Profound underlying changes in technology and demography are transforming work.
Over recent years there has been a shift to greater levels of self-employment, including an acceleration in the growth of on-line platforms in the “gig” economy to source jobs. Despite evidence that many people working in the gig economy value the flexibility and freedom that working in this way can offer, many of these working arrangements are viewed with unease, often because of the perceived disparity in the balance of power between the parties. The gig economy has drawn sharp criticism from many quarters on the way in which some platforms operate and the rights of those working for them.
In light of increasing focus on this area, in October last year, the House of Commons Business, Energy and Industrial Strategy Committee launched an inquiry asking various questions about the future world of work. Separately, Matthew Taylor, chief executive of the RSA (the Royal Society for the encouragement of Arts, Manufactures and Commerce), was tasked by the Prime Minister to lead a wider review into how employment practices need to change in order to keep pace with modern business models. The review’s recommendations are expected in June.
This article highlights key aspects of Lewis Silkin’s response to these ongoing reviews.
Both the inquiry and the review are an important and timely opportunity to scrutinise and rethink how we currently regulate the relationship between “work givers” and “work performers”. In the short term, as the controversy around the issue of employment status in the gig economy has highlighted, important work needs to be done to clarify the law to reduce the confusion around employment status. However, it is also an opportunity to make wider, more fundamental reforms in relation to employment law and also to the tax and welfare regimes - both to tackle the drivers behind misclassifying employment status and to ensure a secure foundation for a strong economy and working lives as the world (of work) continues to evolve.
It is undoubtedly the case that some workers work flexibly by necessity and are at the mercy of exploitative work givers, unwillingly working long hours without access to the guarantees of the living wage, holiday pay and other minimum protections. However, many more do this by choice because it suits their particular circumstances, for example undertaking portfolio careers or enjoying the freedom to fit their work around other commitments such as study or childcare or other jobs. Flexibility is clearly a valuable component of the labour market and any steps to tackle genuine abuses and poor practice must be careful not to restrict this flexibility. The fact that different individuals are in very different circumstances means that the law needs a reliable way of distinguishing between them and targeting action at those who might be called the “reluctant self-employed”.
Establishing the correct employment status – and therefore what employment rights a specific individual has – is often left to be decided retrospectively by the courts. This is an unsatisfactory position, as judicial decisions on this matter tend to be very fact-specific, making it difficult for parties to a working relationship to apply those decisions to different elements of their own workforce. In addition, case-law takes a multi-factorial approach when determining employment status and considers factors such as control, risk, right of substitution, integration into the business and so on. A number of these factors are problematic in themselves and, additionally, determining status when these factors pull in different directions is particularly difficult. In distinguishing between employees and workers, the law considers very similar factors, simply applying a lower threshold for worker status. In reality, there is a spectrum of shades of grey, rather than clear categories with a “bright line” for where this threshold is to be drawn in any particular case. These difficulties have been brought into sharp relief in the current context of a complex and developing employment landscape.
In light of the above, we made the following recommendations:
- Review the rights attaching to each employment status category (employee/worker/self-employed) and consider whether the rights assigned to each category continue to be appropriate in the current/future working environment, particularly as many of these rights have accumulated over time on a piecemeal basis.
- Consider whether a separate category of “worker” is desirable/necessary. The fact that the UK has an intermediary category of “worker”, in addition to employee and self-employed, has arguably placed the UK ahead of a number of other jurisdictions. However, this is an opportunity to assess the reasons behind the introduction of the “worker” category and whether its existence helps or hinders the ability to offer continuing market flexibility.
- Consider the following possible approaches to determining employment status:
- Remove the “worker” category so that all those who work are either “employees" or “self-employed”, with more flexibility in the concept of employee; or
- Reformulate the existing legal approach by defining self-employment (which is currently undefined) and replace the current definition of worker to include anyone who is neither an employee nor self-employed (making “worker” the catch-all category rather than the current position in which self-employment is the catch-all); or
- Retain the existing approach of having three principal categories of employment status but clarify the definition of “worker”.
- Ensure that any amended status definitions apply equally to the employment, tax and immigration spheres.
- Publish government (non-statutory) guidance to help business and individuals determine employment status. Despite some unscrupulous working practices, many businesses acting in good faith can unintentionally fall into error due to abundant and often conflicting case law, the different status in the employment, tax and immigration regimes and “light” government guidance. This new guidance should identify the relevant and most persuasive factors to be taken into account by employment tribunals, with examples drawn from real life. We proposed that guidance should make clear the impact of genuine personal choice on employment status: if an individual has been presented with different options as to their status and has elected to remain self-employed, we consider that there is little justification for third-party interference in this. Those who have not been given a choice should be given greater protection.
- To achieve clarity about rights at the start of the employment relationship, job adverts for work involving personal service should state the employment status that is envisaged (by reference to the government guidance). The hirer would then need to issue the work performer with a contract within a certain time period which:
- states the employment status that applies;
- states that the status in the contract corresponds with the status outlined in the advert for the role/assignment; and
- attaches the government guidance on determining employment status.
If the hirer fails to comply with these conditions, the work performer should be able to refer the matter to a specialist enforcement agency.
- The inconsistent tax position for the employed and the self-employed often drives artificial models of working. Harmonising the treatment of all work-derived income (as well as aligning employment status definitions for employment and tax purposes) would be a significant – and recommended – step.
- As the link between National Insurance contributions (“NICs”) and the provision of a social security net becomes increasingly disconnected, reforms to the current NICs regime should be considered. In terms of an alternative social security system, all those who work could be required to pay into their own social security fund (much like they pay into a pension scheme) in order to provide a social safety net providing welfare benefits accessible regardless of employment status.
- Provide support for the genuinely self-employed to understand their rights and obligations, to comply with their obligations (such as filing tax returns) and make provision for a ‘safety net’.
- Provide an appropriate level of rights for those who work on short-term assignments (which are becoming ever more common but are not properly addressed by current rules).
- Address the challenges of calculating elements of pay (and eligibility for certain benefits such as automatic enrolment in a pension scheme) for individuals who work unpredictable/ad hoc hours and whose pay fluctuates from one pay period to another.
- Ensure the effective enforcement of employment rights (which has been affected by developments such as the introduction of employment tribunal fees).
- Consider adjusting the tribunal fees regime. If the government continues with a tribunal fee regime, a potential option for continuing to charge a similar level of fees while remedying access to justice could include having a system which better matches the level of fee to the value of the claim. For example, by introducing more tiers of fees for different values of claim; making the fee proportionate to the maximum value of the claim as stated by the claimant at the outset; or having a complete exemption from fees for claims below a certain maximum amount (so that a small deductions from wages claim would be free). Another option would be to charge a fee to the losing party at the end of a case.
We await with interest Matthew Taylor’s report and recommendations, which will be an important catalyst for setting the employment agenda over the coming years.