Uber has been in the press recently over TfL not renewing its licence to operate. But less reported has been the latest stage in its fight about whether its drivers are self-employed. Joseph Lappin looks at this in more detail.

TFL’s decision not to renew Uber’s licence is still grabbing the headlines. Despite its name being splashed across the front pages of the London and national press in the last few weeks, Uber’s appeal against the Employment Tribunal’s decision that its drivers are workers (as opposed to being self-employed) at the Employment Appeal Tribunal last week has not been widely reported in the press.

Although fact sensitive, the outcome of the appeal will be of relevance not just to Uber and its drivers but to anyone engaging or providing services in the so called ‘gig economy’. This is especially the case in light of the findings of the recent Taylor Review into modern working practices.

Broadly speaking, there are three categories of wage earner: employee, worker and self-employed. An individual’s employment status will determine their legal rights, such as how they are paid and their tax position (although there is no worker category for tax purposes).

It would require a separate article to set out the differences between the three groups in any detail. In crude terms, most statutory employment protections only apply to employees (as long as they satisfy qualifying criteria), some apply to workers and very few to self-employed contractors or consultants.

The Uber case is an example of the Employment Tribunal deciding that the claimants, the drivers, should benefit from some statutory employment protection despite Uber’s protestations that the drivers are genuinely self-employed. The effect of the Tribunal’s decision that the drivers are workers is that they are entitled to be paid holiday pay and the national minimum wage (which they would not otherwise receive as self-employed persons). Given the large number of Uber drivers operating in the UK, the financial cost to Uber is potentially vast.

Only an Employment Tribunal can determine an individual’s employment status but a wealth of case law has established the key principles for establishing whether somebody is an employee, self-employed or a worker.

Requirements for employer status

The 1968 case of Ready Mixed Concrete is a favourite of law students and practitioners alike. This case sets out the “irreducible minimum” for the existence of an employer-employee relationship. Although the facts of each scenario must be assessed on a case-by-case basis, generally, in order for an employment contract to exist, the individual must:

  1. Provide a service personally – in other words, the individual must do the work and cannot send a substitute to do the work for them;
  2. Be under the direction or control of the employer and follow the employer’s instructions and policies; and
  3. Accept the work provided by the employer (who will pay the employee to perform it).

The same considerations are relevant when considering if an individual is a worker but the pass mark is lowered. In the Uber case, the Employment Tribunal held that to the extent required for worker status the role of the drivers satisfied these three principles.

Engaging a consultant

Engaging the services of a consultant can often prove attractive to businesses because, unlike employees, they will be responsible for their own tax and national insurance contributions. Employer clients often ask how they can ensure that an individual they engage as a consultant cannot and will not be deemed as being an employee (or a worker) entitled to the full set of or some statutory employment protection, including holiday and sick pay. Although it can be relatively easy to distinguish between employees and self-employed persons the distinction between a worker and consultant is less easy to identify and will be fact dependent.

We set out below some of the factors a business should consider when they take on consultants, to mitigate the risk of those consultants being employees or workers.

  1. The consultancy agreement should include:
    • Wording that makes it clear that the consultant is an independent contractor and not an employee of the business. That said, in Autoclenz, the Supreme Court held that although the written terms of an agreement is an important factor the court will look at the reality of the arrangements between the parties to determine the true nature of the relationship.
    • A right for the consultant to appoint a suitable substitute to perform the services where the business agrees in advance. In many cases, it will not be commercially possible for a consultant to provide a substitute if they are unavailable, especially if the consultant has a distinctive personal skillset. Further, a substitution provision should only be included in the agreement if it reflects the reality of the situation; the courts will not be impressed if the provision is a sham.
    • A short notice provision only. A long notice period would be inconsistent with the nature of a self-employed relationship. Furthermore, the agreement should not include garden leave or annual leave provisions or a payment in lieu of notice clause, both of which are suggestive of employment.
  2. The agreement should avoid any references to an obligation to offer and provide the consultant with work
  3. The hours and place of work shouldn’t be too narrowly defined in the agreement. The more control a business has over the consultant the more indicative of an employment relationship.
  4. Payment to the consultant for the services he or she provides should be in the form of a fee for work completed as opposed to a set weekly wage and a consultant should not be paid during periods when they are not working. Commercially, however, it is normal for a consultant to be paid a daily fee.
  5. Consultants should be required to take out their own insurance policies and be responsible for their own financial loss.
  6. A business should avoid integrating a consultant into the business. Therefore, the consultant should not be provided with a uniform, equipment and policies. Also, procedures and company benefits should not apply to him or her, although having said that businesses do often require consultants to comply with some company policies, for example, anti-harassment and bullying policies.

The question of whether someone is self-employed, a worker or an employee is not simple and a full analysis of the circumstances of the working relationship is required. Indeed, a court will look at the issues in the round before determining the true status of the individual. Nevertheless, a business that considers and applies the issues above in drafting and managing a consultant will mitigate the risk of them being deemed an employee or worker by the Tribunals and courts.

Uber, take note.