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The ‘gig economy’ – what does it mean for employers and workers?

November 24, 2016  /   No Comments

Sarah Calderwood

The ‘gig economy’ – what does it mean for employers and workers?With technology changing the way we live our lives, services such as Uber and Deliveroo have created a new ‘gig economy’ where people have the flexibility to choose when and where they work.

Instead of a salary, individuals get paid for the ‘gigs’ they do – from delivering a takeaway to cleaning a house. As a result of this emerging ‘gig economy’, five million people are now classified as independent workers in the UK.

While being self-employed often provides flexibility for people, it also means that they are not entitled to the same benefits given to ‘workers’ or ‘employees’. By law, workers must be paid the national minimum wage, along with holiday and sick pay. Workers are also entitled to whistle-blower protection and to the statutory minimum length of rest breaks.  

In practice it is very difficult to determine which category a person falls into and therefore which rights or benefits they are entitled to. It is important to remember that just because someone is given a self-employed consultancy agreement does not mean that they are genuinely self-employed. They may bring a claim into the tribunal to argue that they are in fact a ‘worker’ or ‘employee’ and claim payments such as back-dated holiday pay and sick pay. Choosing the wrong label for your staff can therefore be a costly error.

The employment status of individuals is defined by statute. Section 230(1) of the Employment Rights Act 1996 defines an employee as “an individual who has entered into or works under…a contract of employment”. A contract of employment is defined as “a contract of service or apprenticeship whether express or implied and (if it is express) whether oral or in writing”. By itself, this definition is difficult to understand and the meaning of a ‘contract of service’ has been clarified through case law.

A worker is defined under section 230(3) of the Employment Rights Act (EAT) 1996 as someone who has entered into or works under an employment contract or any other contract under which they undertake to perform personally any work or service for another party to the contract (save as a client or customer). The EAT stated in Byrne Brothers (Formwork) Ltd v Baird that a worker is someone who does not quite reach the status of ‘employee’ but there are some factors that suggest employment rather than self-employed.

These factors could include:

  • Does the individual have to provide the service themselves? If they can provide a substitute, then this would indicate self-employment rather than ‘worker’ status.
  • How much control does the employer exercise over the individual? The greater the control, then the less likely the person is self-employed.
  • Is the person operating a business and the ‘employer’ is actually a customer? If so, the person is self-employed. This is difficult to ascertain in practice but it would be relevant to look at whether the person is advertising their ‘business’ and working for other customers, whether they provide their equipment, and so on.
  • Is there an expectation between the parties that one will provide work and the other will carry out the work (known as ‘mutuality of obligation’). If so, this would indicate that the person is a worker rather than self-employed.

Whether someone is a worker, employee or self-employed is therefore a question of fact in each case.

The Uber case

Two Uber drivers have won a landmark case to be classified as workers rather than self-employed contractors. The London Central Employment Tribunal ruled that Uber drivers were not self-employed and were in fact workers.

The tribunal found that Uber interviews and recruits drivers, fixes the fares and handles all of the issues and complaints that arise. With all this control, how could Uber consider these individuals to be self-employed?

Uber argued that they were a technology not a transport firm, simply taking commission from the earnings made. Additionally, they suggested that their drivers enjoyed the flexibility and freedom of being their own boss and were therefore genuinely self-employed. These arguments were not accepted by the Employment Tribunal as Uber simply had too much control over their workers.

This decision could have far-reaching implications for other similar businesses in the so-called ‘gig economy’. While a judgement from an employment tribunal is not binding on other tribunals, the decision can still influence similar cases; such as the claims currently being brought against CitySprint, eCourier and Excel.

What this could mean?

Uber has confirmed that it will look to appeal the ruling and maintain that its drivers are self-employed. The immediate fall-out may, however, prove to be negative for both consumers and workers alike as the obligation to pay the national minimum wage, along with benefits such as holiday pay may result in higher operating costs. This means that prices paid by the consumer also increase. It could also lead to a freeze on recruitment and additional pressures on current workers. It’s currently unclear what businesses in the ‘gig economy’ would do if they are required to classify staff as workers. It might be that such a change makes the business model of companies like Uber unsustainable.

As a business, it is very important that you correctly categorise your staff, whether as genuinely self-employed, workers or employees, to avoid claims being brought against you. Advice should be sought as to how each category of staff should be treated in order to avoid crossing over from ‘self-employed’ to ‘worker’ or from ‘worker’ to ‘employee’.

Sarah Calderwood is an employment Partner at Manchester law firm Slater Heelis: www.slaterheelis.co.uk

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  • Published: 7 years ago on November 24, 2016
  • Last Modified: December 19, 2016 @ 11:18 am
  • Filed Under: Industry Insider

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