The gig economy has created a new working model that is blurring the ‘worker’ and ‘self-employed’ boundaries. Media coverage of recent employment tribunal claims has thrust this controversial and complex area of law into the media spotlight. However, the crucial question is whether this new form of working is here to stay?
The gig economy is a convenient label used to describe a market characterised by short-term and unpredictable working patterns, as opposed to permanent positions. Workers are paid for the jobs (or ‘gigs’) that they undertake rather than being paid a guaranteed wage for fixed hours of work. Despite the popular usage of the term, the exact nature of each job will vary between organisations. This catch-all phrase therefore leads to confusion and uncertainty on the part of both workers and employers over which employment rights properly apply to the individuals concerned.
Who forms the gig economy?
In the UK, approximately 1.3 million people are engaged in ‘gig work’ according to new research by the CIPD. This is estimated to be 4% of UK working adults aged between 18 and 70. The research indicates that 14% of those surveyed did gig work because they were unable to find alternative employment and only 25% used it as their main source of income, suggesting that most people use the gig economy to boost their income.+
How does this affect employment status?
Questions of employment status have always been somewhat esoteric but the rise of the gig economy has muddied the waters further. Demand for an ad-hoc workforce, who work ‘if and when’ required, has increased in recent years due to the rapid uptake of smart phone technology and need for a quick and efficient service to meet customer demands driven by app-based technology. This is supported by a significant increase in self-employment figures. However, the specific working arrangements that employers impose in practice often result in many independent contractors inadvertently attracting worker status, accruing costly rights such as holiday pay and other benefits.
Flexibility versus necessity
Businesses in certain sectors (particularly transport, hospitality and care services) depend on an agile workforce consisting of independent contractors that can be available quickly and at various times of the day.
Although this type of working is a requisite to the success of these businesses, it comes at a price to the independent contractors. Their ability to work for more than one company may be limited and their ‘self-employed’ status prevents them from attracting the benefits that UK employment law affords ‘workers’, and the security of being an ‘employee’.
The media (and trades unions) focus on these disadvantages of working within the gig economy and suggest that most independent workers are fighting to gain ‘worker’ status to entitle them to the associated benefits. Some independent contractors, however, prefer to remain self-employed as it is beneficial to them for a variety of factors, including the ability to work when it suits them and the associated tax advantages. It is important to be aware that many independent contractors are content with their status due to the autonomy and flexibility it attracts regardless of the apparent loss of benefits.
Direction of travel in recent case law
The worker versus self-employed status question is not a new debate. However, recent case law has dominated media headlines and has forced employers to consider the potential implications to their businesses. We briefly summarise three key recent decisions below:
Aslam and others v Uber BV and others (ET/2202550/15)
Several drivers at Uber were held by the employment tribunal to be workers, not self-employed contractors, on the basis that Uber exerted sufficient control over the drivers to satisfy the test for ‘worker’ status. Once the drivers were signed into the Uber app, they were regarded as being ‘on duty’ and available to accept bookings. Drivers are also subject to a rating system which, if it drops below a minimum level, means their access to the app is withdrawn. This was all suggestive of them being workers. This decision is now being appealed to the EAT.
Dewhurst v CitySprint (ET/220512/2016)
The employment tribunal found in favour of the claimant, holding that she was entitled to the benefits of worker status. As in the Uber decision, it was made on the basis of the level of control exercised by the business and the individual’s lack of autonomy. However, the Employment Judge did stress that the decision was made on the claimant’s facts and would not automatically apply to others working under similar arrangements.
Pimlico Plumbers Ltd and Mullins v Smith ( EWCA Civ 51)
In another largely fact-sensitive decision, the Court of Appeal upheld the employment tribunal and the EAT decision that the plumber was a worker, despite the plumber’s contract labelling him as an independent contractor. The decision was based on the requirement for the plumber to provide a personal service and because he was sufficiently integrated within the business.
A common factor in these decisions is that the working arrangements were all documented as ‘self-employment’, but the courts looked beyond this to consider the reality of the relationship between the parties. Decisions on employment status turn on the facts of each case and therefore it is necessary to examine the individual’s day-to-day tasks alongside the contractual documentation to decipher the nature of their employment status.
It has been reported that the booming gig economy is costing the Government £4billion a year in lost tax income. As a result, the Office of Tax Simplification has recently released a focus paper to raise some of the tax issues and implications arising from the gig economy and BEIS launched an Independent Review3 led by Matthew Taylor, which is expected to conclude in June 2017. An inquiry4 by the Commons Work and Pensions Select Committee, curtailed due to the General Election, calls for the closure of existing loopholes allowing ‘bogus’ self-employment.
The Government’s future intentions are clear from the attempt to increase National Insurance Contributions for self-employed contractors in the 2017 Spring Budget. Although reversed shortly afterwards, Greg Marsh (a panel member for the Taylor Review) has previously indicated that the issue of tax loopholes would not be ignored5 and is therefore likely to be addressed in the final report. However, in a mid-Brexit UK with increasing inflation, the Government will be wary of making hasty decisions.
Taking on a self-employed worker rather than a full time employee is considerably cheaper for employers and the corollary of decreasing the numbers of self-employed could be an increase in the unemployment figures, which will be politically disastrous.
Advice to employers
This issue is not going away. Some decisions will certainly be appealed and there are several other employment status cases in the pipeline. What is clear is that employers will not be able to hide behind artificial classifications in contracts and decisions will be made based on the reality of the working arrangements.
Checklist: Are your independent contractors workers?
- Do you insist that your contractors wear a uniform?
- Are they (in practice) obliged to accept work from you?
- Do you pay them through a PAYE system?
- How much control do you have over the way they do their work?
- Do you include your contractors in company-wide emails? Social events?
- Do you follow your disciplinary policy with your contractors?
- Are your contractors in a managerial role where they supervise employees?
- Do they have the right to substitute another to do the work?
What is a worker legally entitled to?
- The right to receive the national minimum wage.
- The right not to suffer unlawful deductions.
- The right to accrue and take 28 days’ paid annual leave per year.
- Weekly working limits and rest breaks under the Working Time Regulations.
- Eligibility for pension auto-enrolment.
- Protection from discrimination and in respect of protected disclosures.