The Taylor Review of Modern Working Practices “Good Work” was published this morning. It considers how technology platforms have impacted working practices and the rights of workers, and examines whether our current legislative and regulatory framework is fit for purpose. The Review focuses on the importance of quality work: “fair and decent work with realistic scope for development and fulfilment” and recommends to the government certain employment and tax reforms.
The Review recommends:
retaining the current categories of employment status for employment law purposes (i.e. self-employed, employee and worker), save that “workers” should be re-named “dependent contractors”, but that, in time, consideration should be given to aligning the tax treatment of employees and dependent contractors: this would mean that both an employee and a dependent contractor would be treated in the same way as employees by HMRC for income tax and NICs purposes.
that the government should be encouraged to introduce primary legislation to set out the criteria that define employment status with more focus on the extent to which the individual is under the control and supervision of the company for whom they provide services, with less emphasis on the requirement for personal service (i.e. a valid substitution clause would not necessarily prevent the individual being a “dependent contractor”). It recommends that legislation should outline what “control” means in a modern labour market as this does not simply equate to supervision of day-to-day activities. The Review makes clear that a requirement for personal service would remain a touchstone of an employment (rather than dependent contractor) relationship.
that the National Minimum Wage regime should be reformed to encompass gig economy workers who provide their services through apps and other digital systems. The current mechanism for calculating a “piece rate” could be used in relation to those providing services through the gig economy.
The Review states that it aims to strike a balance between the public interest in having a strong and vibrant economy which enables innovation and growth, with a recognition that certain minimum levels of regulation and standards of worker protection are in the interests of society as a whole. The effectiveness of the proposals will depend on the detail of any legislation arising out of it; in particular it will be important to avoid unintended consequences and ensure there are effective enforcement provisions. Further, the Review recognises that if some gig economy workers who are currently self-employed become “dependent contractors”, with a resulting loss of flexibility, then this would represent failure; it endorses a “new approach” with “two-way flexibility” enabled by digital platforms.
The Prime Minister, Theresa May, who had commissioned the Review, was positive about its release, but stated that the government would respond in detail to its recommendations later in the year. She stated that there should be broad public debate to determine what action to take and also recognised the need for cross-party engagement. Given the challenges posed by Brexit and operating as a minority government, it is likely that nothing substantive will happen quickly.
The Review recommends various employment law reforms.
Maintain the status quo in terms of the three categories of “employee”, “worker” and “self-employed” (NB at present “worker” status covers both employees and a wider group of working people - known as “limb (b) workers” – see the worker definition below). The limb (b) “worker” status is helpful to apply basic protections to less formal employment relationships, but it should be re-named “dependent contractors” to refer to the category of people eligible for “worker” rights but who are not employees. Control should be of greater importance in determining dependent contractor status, with less emphasis on the requirement to perform work personally.
Some individuals in the gig economy are currently treated as self-employed; where the firm has a “controlling and supervisory” relationship, they should be treated as “dependent contractors”, with relevant protections applicable to workers.
Clearer legislation: primary legislation should outline the tests for employment status with “high level” criteria determinative of each status with the detail contained in secondary legislation and guidance.
Aligning the tax and employment law frameworks so that if an individual is an “employee” for tax purposes (which would include “dependent contractors”), then that decision should also be binding for employment law purposes i.e. the individual should benefit from the applicable employment protections.
Introducing the right to a written statement of worker status and main particulars of the engagement to “dependent contractors”.
The Low Pay Commission should be asked by government to advise on the impact of bringing in a higher NMW for hours which are not guaranteed in a contract, so that businesses can continue to use zero- and short-hours workers but would pay more for their flexibility, above and beyond contractually guaranteed hours.
A new right for people on zero hours contracts to request fixed hours. Companies should have to publish information about how many of these requests are received, and granted.
Increasing the pay reference period for seasonal, casual and zero-hour workers to improve access to holiday pay and granting the right to “rolled up” holiday pay (effectively an uplift on the hourly rate to reflect holiday pay instead of paid time off).
Various recommendations in relation to agency workers, including the right to request a direct contract of employment after 12 months with the same hirer, which the hirer should be obliged to consider reasonably.
There are no specific recommendations in terms of worker representation on boards, but there are calls for workers to have a stronger voice in the workplace, with a proposal that employers should set up Information and Consultation arrangements where requested by just 2% of the workforce, rather than the current 10%.
