Katie Clark, partner at McDermott Will & Emery, explores the “gig economy”, looking at practical steps employers should consider when engaging individuals as self-employed contractors.
What employers need to know
The “gig economy” is a term that is hard to avoid nowadays. But what is it exactly?
The so-called “gig economy” is a term used to describe a labour market in which flexible, short-term contracts, or freelance working, is the norm, as opposed to “traditional” employment relationships. New research conducted by the CIPD suggests that around 1.3m people are engaged in such work in the UK. While many of these 1.3m people are content with the flexible way of working, for others, it’s the only work they can secure, leading to unhappiness about employment status and legal rights. This disgruntlement has been highlighted by the number of recent protests and legal disputes over pay and other employment status issues.
Over the past year, a few employment law cases have hit the headlines because they involved well-known companies that we have probably all used to make our lives easier, namely Uber, CitySprint and Pimlico Plumbers. All these employers now have one thing in common: they have all been unsuccessful in their attempts to convince the employment tribunals that they owe only minimal obligations to those who work for them.
First and foremost, it is important to understand that UK law recognises three categories of employment status: employees, workers and the self-employed. Each category affords a different level of rights and protection, as outlined below.
An employee is entitled to a full suite of rights, including unfair dismissal protection and entitlement to receive redundancy payments after two years’ service, statutory sick pay and maternity pay (and other family friendly payments) to name a few.
Case law tells us that the following factors, whilst not exhaustive or determinative, tend to indicate that an individual is an employee:
- Mutuality of obligation. There is an obligation on the organisation to provide work, and an obligation on the individual to accept that work when it is offered.
- Control. The company exerts control over the individual and tells him what to do, when and how.
- Personal service. The individual is required to do the work personally and may not get someone else to go to work in their place for the day.
A worker is entitled to some rights and protections, but far fewer than an employee. For example, a worker is entitled to take holiday and to receive holiday pay, national minimum and living wage and protection under the working time regulations.
It is easier for individuals to claim to be workers than it is to claim to be employees. Indeed, there are only two criteria:
- Work personally. Individuals must be obliged to do the work personally.
- No business undertaking or professional service. The individual must not be providing a professional service or operating a business undertaking for clients or customers.
There is no legal definition of self-employment, but if an individual is neither an employee nor a worker, they will likely be self-employed. They are not entitled to paid holidays or employment rights, but may, in limited circumstances, be able to claim discrimination in the civil courts.
Uber, Citysprint and Pimlico Plumbers all tried to argue that the drivers, bikers and plumbers at the heart of their businesses were self-employed contractors. The tribunals found, however, that the drivers, bikers and plumbers provided a personal service and did not run their own business undertakings. Rather, they were given instructions by the companies and were expected to work when required, and were under the companies’ control. They were workers.
The cases on employment status are fact-sensitive and the gig economy has not changed the test for determining employment status. They do, however, highlight the challenges and may also drive these newly categorised workers to take the next step and argue that they should in fact “step up” the ladder to become employees. This argument would be harder to make as the test for employment is a stricter one to satisfy (as outlined above).
Practical upshot of the gig economy cases
Despite the complex set of legal tests used to determine employment status and the fact-sensitive judgments, there are, nevertheless, some practical steps employers should take if they wish to engage individuals as genuine self-employed contractors.
Employers should keep in mind that a tribunal will look beyond a contractual label and examine the practical reality of the situation. Indeed, Uber lost its argument that the drivers were self-employed despite investing in expensive legal advice when drafting their contractual documents. Nevertheless, a clear, well-drafted contract does offer some protection as it can clearly set out the parties’ intentions such that individuals are less likely to challenge their status.
If looking to ensure someone has a self-employed status, employers should avoid steps that suggest that the individual is integrated within the company’s business. In communications, for example, such as email lists or even in their job title, it should be made clear that they are a contractor.
An individual may begin as self-employed but over time could become a worker or employee if their working pattern or the nature of the work changes. It is prudent for employers to review the status of their workforce, periodically.
Employment litigation will most frequently occur on termination. Employers should assess the working relationship as at termination to ensure the individual is provided with their entitlements and the correct process is followed.
The government commissioned Matthew Taylor last year to lead a review into employment practices in the UK, which will cover the gig economy and current definitions of employment status. The review will be published later this year and follows consultations with workers and employers across a range of sectors throughout the UK.
Katie Clark, partner at McDermott Will & Emery, explores the ‘gig economy’, looking at practical steps employers should consider when engaging individuals as self-employed contractors.
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