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Commercial Question

The gig economy – Uber and Deliveroo

updated on 22 May 2018

Question

How is the gig economy impacting employment status?

Answer

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 UK (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 UK. While 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.    

The gig economy debate

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 consultation on the Taylor Review, discussed below). This article will focus on employment law.

Categories of employment status

In the UK, there are three types of employment status:

  • self-employed;
  • worker; and
  • employee.

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:

  • Mutuality of obligation – must the employer provide work and must the individual accept work provided?
  • Personal service – must the individual perform the work personally (ie, would it be unacceptable for that individual to send another to perform work in their place?).
  • Level of control – does the employer exercise significant control over the individual, for example, control over when, where and how the individual undertakes the work?

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 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. 

Uber

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 controls 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 10 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 appealed the decision and the case was heard by the Employment Appeal Tribunal, which rejected Uber's appeal. Uber has now appealed to the Court of Appeal and the appeal is scheduled to be heard on 31 October 2018.

Deliveroo

The decision in the Uber case can be contrasted with that in relation to Deliveroo. A group of Deliveroo riders applied to the Central Arbitration Committee (CAC) for the Independent Workers Union of Great Britain (IWGB) to be their recognised union for collective bargaining purposes. The application would only be successful if the riders were workers for the purposes of the Trade Union and Labour Relations (Consolidation) Act 1992. If they were workers for the purposes of that act, it was likely they would be construed as workers more generally (and thus benefit under other employment legislation). The application was seen as a way to have worker status recognised without having to go through the tribunal.

The application was rejected by the CAC who found that the Deliveroo riders were not workers (ie, they were self-employed) and therefore they were not entitled to trade union recognition. The principle reason for the CAC's ruling was that it found little evidence that the riders were required to perform services personally; the contract with the riders had almost unfettered substitution rights. For example, riders could engage and pay a substitute directly and there was no need to inform Deliveroo that a substitute was being used, unless the substitute was using a different vehicle type which may affect delivery time estimates. There was also evidence of substitution being used in practice. 

The IWGB sought permission for a judicial review of the decision, but this was turned down by the High Court on 3 May 2018.

Next steps

In 2016 Matthew Taylor (chief executive of the Royal Society of the Arts) was commissioned to conduct an independent review into modern working practices, focused on assessing how employment practices might need to change in order to keep pace with modern business models, such as the gig economy. 

In July 2017 the "Review of Modern Working Practices" was published (also known as the Taylor Review). The Taylor Review made 53 recommendations. In relation to the issue of employment status, it concluded that the current three-tier approach to employment status (employee, worker and self-employed) should be retained as it remains relevant in the modern labour market, but that consideration should be given to codifying the tests to create more clarity and certainty. The government is now consulting on this proposal, along with a number of other proposals. 

The consultation closes on 1 June 2018. It is not clear at this stage what the outcome of the consultation will be, but the current climate is such that we can likely expect changes in due course.  Watch this space....

Zoe Dearmer is an employment associate at Travers Smith LLP.