The Taylor Review of Modern Working Practices was published this week and this update reports on its detailed recommendations for reform of UK employment law in terms of its application to those who are engaged other than as traditional employees both in the “gig economy” and elsewhere.

Introduction

The Taylor Review was ordered by Theresa May in the light of a number of recent high profile cases disputing the employment law status of individuals working in the “gig economy” for companies such as Uber and Deliveroo. In a number of these cases, the courts have determined that the individuals working in these businesses are not self-employed contractors, but are “workers” and, as such, are entitled to the statutory rights afforded to workers such as the national minimum wage and holiday pay.

The Taylor Review has a broader scope than just the gig economy and considers more generally what reform of both law and practice are needed to reflect modern working practices. “Seven steps towards fair and decent work with realistic scope for development and fulfilment” are proposed, including a goal of good work for all, ensuring fairness for those involved in gig economy businesses, good management and strong employment relationships.

The Review takes the basic position that the job market in the UK has a good record of job creation, that its flexibility is a strength, and that the goal should be to improve the quality of work. It considers that good employers have nothing to fear from its recommendations.

With the flurry of media interest in this Review, it is important to note that it only constitutes a set of recommendations for the Government to consider. It is unclear whether or when any of the Review’s recommendations will be introduced in practice given the Government’s lack of a parliamentary majority. That said, there may be cross party support for reform, although the trade union movement would seek far more substantive improvement of workers’ rights than the Review proposes.

Many of the recommendations made in the Review are essentially to consolidate and clarify the law, to increase awareness of existing law and tighten up enforcement. So for example, the suggestion to call workers in the gig economy “dependent contractors” is merely a relabelling of the current status of “worker” which is coupled with a suggestion that the current tests for determining who is a worker be simplified.

If the recommendations in the Review were implemented, the most significant impact would be on gig economy type businesses which typically treat individuals in the business as self-employed service providers who offer their services to customers through a digital platform. The reclassification of those individuals as workers or “dependent contractors” would require the business to pay holiday pay, national insurance contributions (NICs) and the national minimum wage (NMW).

Dependent contractors

Currently there are three broad categories of status for the purposes of employment protection. Employees have the full suite of right including the right to claim unfair dismissal, to take maternity leave etc. Workers have fewer rights but are also entitled to the NMW and statutory holiday entitlements. Truly independent self-employed contractors do not have any employment rights. The application of these tests in the gig economy has proved particularly controversial and contributed to the Taylor Review being commissioned.

The Review recommends new legislation to clarify and simplify the distinction between workers and self-employed individuals which the Review identifies as the area where there is greatest risk of vulnerability and exploitation. The Review is clear that flexibility in the labour market is a good thing, welcomed by both business and workers. The aim is to update employment protections without affecting business models which allow flexibility.

The Review notes that in many of the high profile cases brought against gig economy businesses, the Employment Tribunals have found that the individuals involved are workers, not self employed contractors. The system of employment protections in the UK is therefore in its view working reasonably well already. However, the law needs to adapt to reflect emerging business models with greater clarity for individuals and business. This is considered to be important not only to protect individuals but also businesses because the current system incentivises businesses to gain a competitive advantage by adopting business models which may exploit or disadvantage workers.

The Review notes that the Employment Tribunals have established a range of factors to be applied to determine an individual’s worker or employment status. To reach a conclusion currently requires, in its view, an encyclopaedic knowledge of the relevant case law. The Review suggests that “the legislation should do more and the courts do less.” In other words the Government should consider which of the tests identified by the Courts is key and put that into legislation and guidance. It suggests renaming workers, who do not also qualify as employees, “dependent contractors” with a clearer definition which better reflects the reality of modern, more casual employment relationships – where an individual is not an employee, but neither are they genuinely self-employed. Of all the tests which have been put forward by the courts to determine worker status - such as mutuality of obligation, control, the individual carrying on a business or undertaking, personal service - the Review favours “control” as a determining factor. This is similar to the EU law definition of a worker as a person who performs services for and under the direction of another person for which he receives remuneration – see Betriebsrat der Ruhrlandklinik gGmbH v Ruhrlandklinik gGmbH C-216/15 (17 November 2016).