Allow individuals to access Employment Tribunals without paying a fee, to determine worker or employment status as a preliminary issue; place the burden on employer in any tribunal claim to prove that the claimant is not an employee/worker.
The current employment framework means a person’s entitlement to employment rights is determined by their employment status.
employee – entitled to a full range of employment rights including the National Minimum and Living Wage, annual leave, rest breaks, maternity, paternity and adoption leave, right not to be treated less favourably as a part-time worker, right not to be treated less favourably as a fixed-term employee, right to request flexible working, protection from discrimination at work, minimum notice periods, collective redundancy consultation, statutory redundancy pay and protection from unfair dismissal. Both employee and employer national insurance contributions (NICs) are due in respect of the employee’s salary payment.
worker – entitled to a range but not all employment rights: the National Minimum and Living Wage, annual leave, rest breaks, right not to be treated less favourably as a part-time worker, protection from discrimination at work. The worker (as a self-employed person) pays NICs (but at a slightly lower rate than that for employee NICs contributions), but there are no equivalent of employer NICs contributions.
self-employed – no entitlement to employment rights beyond basic health and safety and certain aspects of the anti-discrimination framework. The NICs position is the same as for workers.
The concept of a “worker” was created by statute in recognition of the fact that some individuals were not employees entitled to the whole range of employment rights, but deserved some protection, for example in relation to national minimum wage and holiday pay.
A worker is defined under section 230(3) of Employment Rights Act 1996 as:
“an individual who has entered into or works under (or, where the employment has ceased, worked under):
(a) a contract of employment, or
(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual”.
The scope of sub-section (b) has been examined by tribunals and courts but despite the developing body of case law, it is not always clear to the companies or individuals what types of working arrangements fall within its scope. Individuals who do satisfy the requirements are sometimes referred to as “limb (b) workers”. The Taylor Review proposes renaming this category “dependent contractors”.
Comment and analysis
The Review’s recognition of the societal benefits of the gig economy in terms of flexibility, innovation and technology is welcome. The UK labour market is one of the most flexible in the world with dynamic working arrangements and business models, many of which are internet supported, providing opportunities for consumers, job-seekers and the public.
The success of the proposal to introduce a new category of worker, the “dependent contractor”, will depend on the scope of any legislation, the enforcement mechanisms adopted and measures to reduce abuse. Too much government interference and excessive regulation will stifle innovation and competition, risking the viability of some gig economy business models and ultimately impacting consumer choice and employment opportunities. A technology platform which provides work opportunities without an obligation to work a minimum number of hours is attractive to many (including those who are not able to work pre-determined shifts or hours).
The government should be mindful of the need to avoid unintended consequences of any employment law reform, including any reform which fundamentally impacts on the commercial viability of some of the gig platforms.
The decision not to propose a ban on mandatory zero hours contracts is welcome. Zero hours contracts are popular because, in some cases, their flexibility benefits both sides. The Unions say these proposals are a missed opportunity but the Review recognises that there is demand for flexible work that benefits both workers and companies.
The Review recommends that new consideration be given to how national minimum wage concepts would work in relation to gig workers (including by reference to determining average returns for piece work) but recognises that gig workers should not be entitled to payment for time that they simply have an app open (and indeed, may have multiple apps open), but are not required to accept work. Any government reform should similarly recognise this distinction so that a business model based on true flexibility can remain viable.
During the press Q&A following the review, the Prime Minister demurred when asked on her views regarding the recommended changes to NICs. It was only a matter of months ago that the government retreated from its proposal to increase the NICs level for self-employed contractors given its Manifesto commitments about avoiding tax increases. Going beyond that, to also levy NICs contributions on those that engage “dependent contractors” would substantially increase the costs for these new gig economy business models, potentially to the point of breaking. Given the very large number of jobs that have been created in this sector in recent years, and its benefits to consumers and the economy as a whole, this is a matter about which the government will need to be very cautious to ensure that it does not inadvertently and irreparably “break” the model.
Given the considerable focus of the Review on the new working practices in the gig economy, it is perhaps a regrettable missed opportunity that the Review did not examine the potential for a brand new category of “gig worker” which could be specifically aimed at the unique challenges faced in that sector. With a number of safeguards put in place to ensure that they did not fall foul of findings of full worker or employment status (with the associated risks of new National Insurance Contributions) it may well be that gig platforms would pro-actively and voluntarily seek to put in place some of the protections, rights and obligations which the Review is seeking so hard to introduce for gig workers.