Amanda Lathia discusses how the Gig Economy continues to shape the legal status of a worker in Employer News

  • September 18, 2019
  • By Amanda Lathia, Associate

This article was originally published in Employer News and can be accessed here

How the legal concept of a worker is evolving due to the Gig Economy

The employment landscape has changed dramatically over the last two decades. There are currently almost 5 million self-employed people in the UK (15% of the working population) compared to 3 million (12%) in 2001.

The key advantage for both companies and the self-employed is flexibility and particularly for companies, cheap, on-demand labour and fewer tax liabilities. Yet many self-employed workers (particularly drivers and couriers) say the reality of the gig economy is that it consists of low pay, inflexibility of working hours and difficulty in taking time off work – certainly not the usual hallmarks of the self-employed. The reality is that these so called “self-employed” individuals are actually workers, as defined under section 230(3) of the Employment Rights Act 1996.

The origin of the ‘worker’ status dates from the trade union statutes, now the Trade Union and Labour Relations (Consolidation) Act 1992. Old case law under the Industrial Relations Act 1971 established that the definition of worker included self-employed contractors providing personal work or services. Inflow of migrant workers in the 1990s under the EU’s freedom of movement raised the number of workers and created a need to separate the concepts of temporary workers and permanent employees. The definition of worker was extended under the Employment Rights Act 1996 to include individuals working under any type of contract. Under section 230(3), a worker is defined as an individual who works under (a) a contract of employment or (b) any other contract, express – whether oral or in writing – or implied, where the individual undertakes to personally perform work or services for another party (who is not a client or customer of any business undertaking carried on by the individual). This means that all employees are automatically workers. The worker definition has been adopted in various legislation such as the National Minimum Wage Act 1998, the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 and the Working Time Regulations 1998 (WTR). Under the WTR, worker status also extends to agency workers. It is the second part (“limb (b)”) that has been the subject of extensive (and expensive) litigation brought by self-employed employees (Uber drivers, Pimlico Plumbers and Hermes couriers) to prove that they in fact fall within the scope of “worker”. Indeed, the Taylor Review of 2017 suggested that they be renamed “dependent contractors” to distinguish them from “independent contractors”.

The significance of the Uber and Pimlico Plumbers cases for example is that these individuals successfully proved that they were “working personally” for their employers (satisfying limb (b)) and were therefore entitled to basic employment rights such as the national minimum wage, minimum holiday, paid leave and protection from unlawful deduction of wages and discrimination. The self-employed do not have such rights and therefore cannot realistically challenge unlawful behaviour by their principal. Coupled with this, they do not always have access to certain benefits under the welfare system – a safety net for low-paid workers – e.g. contributory job-seeker’s allowance, since these rely on contributions. Nonetheless, the numbers of individuals seeking autonomy and better work/life balance, the keyword here being “control”, such as when and how much holiday to take, what hours to work and having the right of substitution, are rising.

In the case of Uber, the Employment Appeal Tribunal (EAT) rejected Uber’s argument that it acted as agent for the drivers. The EAT held that drivers were workers for the duration of the time they were logged in to the Uber app and ready to accept work because (i) they were not genuinely free to accept other work during that time and (ii) if they failed to accept bookings, the app would generate warning messages that could lead to the driver being blocked from the app. In the case of Pimlico Plumbers, the Supreme Court held that a plumber who worked as an independent contractor was in fact a worker because he did not have an unfettered right to provide a substitute, other than by swapping assignments with other Pimlico plumbers. Other factors that contributed to this conclusion were contractual references to wages, gross misconduct, dismissal and restrictive covenants post-termination. Following on from Pimlico Plumbers, an employment tribunal held in Leyland v Hermes Parcelnet Ltd that Hermes couriers were workers, despite being described as self-employed. It was a dependent work relationship in which couriers had very little autonomy and where the right to provide a substitution did not change the nature of the dependent work relationship.

Interestingly, flexibility and agile working are now a growing feature of work on regular employment contracts. At the lower end of this spectrum are zero-hour contracts (ZHCs). Individuals on ZHCs usually have “worker” status, so are entitled to statutory annual leave and the minimum wage. This follows from the fact that where a business does not guarantee work and the worker is not obliged to accept work, there is an absence of mutuality of obligation which is an essential element of an employment relationship. The advantage for the employer is that they can offer work to meet demand as their services fluctuate. Following much controversy around ZHCs, many employers are now trying to reduce the unpredictability of these contracts by giving workers a four-week rota and reducing last-minute cancellation of shifts. Although a ZHC is no way for a young person to build a career, others welcome the flexibility it offers, notably students, carers, parents and those working in the performing arts industry, because they cannot and/or do not want to commit to a permanent or fixed-term contract.

Since the Taylor Review, the government has declared that it plans to give workers a right to potentially move towards a more predictable and stable contract. The confusion here is that it remains to be seen whether the self-employed who personally work for an employer will have the legal means to be able to force companies to give reasonable notice of work or to pay compensation if shifts are cancelled at short notice.

It is undeniable that the lines between workers and the self-employed have become blurred and we need clearer legislation around worker status. Or better still, an update of the definition to “dependent contractor”, allowing those types of workers to receive basic employment rights. In addition, the presumption should be that the current self-employed individuals who “personally do work” for an employer are at minimum, workers or dependent contractors, and for employers to have the burden of showing that they are self-employed if they believe this to be the case.

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