At the moment, the requirement that the individual does the work personally can be the most important factor in determining whether the individual is a worker or truly a self-employed contractor. So an individual who has almost every aspect of their work controlled by a business, from uniform to rates of pay to disciplinary action, may nonetheless not be considered to be a worker if a genuine, rather than “sham”, right to substitution exists. In developing the test for the new dependent contractor status, the Review considers that control should be of greater importance, with less emphasis placed on the requirement to perform work personally.

Dependent contractors would be entitled to all the rights which workers currently enjoy such as the right to holiday pay and the national minimum wage). True employees who have a personal contract of employment would continue to enjoy the greater range of employee rights such as maternity leave and the right not to be unfairly dismissed.

Encouraging “two-sided flexibility”

The Review considers that flexibility should not be one-sided and used by employers to cut costs, transfer risk to individuals, and exert unfair control over them. Flexible working relationships need to be rebalanced so that the flexibility is “two-sided” i.e. benefits both parties. A number of proposals are suggested to achieve this.

  • Dependent contractors should be entitled to the NMW. However the NMW would need to be adapted so that businesses which genuinely offer flexibility are not prevented from operating. It is acknowledged that, for example, digital platform workers who can genuinely choose when to work should not be able to log on and leave their app open, and be entitled to be paid for the whole time that the app is open, even if they are not actually working and even if they log on at a time when there is no work available. The suggestion is that using the data available to platform businesses about their workers, the NMW “piecework” rates could be adapted so that workers can be paid by the number of tasks performed at a rate which is calculated to be equivalent to the NMW plus a 20% margin for error. The Review believes that this would allow those working in the gig economy to enjoy maximum flexibility while also being able to earn the NMW. Concern has been expressed by some commentators that this proposal would not in practice improve the situation for workers. Businesses could potentially introduce quotas of work to be done each hour, and reduce pay if that quota is not completed, even if the worker would consider themselves to be working and they are unable to complete the required amount of work for reasons beyond their control e.g. a delivery or taxi driver being held up in traffic.
  • The Review recommends that attempts should be made to align the employment status framework (which recognises the three categories of employee, worker/ dependent contractor and self-employed), with the tax status framework (which only has two categories of employed and self-employed). The Review acknowledges that this is a source of confusion, and recommends that in developing the new dependent contractor test, the Government should aim for as much alignment as possible. In particular the concept of being “self employed” should mean the same in both systems, and being “employed” for tax purposes should mean being either an employee or a dependent contractor.
  • To improve clarity, certainty and understanding, the right to a written statement of particulars should be extended to dependent contractors. The statement would include all the information which an employee is entitled to receive in a written statement of particulars (such as place of work, hours of work, pay rates), plus a list of the statutory rights that the worker is entitled to, how they are calculated, and how they are paid. The suggestion is that there would be a standalone right to bring a claim for compensation if the employer fails to provide the statement.
  • The Government should develop an online tool for individuals to use to determine their working status.

Encouraging businesses to plan whilst maintaining flexibility

The Review considers that the gig economy and other sectors and business models could plan better and are perhaps relying too much on zero hours contracts, agency workers and short hours contracts. The reality is that some people on zero hours contracts are actually working 40 hours every week; and some temporary or agency workers are doing the same job for years. The Review sets out a range of recommendations to rebalance this:

  • The Low Pay Commission should consider a higher rate of NMW for hours that are not guaranteed. So businesses could still have flexible working, but would be incentivised to guarantee hours where they could.
  • Continuity of service should be easier to accrue – the suggestion is that bigger gaps in service could be discounted (up to a month) so that casual workers are more easily able to accrue the necessary service for various employment benefits and protections.
  • Better information should be provided to agency workers about rates of pay and those responsible for paying them.
  • The Government should promote awareness of holiday pay entitlements; should increase the “reference period” for calculating holiday pay for intermittent workers to 52 weeks to give a fairer rate; and allow individuals the choice to be paid “rolled up holiday pay” i.e. a higher rate of pay to take into account holiday. This would improve the position of casual and intermittent workers who may in practice find it hard to calculate and take paid holiday.
  • There should be a new right to request a direct contract of employment for agency workers who have been with the same hirer for 12 months. Businesses should be required to report on the number of requests received, and the number of requests agreed.
  • There should be a right to request a contract with guaranteed hours which better reflects actual hours worked for those who have been on a zero hours contract for 12 months. Businesses should be required to report on the number of requests received, and the number of requests agreed.

