As 2017 drew to a close and the door to 2018 opened, the issue of worker status remains a key issue, particularly for those employers who engage an atypical workforce: employers in the construction sector and the so-called 'gig-economy' being two clear examples.

As recently as last month, the EAT agreed with an employment tribunal that Uber drivers are workers, a decision of the Central Arbitration Committee went the other way in respect of Deliveroo riders two House of Commons select committees produced a combined report on modern working practices, and we heard budget announcements about IR35 reform in the private sector.  We cover all these developments below. 

Related to the issue of worker status, holiday pay has also been back in focus as a result of a European judgment about a worker who had been mis-classified as self-employed. This case re-opens the door to holiday claims going back years as we explained last November. Our previous article on the point can be viewed here: King v Sash Window Workshop Ltd

UBER: EAT UPHOLDS EMPLOYMENT TRIBUNAL'S DECISION THAT UBER DRIVERS ARE "WORKERS"

The Facts

An Employment Tribunal decided in 2016 that Uber drivers were workers, benefiting from workers' rights, including the right to National Minimum Wage and to take paid holiday. 

Uber appealed to the EAT, arguing that Uber was the drivers' agent, and that the Employment Tribunal had erred in deciding otherwise.  It also argued that the Employment Tribunal had erred in finding that drivers were workers during time waiting for bookings.

The EAT upheld the Employment Tribunal's decision.

What does this mean for employers?

Uber had submitted a petition to appeal this decision to the Supreme Court, but this has been denied. Having been refused permission to leapfrog to the Supreme Court, the appeal will now be heard by the Court of Appeal sometime this year.

Meanwhile, the Pimlico Plumbers case on worker status is due to be heard by the Supreme Court in February, which will give the Supreme Court an opportunity to review worker status (in the context of a sector which is more closely aligned to the construction industry) very soon.

DELIVEROO: THE CAC DECIDES THAT RIDERS ARE NOT "WORKERS" AND NOT ENTITLED TO TRADE UNION RECOGNITION

The Facts

In 2016, the Independent Workers' Union of Great Britain submitted an application for recognition to the Central Arbitration Committee (the CAC) for recognition for collective bargaining in respect of riders in the Camden zone. Deliveroo argued that the application could not be accepted because the drivers were not workers. It also argued that other conditions for acceptance were not met.

The CAC had to consider whether or not these drivers were workers. The definition of "worker" under the legislation relevant to statutory recognition is "an individual who works, or normally works or seeks to work a) under a contract of employment, or b) under any other contract whereby he undertakes to do or perform personally any work or services for another party to the contract who is not a professional client of his". This definition is very close to the definition of "worker" in relation to other worker's rights (e.g. the right to paid holiday and to receive the National Minimum Wage).

The key question for the CAC was whether the drivers are obliged to perform services personally. Case law has shown that, where there is a genuine and unfettered right of substitution, the individual is not obliged to perform services personally, and will not therefore be a worker.

The Deliveroo riders' contracts contain a number of provisions about substitution, including:

  • Riders may provide a substitute, who may be employed or engaged directly by the rider, to perform the delivery. There is no need to obtain Deliveroo's approval, or even inform them, unless the substitute is using a different vehicle type, which might affect delivery times.
  • There are a few restrictions on who the substitute may be, including where they are former Deliveroo riders who have had their contracts terminated for material breach.
  • It is the riders' responsibility to ensure that the substitute has the necessary skills and training. The rider remains responsible for performance.
  • The rider would be paid for the work and any arrangements for paying the substitute are between the rider and the substitute.

There was evidence of this right of substitution being used in practice, one individual having subcontracted work for a 15-20% share in the delivery fee.

The CAC found that this was a genuine and almost unfettered right of substitution. The riders were not therefore obliged to provide services personally, and they were not workers.

What does this mean for employers?

As the CAC commented, the factual situation in this case was very different from the Uber case. With the Deliveroo riders, the issue was whether or not the riders were obliged to provide services personally. This has not been in serious dispute in the other recent cases about worker status. Had the Uber contracts contained a genuine and unfettered right of substitution, the drivers would not have been workers. It is worth noting that this was a CAC case, so not binding on Employment Tribunals.

Employers often include substitution clauses in contracts with their service providers. However, if the right to substitute is not genuine, the mere inclusion of the clause in the contract will not be sufficient to avoid worker status.

REPORT ON MODERN WORKING PRACTICES PUBLISHED

The Facts

A combined report from two House of Commons Select Committees has been published.  It pulls together various strands from the Taylor Review in July and the earlier enquiries by the Work & Pensions Committee into "self-employment and the gig economy".  The report also has some interesting insights and input from the Director of Labour Market Enforcement.  We are still waiting for the government's response to the Taylor report, which we had expected last year.  However, a budget announcement stated that a discussion paper would be published, exploring the case and options for reform.  The headline recommendations of the combined report (many of which adopt Taylor's recommendations) are:

  • Clearer statutory definitions of "employer" and "worker" plus a new definition of "independent contractor", each of which will also have a list of key factors to which the courts should refer when deciding status cases.
  • Worker status 'by default' in employment status cases involving companies with a contractor workforce over a certain size (not yet articulated).
  • Non-guaranteed hours: a proposed scheme to be run with the Low Pay Commission to pilot the payment of a premium over NMW/NLW for workers who work non-contracted hours.
  • Continuity: an increased gap to break statutory continuity of service – 1 month rather than 1 week.
  • Statement of terms and conditions extended to workers, to confirm in plain English their status and entitlements from day one; to be provided within 7 days of starting work.
  • Worker voice: to count workers as well as employees in the fifty plus people threshold for the Information and Consultation of Employees Regulations 2004 to apply. Also, to reduce the level of support required to implement an Information and Consultation of Employees body, from 10% of the workforce to 2%.
  • Swedish derogation: the "Swedish derogation" is the exemption from the right to equal treatment with regards to pay for agency workers with a permanent contract of employment with minimum requirements, where the agency worker is paid the a minimum amount between assignments. Abolition in parallel with increased power and resource to the Employment Agency Standards Inspectorate to enforce the remainder of the Agency Worker Regulations.
  • Enforcement & deterrence: to consider higher, more punitive fines and costs orders if an employer has already lost a similar worker status or pay claim, or for repeated/serious breaches of employment legislation plus expansion of 'naming & shaming' for non-compliant business and their supply chains.  Also, to consider broader use of 'class actions' in disputes over wages, status and working time.

What does this mean for employers?

As the final recommendations are not yet available (they are anticipated this year), employers should await the final report.

TAX AND EMPLOYMENT STATUS: GOVERNMENT REFORMS

The Facts

In April 2017 The Government reformed the off-payroll working rules (known as IR35) for engagements in the public sector, requiring public sector engagers to look through personal service companies when applying the employment status tests, and therefore more frequently being required to operate PAYE.  The Government announced in the budget that there will be a review into  whether the private sector engagers should follow where the public sector has led (and our best guess is this will happen to 'iron out unfairness' with effect from April 2019 or 2020).

In the budget, the Government also announced there would be a second review to explore a way to make the employment status tests for both employment rights and tax clearer. This is not an impossible task but will certainly not be an easy one. We wait with interest to see how they will deal with mutuality of obligations, substitution rights and the underlying worker's financial risk.  

What does this mean for employers?

It is early days for these proposed reforms.  However, it seems likely that (given the recent raft of employment status cases and the proposed reforms) HMRC's interest in employment status will pick up substantially.  Employers should ready themselves for this, and the proposed reforms, by considering a review of their engagement practices, making sure they have a clear understanding of their own patterns of workforce engagement, so that they can understand risk areas.