Clare Gilroy-Scott discusses the employment law implications resulting from the rise of gig economy working
The term “gig economy” is used to describe the trend towards workers taking work on a “gig” basis, engaging with businesses on flexible, generally short-term assignments, in contrast to a traditional employment model.
In terms of the employment law implications, an employment tribunal held on 28 October 2016 that Uber drivers are “workers” and not self-employed contractors (Aslam and others v Uber BV and others [2016] EW Misc B68 [ET]), affording them certain employment rights.
For businesses operating in the real estate and property sector, known for subcontracting and engaging consultants as independent contractors, the tribunal judgment in the Uber case is one to note.
Described by the tribunal as a “modern business phenomenon”, Uber has around 40,000 drivers in the UK, with 30,000 drivers operating in the London area and around two million passengers registered to use its service there.
Current and former Uber drivers brought claims largely relating to failure to pay the national minimum wage and holiday pay. The drivers claimed that, in numerous different ways, Uber instructs, manages and controls the drivers so that the drivers are not genuinely self-employed.
Uber’s defence was that the drivers are self-employed contractors, able to work for other organisations, including direct competitors, and who (among other things):
- are free to elect which Uber product they provide;
- must meet all expenses associated with running their vehicles;
- must fund their own individual private hire licences;
- treat themselves as self-employed for tax purposes; and
- are discouraged from displaying Uber branding and do not wear uniform.
Details of the contractual documentation between Uber and its drivers and passengers respectively make interesting reading for anyone dealing with similar tripartite working arrangements. The documents were described by the tribunal as containing “fictions” and “twisted language”, using terminology which “merits… a degree of skepticism”. In addition, they were inconsistent with Uber’s description of itself and with how the drivers were operating in reality.
The tribunal ultimately found that the drivers were offered, and accepted, trips only on Uber’s terms. This was a “dependent work relationship” and not a contract at arm’s length between two independent business undertakings. The tribunal said:
“The notion that Uber in London is a mosaic of 30,000 small businesses linked by a common platform is to our minds faintly ridiculous. In each case the ‘business’ consists of a man with a car seeking to make a living by driving it… if there is a contract with Uber it is… not a contract under which Uber is a client or customer of a business carried on by the driver.”
Consequences
The effect of the judgment is that, regardless of contractual documentation stating otherwise, the drivers are entitled to employment rights applicable to “workers” – an employment status falling somewhere between “employee” and “self-employed”.
While “workers” do not have employment rights applicable to “employees”, such as protection from unfair dismissal and the right to a statutory redundancy payment (after two years’ service), they are entitled to rights under the Working Time Regulations 1998 (as amended) (such as paid annual leave), the national minimum wage and protection in respect of whistleblowing (among others).
A genuinely self-employed consultant will not be an employee or a worker. Key to a self-employment relationship is that the individual operates under a contract by which the other party is a client or customer of their “business”. This is ultimately what distinguishes them from “workers” and “employees”. With “employees” there must be an element of serving another, as opposed to providing services.
Self-employed consultants are likely to provide services to more than one “client”, are able to determine the timing and method of providing the services, provide their own tools and equipment, take some financial risk and engage and pay their own support workers, in delivering the services. They are also likely to be able to market their services generally and be more highly skilled.
An unfettered right to provide a substitute to perform the services will be indicative of self-employment, rather than worker status. This is often not commercially attractive for the business engaging them. Byrne Brothers (Formwork) Ltd v Baird and others [2001] All ER (D) 321, which held that self-employed labourers who worked as subcontractors in the building industry were workers, despite the contractual right to provide a substitute in some circumstances (ie the right was not unfettered), remains a strong precedent.
Arrangements in the property sector
Many subcontractor arrangements in the property field will operate on a business-to-business commercial arrangement, with the subcontractor company taking on the legal responsibility for working time and pay matters for the individual(s) they provide to carry out the service.
The Uber decision will only impact those business relationships where the individual is directly engaged, ie not as a limited company contractor. The IR35 position may be at issue when subcontracting with a limited company consultant (unless operating deductions through CIS) but the Uber case was not concerned with tax issues.
A point to note is that an individual may be considered by HMRC to be self-employed for tax purposes but for employment rights purposes they may be deemed to be a worker, if not an employee. This can cause confusion for those engaging self-employed consultants who may not have to pay tax on a PAYE basis but may still have some worker rights.
Appeal
Uber is appealing the decision and it is likely that appeals will be pursued on this point as far as possible. Notwithstanding this, the first instance judgment provides a useful analysis of the contractual terms and commentary on Uber’s working practices which will serve as a lesson for other businesses operating on a gig economy basis.
Those who are treated as “self-employed” in similar circumstances may be more likely now to bring claims relating to worker status, albeit that they will need to weigh up the value of such a claim against the possible loss of the more favourable tax position enjoyed by the self-employed.
Of course, Uber may have simply got it wrong, and the tribunal stated that nothing in its reasoning should be taken as doubting that Uber could have found a model which meant that it was not engaging “worker drivers”. Uber’s chosen model “failed to achieve that aim”.
The future working economy
There is no sign of the focus on atypical working diminishing, particularly with the expansion of gig economy working.
Deliveroo’s and Amazon’s working models are, similarly, under scrutiny. Last month, BEIS launched an inquiry into the issue of atypical workers and their employment rights, given the changing nature of work in the gig economy. In terms of tax, HMRC continues to address the issue of “off payroll” working and intermediaries, focusing at present on the public sector but with plans to extend their proposals to the private sector in due course.
This is the time for businesses engaging contractors, consultants, freelancers and/or casual workers, to review their workforce and to consider the employment status and contractual terms of each individual providing services. Remember that the reality of the working practices will be scrutinised as much as the contractual terms – which may just be set aside, as Uber has discovered.
Clare Gilroy-Scott is a senior employment solicitor at Goodman Derrick LLP
