Employment status and the “gig” economy

As the UK economy continues to develop new kinds of jobs, our courts need to work hard to apply the old legal principles to new factual situations. In this briefing we take a look at what the latest case law has to tell us.

Categorising the labour market

Today individuals working in the UK fall into three legal categories: 

• Employees (in the strict sense): in other words people whose relationship with their employer is governed by a contract of employment. These individuals enjoy the full set of employment rights. 
• Workers: non-employees who are engaged under contracts “personally to do work”. These workers cannot claim unfair dismissal or a redundancy payment, but are covered by anti-discrimination and whistleblowing legislation, and the regulations on working time and the national minimum wage. 
• The “genuinely” self-employed: These individuals do not enjoy any employment protection rights because they are regarded as in business on their own account.

In recent years we have seen large shifts in the composition of the UK labour market. There are now nearly 4.7 million individuals classified as self-employed according to the latest ONS statistics (up over 180,000 since a year ago). In addition there has been a significant growth in the number of workers on zero-hours contracts, though the exact numbers are hard to come by.

These changes, combined with the introduction of the National Living Wage in April, means that the volume of disputes about employment status is likely to rise. There is now a larger pool of workers with more to gain from establishing worker or employee status. At the same time the economy is creating new kinds of work relationships which are not easy to match up with historic case law.

Some recent examples

The most recent employment status dispute to reach the Court of Appeal involved two court interpreters who wished to establish worker status so they could bring race discrimination claims against the Ministry of Justice. The Court of Appeal agreed with the employment tribunal that they were self-employed providers of services and not workers. One key factor was that they were engaged on a casual basis, with no obligation to accept work if offered. A second was the professional nature of the services they had provided. A third was the fact that they had previously arranged their tax affairs (without protest) on the basis that they were self-employed.

The latest dispute which has come to our attention is a test case brought by cycle couriers in London against four different employers. The couriers are seeking to establish worker status so that they can claim holiday pay and the national minimum wage. The respondents are arguing that they are self-employed. Proceedings are still at a preliminary stage, so it remains to be seen how the couriers will be categorised. To do so, the employment tribunal will be looking at key cases from the last few years.

Important cases from the past

Leaving aside some interesting but relatively obscure cases about ministers of religion, lap dancers and hair transplant surgeons, we think the most significant case in recent years involved a group of supposedly self-employed car valeters. They managed to persuade the Supreme Court that they should be classified as employees, despite a number of features in the documentation issued by their employer Autoclenz that were designed to demonstrate that they were self-employed. The Supreme Court said that employment tribunal had been entitled to disregarded these features if they were inconsistent with the way the legal relationship operated in practice.

That is not to say that the contractual documentation is not important, but it needs to be interpreted in line with what is happening on the ground. The key ingredients of an employment relationship have been established for a number of years. They will be present in most employment relationships in varying proportions: 

• Personal service: the relationship is a personal one, and any power of substitution is normally incompatible with an employment relationship. 
• Subordination: an employee is expected to submit to a considerable degree of direction, though this will vary depending on job type and seniority. 
• Integration: the more closely the individual is integrated into the employer’s business, the more likely he or she is to be an employee.

The test for workers is similar, but, as the courts have put it, the “pass mark” is lower. So for example a limited power of substitution may be allowed, and the degree of control and integration may be weaker.

For the self-employed key indicators include the degree of risk undertaken and the extent to which the individual has other customers.

Looking to the future

Uncertainty over employment status has prompted repeated calls for the Government to legislate to make the legal tests for employment status easier to apply. An alternative approach, currently favoured by the Labour opposition, would be to remove the need to worry so much about these fine distinctions by extending similar rights to both employees and workers.

However, for the time being businesses will need to do their best to categorise workers correctly under the imperfect legal rules we currently have. Recent cases offer some useful guidance, but ultimately it is a judgment that each employer will need to make on a case by case basis. What is clear is that clever drafting, while an important factor, will not work if it is in effect an attempt to fit square pegs into round holes.