Employment Law & The Gig Economy

Employment Law & The Gig Economy
7 January, 2017

Employment Law

At the tail end of 2016, the term “Gig Economy” was thrown sharply into the limelight. It sounds like a new phenomenon, but really it pretends to be much like the old practice of freelance work, enhanced by the use of technology.

With fewer people working in traditional ‘jobs for life’, it is important that modern workers’ rights and responsibilities are taken care of and that they are not exploited by agents and businesses attempting to cut the costs of employing workers.

What is the “Gig Economy”?

The Gig Economy, also known as the sharing or platform economy, is described as ‘transactions between peers, with technology platforms taking the role of brokers between peers‘.  Businesses can make use of online platforms to outsource tasks which would normally be delegated to one single employee, to a large pool of workers.  As summarised by The Guardian in their article View on The Gig Economy: Obligations Not Excuses to Workers are Needed, gig jobs can be defined as jobs:-

where you start work by opening an app on a smartphone and end when you swipe out”.

This has disrupted the traditional patterns of employment.

The term Gig Economy can cover anything from freelancers selling their skills online, to self-employed contractors working on assignments; however, this concept was brought into sharp focus towards the end of 2016 by the case of Aslam & Farrar – v – Uber BV & Others.

The Case of Aslam – v – Uber

In Aslam v Uber, which was heard at the London Central Employment Tribunal, Judge Snelson held that Uber taxi drivers were “workers” and not self-employed entrepreneurs, as pleaded by Uber. You can read the judgement here.

In it, Judge Snelson stated that:

“Uber is a modern business phenomenon. It was founded in the United States in 2009 and its smartphone app, the essential tool through which the enterprise operates, was released the following year.”

On 2 February 2016 its Chief Executive, Mr Travis Kalanick, posted this on the Uber website:

“Uber began life as a black car service for 100 friends in San Francisco – everyone’s private driver. Today we’re a transportation network spanning 400 cities in 68 countries that deliver food and packages, as well as people, all at a push of a button. And … we’ve gone from a luxury, to an affordable luxury, to an everyday transportation option for millions of people.

“There are now about 30,000 Uber drivers operating in the London area and 40,000 in the UK as a whole. The organisation has some two million passengers registered to use its services in London.”

Uber’s Legal Challenge in London

Uber faced a legal challenge from drivers who argued that they should be officially classed as workers at the company and therefore entitled to the same workplace rights.

Uber themselves argued that they were not the ones providing the transport service, rather they were a tech company that puts the driver in touch with the customer. In essence, Uber’s position was that it acts as an agent for the drivers through the use of the Uber smartphone app, and that the contract for the provision of the taxi service is between the individual Uber driver and passenger.

As a consequence, Uber treated its drivers as genuinely self-employed, and they were therefore not entitled to the employment rights traditionally applicable to workers. In rebuttal, the drivers sought to prove that, as they are subject to ratings and are not told the drop-off location, they should be regarded as workers rather than self-employed.

The Employment Tribunal undertook a detailed analysis of Uber’s assertion that it does not offer taxi services, but rather than its business is to provide access to a technology platform which facilitates the provision of taxi services.

This was underpinned by complex contracts between Uber London Ltd, its parent company, Uber BV, the drivers and the passengers.

The London Tribunal’s Judgement

The Employment Tribunal concluded that the Uber drivers were workers at all times when they satisfied each of the following conditions:

  • They have the app switched on.
  • They are in the territory in which they are authorised to work.
  • They are willing and able to accept fares.

In reaching this conclusion, the Employment Tribunal made it apparent that it regarded Uber’s position as lacking in credibility when considering the reality of how the business operates on a day-to-day basis.

It also noted that Uber had made public comments which contradicted its position.

In these circumstances, it was appropriate to disregard the content of the contracts between Uber and the drivers.

What defines a worker?

The employment status of individuals who do “gig” work is sometimes unclear. Should these individuals be considered as workers, employees or are they self-employed?

The definition of workers set out in section 230(3) of the Employment Rights Act 1996 goes beyond those engaged on a traditional contract of employment to include individuals who undertake to perform personally any work or services for another party to the contract. There is an exclusion for circumstances where the other party to the contract can be considered a client or customer of any profession or business carried out by the individual.

An individual who does not fall within this definition will usually be regarded as genuinely self-employed.

This is important to note, as workers are entitled to a number of specific Employment Law rights by virtue of their status. These rights include:

  • the right to receive the national minimum wage for each hour of work,
  • rights to holiday pay,
  • and rights to rest periods in respect of their working time.

Hence the defence which was lodged by Uber in respect of their driver’s claims.

In contrast, those who are considered self-employed do not benefit from these rights.

Some Modern Business Models Depend on the Gig Economy

Matthew Taylor, Chief Executive of the Royal Society of the Arts and an ex-head of the Number 10 Policy Unit, highlighted that changing business models and working practices mean that currently in the UK around 6 million people are not covered by standard workplace rights. This is, in part, down to the growth of the so-called ‘gig economy’.

For worker status, the individual must not be providing the work or services as a business, and control is a factor. In determining that that the drivers were not in business, the Employment Tribunal took into account the control Uber has over its drivers.