Worker engagement

The Review believes that the tone for fair and decent work is set at the top of an organisation and that engaging properly with workers is part and parcel of good business practice. The Review therefore suggests a renewed focus on employee engagement, especially in low paying sectors, and the Information and Consultation of Employees (ICE) Regulations which, broadly speaking, require businesses to set up long term information and consultation arrangements with employees. Currently very few businesses (14% in 2011) have such arrangements. The Review recommends that the scope of the ICE regulations should be extended. The suggestion is to extend the regulations to include both employees and workers, and to reduce the threshold for implementation from 10% to 2% of the workforce making a request. In addition, in order to encourage transparency and conscious decision making about employment models, businesses should be required to report on their employment model and use of agency workers.

Better enforcement of worker rights

The Review acknowledges that there needs to be a fair system of enforcement of existing and any new employment or worker rights and notes the impact of Employment Tribunal fees on access to justice, particularly for the lowest paid. It suggests that individuals who are seeking to establish their employment status should be able to obtain a determination from an Employment Tribunal, at an expedited preliminary hearing, without having to pay a fee.

There are a number of additional measures suggested to improve enforcement, including reversing the burden of proof in Employment Tribunals where an individual’s legal status as a worker or otherwise is in dispute. This would mean that there would be a presumption of worker or employee status, and it will be for the employer to prove that the individual is not entitled to the rights claimed. Currently the individual must to prove their status before they can take their claim further. There are also a number of proposals to strengthen the enforcement of Employment Tribunal awards.

The Review recommends that HMRC should be given enforcement powers in respect of sick pay and holiday pay as well as NMW.

The Review also proposes the abolition of the so called “Swedish Derogation” which currently allows agency workers to contract out of their right to be paid the same as a permanent member of staff doing the same job after a 12 week qualifying period.

Tax

The Review does note the different tax treatment of employed and self-employed people, in that self-employed pay lower NICs and there is no equivalent of employer contributions for the self-employed. The rationale for this lower tax rate is that the self employed may be taking greater financial risks, and may create employment opportunities for others. The Review concludes that this this not the reality for many self-employed people. However, the Review’s only recommendation is that Government should consider bringing the levels of NICs paid by employed and self-employed people closer, along the lines of the proposals in the spring 2017 budget, which were dropped by the Government and now seem unlikely to be revived.

The Review approves of HMRC’s move towards a digital real time tax system, and associated technology for cashless payments, which the Review believes will increase tax revenues. It is hoped that online systems will increase tax revenues from the so-called hidden economy where payments are made cash in hand. The online systems should also ensure more accurate recording of payments and charging to tax for self-employed people (similar to the way that the PAYE system works for employees).

Training and apprenticeships

The Review looks at ways of developing training and apprenticeships to improve the quality of jobs. Notably it states that unpaid internships are “an abuse of power by employers and extremely damaging to social mobility.” The Review recommends that Government should stamp out unpaid internships by clarifying the existing law and encouraging HMRC to take enforcement action.

Protecting and developing good quality flexible work

In light of the stated benefits of flexibility, the Review considers reviewing and developing rights around flexible working. It recommends a review and consolidation of the protections around pregnancy and maternity on the grounds that legislation is too complicated and not working.

The Review also makes recommendations to improve health outcomes linked to work. Notably this includes a proposal to make entitlement to SSP a basic employment right comparable to the NMW to which all workers are entitled regardless of income from day one.

Conclusion

As the Review constitutes only recommendations, no doubt this debate will continue – employers should continue to watch this space.