdom. Whilst these categories of employment status (and the tests for determining who falls within which category) remain unchanged, the gig economy has provided a new set of facts to which these categories and tests must be applied.
Depending on your view, the gig economy either represents a modern way of working that enables flexibility or an exploitative business model which deprives individuals of basic employment rights.
Supporters of the gig economy would say that the working arrangements are beneficial for both the individual and the company: individuals can work flexibly, choosing the days on which they make themselves available for gigs, whilst businesses do not incur staff costs when demand is not there.
Critics of the gig economy would say that it is a socially irresponsible working practice which allows businesses to avoid paying employer national insurance contributions and denies individuals access to basic employment rights, such as the national minimum wage, statutory sick pay and holiday.
The tax angle to the debate is an important (and expensive) one. Employers do not need to pay employer national insurance contributions in respect of self-employed people. Similarly, self-employed people can structure their tax arrangements in such a way so as to ensure they pay less tax than they would otherwise do if they were an employee for tax purposes, (for example, by channelling payments made to them through a limited liability company). The Office for Budget Responsibility has estimated that the cost to the Treasury of the gig economy, in terms of lost tax revenue, will reach £3.5 billion per annum in 2020-21.
The tests as regards employment status currently differ for the purposes of tax and employment law (although this may change in light of the recently published Taylor Review discussed below). This article will focus on employment law.
In the United Kingdom, there are three types of employment status:
The category an individual falls into determines the level of protection afforded to that individual under UK employment law. The self-employed have the least protection and employees have the most. Workers sit in the middle, benefiting from some but not all of the protections afforded to employees. For example, both workers and employees have a statutory right to paid holidays and to receive the national minimum wage. However, only employees benefit from the right not to be unfairly dismissed and to redundancy pay (in each case, if they have two years' service with their employer).
To determine employment status, a number of factors need to be considered. These are primarily as follows:
If the answer to the above is yes then the individual will not be considered as genuinely self-employed for employment law purposes; they will be either an employee or worker. Conversely, a relationship where there is no mutuality of obligation, where an individual may send a substitute to carry out work in their place and where the individual has autonomy over when, where and how work is undertaken will be characteristic of self-employment: the relationship is more akin to that of two businesses contracting for the supply and provision of services rather than an individual working for and under the control and direction of another.
Many companies operating in the gig economy have to date argued that individuals engaged by them are self-employed. This argument has, thus far, proved unsuccessful in the Employment Tribunal (the Tribunal). The Tribunal has particularly focused on the fact that these companies typically seek to exercise a high level of control over the individuals they engage, which is inconsistent with genuine self-employment.
In October 2016, the Tribunal determined that two Uber drivers were workers for employment law purposes and not self-employed.
A key reason in the Tribunal's decision was the level of control Uber exercises over its drivers. For example, the Tribunal found that Uber control the minimum fare the drivers charge and set the default journey route. The Tribunal went on to draw parallels between subjecting the drivers to a rating system and performance management (drivers with average ratings below 4.4 are subject to "quality interventions" to assist them in improving and experienced drivers whose scores do not improve to 4.4 or above are removed from the platform and their accounts deactivated). It also noted that Uber had created a disincentive for drivers logged into the app to decline trips: once logged into the app, drivers who repeatedly declined or cancelled trips would be automatically logged out for ten minutes. These factors, along with a number of others, suggested a level of control inconsistent with genuine self-employment.
The Tribunal was especially critical of Uber's convoluted contracts, which were at pains to spell out self-employed status and which the Tribunal felt did not reflect the situation in reality. The Tribunal also found the idea that Uber functioned solely as a platform connecting drivers and customers unconvincing. Similarly "absurd" was the notion that the relationship between the two parties was a contract under which Uber is a client or customer of a business carried on by the driver; the drivers could more accurately be described as working for Uber.
For the reasons set out above (and many other reasons), the Tribunal found that the drivers were workers. Uber has appealed the decision and the appeal is due to be heard by the Employment Appeals Tribunal in September.
The Independent Workers Union of Great Britain has applied to the Central Arbitration Committee to be the recognised union for collective bargaining purposes for a group of Deliveroo riders. The application will only succeed if the riders are workers for the purposes of the Trade Union and Labour Relations (Consolidation) Act 1992. If they are workers for the purposes of that act, it is likely they will be construed as workers more generally (and thus benefit under other employment legislation). The application is seen as a way to have the Deliveroo riders' worker status recognised without having to go through the Tribunal.
The recent Work and Pensions Committee report, "Self-employment and the gig economy", (26 April 2017) has challenged the idea that flexibility and employment are mutually exclusive concepts; it says that this is a myth propagated by gig economy companies. Regardless of whether this is indeed the case, the report does acknowledge that the "current ways of categorising worker status are creaking under the weight of a changing economy". One approach to remedy this suggested in the report is to assume that an individual is a worker (rather than self-employed) unless the employing entity can prove otherwise.
This is an approach proposed by the Taylor Review as well. The Taylor Review, "Good work: the Taylor review of modern working practices", was published in July this year and is an independent report commissioned by the government to consider how employment law might keep pace with modern business practices, particularly the gig economy. The report makes a number of recommendations for reform of employment law and employment status, including a recommendation that there should be a presumption that individuals are workers or employees in cases where an online tool (still to be developed) suggests the individual is an employee or worker.
The Taylor Review further recommends that, whilst the three-tier approach to employment status should be retained, "workers" should be renamed as "dependent contractors". Further, and mirroring observations in the Uber case, it also states that the factor of control should be given greater weight in determining whether someone is a "dependent contractor". More generally, there is a recommendation that the tests for determining employment status are made clearer and that the tests incorporate principles from case law, supported by appropriate guidance. In parallel, it recommends that the employment status tests for tax and employment law purposes should be aligned.
The Taylor Review is a detailed report and makes a number of recommendations in addition to those set out here. It is not clear at this stage which of the recommendations will be adopted, but the government has welcomed the report and the current climate is such that we can likely expect changes in due course. Watch this space....
Zoe Bristow is an associate in the employment department at Travers Smith LLP.