In particular, the Employment Tribunal considered that Uber controls key information about passengers, sets routes and imposes numerous conditions on drivers. In consequence, the Employment Tribunal gave short shrift to Uber’s contention that it just connects passengers with drivers and concluded that Uber is a transportation business and the drivers were its workforce.

Implications of Using Workers instead of the Self-Employed

Having concluded that the Uber drivers were workers, the Employment Tribunal went on to apply its analysis to the question of what amounted to the drivers’ working time for the purposes of the Working Time Regulations 1998.

This question was relevant to issues such as the calculation of the drivers’ entitlement to paid annual leave. On this point, the tribunal held that the drivers’ working time was limited to periods when they had the app turned on, when they were willing and able to accept fares and when they were in the territory in which they were authorised to work or returning to this territory after dropping off a passenger outside this territory.

The argument that the drivers’ time spent commuting to and from the authorised territory each day amounted to working time was specifically rejected.

The Employment Tribunal followed the analysis in relation to working time for the purposes of determining the drivers’ hours under the National Minimum Wage Act, concluding that the arrangement fell into the category of unmeasured work. Therefore the drivers were entitled to be paid at least the national minimum wage rate for each of these hours.

The Future of the Gig Economy

Aslam v Uber was the first significant decision about the status of individuals who provide their services as part of the Gig Economy. It is, however, important to bear in mind that this decision is not legally binding and, given the significant impact of this decision, it is very likely it will be appealed by Uber.

While the findings apply to just the two drivers who brought the case, it will embolden other Uber drivers to bring similar claims, as well as others working in the Gig Economy (for example, Deliveroo which has recently had to deal with its own controversy over its pay structure).

Furthermore, it does demonstrate that the Employment Tribunal is prepared to disregard an employer’s business model and related contracts if these do not reflect the reality of the relationship between the parties.

That being said, the Employment Tribunal made it clear that its decision did not mean that Uber could not have formulated a business model which did not involve it engaging the drivers as workers.

This does pose a potential problem in respect of the current status of Employment Law. The Uber case was decided on its facts based on the Uber business model. Other businesses operating within the Gig Economy will have different models. An employment tribunal could quite easily reach a different conclusion in another case.

Employee or Self-Employed? The Crux of the Matter

There has long been confusion over what defines an ‘employee’. So much so that the HMRC and the Courts do not have an agreed definition. A legal test for determining employment status will be based on a number of factors including (but not limited to):

  • Whether there is mutuality of obligation to provide and accept work;
  • Whether the person provides their own work in return for a wage or remuneration from the other party;
  • The level of control between parties.

However as this test is separate from HMRC’s definition, there is the possibility that an individual may be considered to be self-employed for tax purposes while the courts might find that they are in fact a worker or an employee.

The Social Market Foundation has suggested two possible options to explore to try and resolve this tangled mess.

  1. One change could be to reduce the financial incentive for firms to treat individuals as self-employed rather than employees. Employers currently have to pay National Insurance Contributions (NICs), whilst the contributions payable by the self-employed are significantly less. Over time the level of contributions could be equalized, lessening the incentive for businesses to contract on self-employed terms.
  2. Another option could be to give the low-paid automatic work rights and limit the option of self-employment to the higher-paid.

Quite simply, the law ought to be reviewed given that more and more people are working within the Gig Economy and losing out on their rights. The law must recognise the distinction between those who are effectively controlled by an organisation (employees) and those who have slightly looser arrangements (workers) and those who are genuinely in business sacrificing rights for greater flexibility (the self-employed). It is a complex puzzle.

What can we expect in 2017?

On 26 October 2016, the Business, Energy and Industrial Strategy Committee launched an inquiry into the future world of work. The inquiry focusses on the rapidly changing nature of work as well as the status and rights of agency workers, the self-employed, and those working in the Gig Economy.

It also considers the definition of a worker, the balance of benefits between workers and employers, flexible contracts, zero-hour contracts, the role of the Low Pay Commission, minimum wage enforcement and the role of trade unions in providing representation. Evidence is due to be heard during the course of 2017.

On 30 November 2016, The Department for Business, Energy & Industrial Strategy (BEIS) launched the Independent Review of Employment Practices in the Modern Economy. The review considered the implications of new models of working on the rights and responsibilities of workers, as well as on employer freedoms and obligations. The review is led by Matthew Taylor and is expected to take six months.

Retirement – and Pensions

On 1 December 2016, the Work and Pensions Committee launched an inquiry to consider whether the UK welfare system adequately supports the growing numbers of self-employed and Gig Economy workers, and how it might be adapted to suit their needs.

The inquiry will consider how self-employed people can best be encouraged and supported to save for retirement and whether they should be required to enrol in a pension scheme.

It will also consider how self-employment can contribute to achieving full employment, especially for disabled people, older people and those with caring responsibilities. The deadline for written submissions is 16 January 2017.

The importance of seeking legal advice

The complexity of current Employment Law regulations can make distinguishing between a self-employed contractor and a worker difficult to resolve.

So it is important to seek trusted legal advice. The written contact that you have will act as the starting point for an analysis but as we highlighted above, the Employment Tribunal will look into the reality of the work involved.

Cunningtons we have expert Employment Law Solicitors who can provide clear and accurate advice.
Please contact a member of our team on 01376 326868.

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