Spotting employees, workers and the self-employed in today's 'gig economy'

11 minute read
24 November 2016


Uber, Deliveroo, CitySprint, eCourier the list goes on...

The world of work is changing. The so-called 'gig economy' is changing the face of the employment landscape. Half of the new jobs created since the economic down-turn are purportedly 'self-employed', but is that really the case?

As more and more of us make our living working 'gigs' rather than full time employment, who are 'self-employed' and who are 'workers'? A series of high profile employment status cases on this question are currently making their way through the tribunals and courts.

Here our employment and equalities experts consider the hot topic of who is entitled to employment rights protection.

The employment status spectrum

Employment protection legislation seeks to distinguish between dependent and independent labour. The intention is to exclude self-employed entrepreneurs and professionals, whose relationship with the 'employer' is (in reality) governed by a contract between two businesses, from protection. However, in practice this distinction can be hard to draw.

In broad terms, there are three main categories of employment status: employees, workers, and the self-employed. The rights and obligations, in relation to each category of individual, flow from their employment status.

At one end of the employment status spectrum are 'employees' who are afforded the greatest level of protection. Rights which apply only to 'employees', include the right to claim unfair dismissal, statutory notice periods, redundancy pay, the rights to maternity/paternity/parental leave and the right to request flexible working.

At the other end of the spectrum are the self-employed who are not entitled to employment protection rights. This category includes those who are genuinely in business on their own account.

Somewhere in the middle are 'workers' who are entitled to some key employment rights including:

  • National Minimum wage
  • The right to holiday pay and rest breaks
  • Protection from detriment for whistleblowing
  • Discrimination protection
  • Pension auto-enrolment.

Difficulty often arises in identifying the boundaries of these three categories which often appear blurred. It may be clear that someone who is an employee will not be self-employed but the dividing line between an employee and the intermediate category of worker, or a worker and a self-employed person in business on their own account will be much harder to plot on the spectrum.

The one time you can ignore the taxman

As far as the taxman is concerned you are either employed or a self-employed. HMRC's binary view of employment status is of no help in identifying 'workers'. In any event, employment status for tax purposes is merely one of many factors that may be taken into account when determining employment status for employment law purposes.

It has long been established that while HMRC takes a similar approach to the employment tribunals in determining employment status, they may well reach different conclusions on the same facts. The fact that an individual is regarded as self-employed for tax purposes does not mean that he will not be regarded as an employee for employment law purposes. (Airfix Footwear v Cope [1978] and Autoclenz v Belcher [2011].

Painting the employment status picture

To be an 'employee' you have to be engaged under a contract of employment or apprenticeship. The courts and tribunals have developed a number of tests over the years aimed at helping them identify a 'contract of employment'. No single factor will be determinative of employee status and a number of factors must be looked at. As the court stated in Hall (Inspector of Taxes) v Lorimer [1974], when determining employment status, the process involves "paint[ing] a picture from the accumulation of detail".

Key factors will be 'personal service' on the part of the individual, 'control' over the performance of the service by the employer, and the crucial 'mutuality of obligation' between the parties. Other factors, such as integration into the business, business dependency and the degree of financial risk borne by the individual and the opportunity to profit, are often also relevant.

To establish whether an individual is a 'worker':

  • the individual must be working under a contract (not necessarily a contract of employment);
  • under that contract, they must agree to personally provide work for the 'employer'; and
  • the 'employer' must not be a client or customer of the profession or business undertaking carried on by the individual.

For an individual to be a worker the tribunal must answer 'yes' to the first two questions and 'no' to the third.

So while all 'employees' will also be 'workers', not all 'workers' will be 'employees'

Confusingly, the concept of 'mutuality of obligation' is sometimes referred to in the context of determining 'worker' status. In this context, it appears the test is merely used to determine whether there is sufficient mutuality of obligation to found a contract at all. By contrast, when applying the test of 'mutuality of obligation' to establish 'employee' status, more is required. To be a contract of employment, it must be shown, broadly speaking, that there is an obligation to provide or pay for work on the part of the employer, and an obligation to perform that work on the part of the employee.

