The Gig Economy – is employment status becoming any clearer?
30th September, 2019
In the UK labour market, there are three types of legally recognised status for individuals: employee; worker and self-employed.
By way of brief summary, an employee is somebody who works under a contract of employment; there is mutuality of obligation; personal service and control. A worker is a middle ground status and it includes individuals working under a contract; where they are required to perform the work personally; there is mutuality of obligation; and they are not a customer or client of the employer.
Finally, a person is likely to be self-employed if they have a genuine unfettered right of substitution and they are in business on their own account. Factors indicating self-employed status include: there is no supervision when they are working; they provide their own quotations for work; they submit their own invoices; they assume their own financial risk, e.g. they are often paid per job rather than per hour; they are responsible for paying their own taxes; they do not receive holiday or sickness pay; they provide their own equipment; and they are able to choose who they work for and when they work.
It is important that a person’s status is correctly identified because different rights attach to each type of status. Employees are afforded the greatest protection; whereas genuinely self-employed individuals will not be entitled to any employment rights. They will have no protection against unfair dismissal; no right to a redundancy payment; no right to receive the national minimum wage; and no right to holiday or sickness pay.
The emergence of the Gig Economy, where individuals are engaged on a flexible and ad-hoc basis, has made it difficult to determine employment status. New ways of working and an increased use of technology has made it even more difficult to determine employment status.
Recent case law has shown how individuals are successfully challenging their status by arguing that they are workers. By way of example:
- In Uber BV and others v Aslam and others, the drivers were found to be workers. The Court of Appeal (“CA”) held that the courts can disregard contractual terms that do not reflect the working reality. Where the contract does not reflect the reality of the working relationship, all of the circumstances should be examined. The CA placed weight on the fact that a high degree of control was asserted over the drivers; and drivers would face a penalty if they failed to accept three consecutive requests within ten seconds. This meant that the drivers were at Uber’s disposal. It was also held that Uber ran a transportation business and the drivers provided a service to it.
- In Addison Lee v Lange and others, the driver’s contract provided that the driver was an “independent contractor” and “nothing in the agreement rendered him an employee, worker, agent or partner of the company”. Notwithstanding, the Employment Appeal Tribunal (“EAT”) held that the drivers were workers. Although Addison Lee argued that the drivers had no obligation to accept bookings, the EAT held that there was no “unfettered” right for a driver to refuse work whilst logged onto Addison Lee’s system given that sanctions would follow.
- In contrast, in Independent Workers Union of Great Britain v RooFoods Ltd (t/a Deliveroo), the riders were not held to be workers. It was held that the rider’s right of substitution, although largely redundant given the rider’s ability to accept or reject jobs, was genuine as riders had exercised this right in practice.
The case law discussed above shows that the courts are consistently applying similar tests to determine employment status. However, to muddy the water further, an Employment Tribunal has recently referred a number of questions to the European Court of Justice (“ECJ”) concerning the employment status of Yodel couriers, including whether the fact that an individual has a contractual right to use a substitute to perform all or part of their work means that they cannot be regarded as a worker under the Working Time Regulations 1998. Again, in this case, the contract stated that the couriers are self-employed contractors and not employees or workers. The individual argues that this is not an accurate categorisation and he should be considered a worker because he has never subcontracted his work. The ECJ’s ruling could change the way in which worker status is defined.
It is safe to say that determining employment status is not a straight forward task. The Government has acknowledged that greater clarity and certainty is needed for employment status. Proposals have been put forward to produce clearer outline tests for employment status; however no proposals for legislative change have been put forward at present.
We recommend that companies review its contractor/ sub-contractor lists and review any terms and arrangements in place. However, companies must remember that the reality of the relationship is just as important as any written terms and arrangements in place.
We also suggest that you keep your eyes peeled on the changes being made to IR35 as of April 2020.
If you require any advice about employment status please do not hesitate to get in touch with Aaron and Partners’ specialist employment team.
Head of Department and Partner