Drawing the distinction between a 'worker' and an independent contractor who is in business on his own account is also not always easy. The Supreme Court decision in Bates van Winkelhof v Clyde & Co [2014] makes clear the courts may consider whether the individual:

  • actively markets his services as an independent person to the world in general (which would indicate he is not a worker), or
  • is recruited by the principal to work as an integral part of the principal's operations (which would indicate he is a worker).

In the recent Uber decision, the employment tribunal found that Uber was not merely a marketplace or platform but was 'in business as a supplier of transportation services'. Clearly, drivers were integral to operating a transport business.

Forget clever drafting

The courts and tribunals will look at the reality of a working relationship to determine an individual's true employment status, and can ignore contradictory contractual terms if they don't reflect what happens in practice.

Simply inserting a substitution clause in the contract does not work. For example, the Supreme Court in Autoclenz v Belcher [2011] held that an express written term allowing substitution did not reflect the true agreement between the parties, who in fact did not intend or envisage any such substitution ever occurring, and so the term could be disregarded.

In the recent Uber judgment, the tribunal provided a literary reminder of the need for non-literal reading of a contract by quoting "the lady doth protest too much, methinks" from Hamlet. A key aspect of the Uber judgment is how the tribunal cut through reams of contractual documentation that the company put in place to support its assertion that it is merely a provider of a technology platform. The tribunal found that Uber's business was more than the contractual documents asserted it to be - Uber wasn't merely providing its app for use by self-employed drivers, it was selling a taxi service, employing 'workers' - the drivers.

'Worker' status was still determined by the 'contract' between Uber and the drivers. The problem for Uber was that the written contractual documentation was found to not truly reflect the reality of the contractual relationship.

More gig economy cases to come

On 22 November, the London Central employment tribunal began hearing Dewhurst v CitySprint UK Ltd, a case similar to that of Uber by a bike courier.

Deliveroo riders are taking an alternative route. Riders who have joined the Independent Workers of Great Britain (IWGB) are seeking to gain union recognition. A way of getting the 'worker' issue decided quickly? The request for recognition requires that the employer had a minimum number of 'workers' (21) at the relevant date. If Deliveroo reject the recognition request - as it denies the riders are 'workers' - the union can apply to the Central Arbitration Committee for determination - a much quicker process.

It's not just drivers and riders

On 17 January 2017, the Court of Appeal will hear the appeal in Pimlico Plumbers Ltd v Smith. In this case, the Employment Appeal Tribunal (EAT) held that a plumber - who was obliged to wear Pimlico uniforms; to drive a van displaying the company logo; and to only be contacted by customers through Pimlico - was not an employee. The EAT considered that the degree of financial risk taken by the claimant and the lack of an obligation to provide work and pay (the plumber was only paid once the customer paid Pimlico), were inconsistent with an employment relationship. However, the EAT did find that the plumber was a worker, since he had an obligation to provide his services personally and there was no unfettered right to provide a substitute.

What next?

On 26 October (two days before the timely ET decision concerning Uber drivers was handed down), the Business, Energy and Industrial Strategy (BEIS) House of Commons Select Committee launched The future world of work and rights of workers inquiry. The inquiry, which runs until 19 December, is focussing on the rapidly changing nature of work, and the status and rights of agency workers, the self-employed, and those working in the 'gig economy'.

In particular the Select Committee will consider - "Is the term 'worker' defined sufficiently clearly in law at present? If not, how should it be defined?" The first part is easy - no. As to the second part, to again quote Hamlet, "ay, now there's the rub".

For the time being, determining 'worker' status in any given case continues to be fact sensitive. The one thing that is certain is that the test for 'worker' status will continue to evolve as business practices evolve. Hopefully the current inquiry, the latest spate of 'worker' status cases and expected Court of Appeal guidance will bring the current hazy distinction between employees, workers and the self-employed into sharper focus.

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