Employment Mid-Year-Series: Workforce structures post-Uber - what are the options?

Jane Fielding: Good morning everyone. I am Jane Fielding, I am head of the Employment, Labour and Equalities team here at Gowling WLG in the UK and I am delighted to welcome so many of you to this: the fourth and final in our series of webinars which are our mid-year review and we take stock of what has been going on in the world of employment law and look ahead to what is going to happen in our view in the future. We really hope that come 2022 we may be able to see you in person but for now we are still stuck in our, well in my case, attic and Jonathan's cases dining room and the topic today is also very relevant to all of us during the pandemic.

We have never been more reliant on the so called gig economy and the workers that work in that. A loaded term there which we will found out. You know they have been keeping us supplied during lockdown whether it is restaurant closures and food deliveries or Amazon deliveries whatever it is they have absolutely been very much at the forefront of everybody's mind.

And they have also been keeping the Courts busy too. So there has been the Uber decision, Deliveroo, there is a DPD case going through the Courts at the moment so there is lots of activity in this area. And interestingly like the disrupters in the equal pay world 10 or 15 years or so ago, it has been an independent union not the traditional unions, the IWGB that has been responsible for many of these cases.

So what does all this case law mean for the future and for your workforce strategies? That is the question for today and our speaker who is going to answer that question for us is my friend and partner Jonathan Chamberlain. He is going to speak for about 25 minutes answering that question and then we will have time as usual at the end of about 10 minutes for your questions before we close the webinar at 11.40. If you do have a question then please use the Q&A function. If you are not familiar with Zoom it is at the bottom of your screen in the middle. It is set so that only we can see those questions not other attendees so do not worry about posting anonymously it will only be us who see who it is coming from. That will be helpful to us because if we do not get to all of your questions in the webinar we will be able to come back to you separately afterwards so they will all get answered somehow. If you have any tech issues then again please use the Q&A function. Suzie Barnes who is helping us behind the scenes with the tech will come back to you and try and sort that out for you.

At the end we will be sharing a short questionnaire for feedback and we would be really grateful if you could fill that in. I will flag it again at the end. Finally the only other thing I wanted to say is Jonathan is taking a slightly different approach to slides from the previous speakers for those of you who have been on the other webinars. But do not worry about scribbling down as if you are in a university lecture. It is going to be recorded and there is also a transcript available so that will be circulated in due course so you will have all of Jonathan's words of wisdom that you can look at, at your leisure then. So I will go mute and I will hand over to Jonathan.

Jonathan Chamberlain: Thank you. Funny you should mention university lectures and notes. Do you ever have that dream that it is the night before your university finals and you have not revised and you do not know anything and you wake up in the middle of the night with that fear in your stomach? Jane, do you ever have that dream?

Jane:  I haven't had that one but I am now living to regret telling my kids who are now at university that in one of my subjects I never went to a single lecture. That keeps coming back at me now.

Jonathan: Yes. Well I do get that dream. I do not think I am the only one, I hope not. And I was taken back to my university finals. So imagine the late 1980s, a young man who looks a bit like me but is slimmer and has brown hair sitting in a draughty examination hall, turns over the paper and there in the final examination for the Labour Law section of the Law Degree is a question. And it says "the fiction of the individual bargain is the cornerstone of English labour law - discuss". Right, I know this one I can do this one. I have got to spend the first bit of the essay talking about how labour law, employment law it used not to be about labour law at all it used to be about the law of master and servant. And that is interesting because that was about status, who was the master, who was the servant and the practicalities of the law were not really on the rights of the servant but the rights of the master. How often was the master allowed to beat the servant? That kind of thing. Sometimes when I come into the office I wish it was still like that but that is one reason why Jane is team leader and I am not. And then the law updated and it became about a contract of employment, an economic bargain, there was no longer this hierarchical relationship. It was not about status, it was about economics. The problem with the law of contract is as I have also learned from elsewhere in my Law Degree that the law of contract is based on two men, always men, in a field in the 18^th century and one is buying a horse off the other one and that is the basic construct of the law of contract. And that does not really fit with the employment relationship, it is not a one off transaction it is an ongoing thing. And this 18^th century idea of what the relationship is like has never really worked. And then what was supposed to happen as I wrote my essay, was remember this is called the Labour Law paper, I was only supposed to go off and to talk about trade unions because in the 1980's trade unions mattered or at least we could remember the 70's when they definitely mattered.

But nowadays, I would not talk about that, I would talk about Uber and I would talk about Deliveroo. In 1988 Uber was a word that only occurred in German and Deliveroo was a piece of nonsense. But now they offer fundamental insights into the way that employment law is structured. Now some of you may be thinking hang on a minute I have not come here for a university lecture, I haven't come here for reminiscences, I want some practical answers as to how we can structure our workforce in the light of what appear to be some very complicated cases and I am going to come onto that right away.

Ok I am not going to make you wait for the end before I offer that. The next bit of this webinar is going to be: 'What are the practical implications of the Uber and the Deliveroo decisions?'  I find it easier, personally, to understand those decisions and to see which way the law is heading if I appreciate that the theoretical underpinnings of the law have changed radically and that is one reason why this webinar I am giving now is very different to talks which I have given before. I cannot see at the moment who is on the webinar. Some of you may even have seen me give a talk about employment status when I held up a jug of water and I poured water into another and I said well it is just like you keep adding water to the jug and it overflows and that is when you have got your answer. Forget all that, ok? The way we think about this has now changed radically.

So after I have talked about what the practical implications are I am then going to come onto a bit more about the cases themselves. First, Uber which is as we expect for a Supreme Court decision the touchstone for understanding this area but then I am going to talk about the Deliveroo case. The Deliveroo case came out from the Court of Appeal as a birthday present to me on 24 June of course after we had sent out the invitations for this webinar and after we had planned what we were going to say. So, thank you very much, Lord Justice Underhill. I really appreciate that and on the face of it the Deliveroo decision departs from the Supreme Court in Uber and that is confusing and I want to set that apparent divergence in context so that we can then look back and see what actually the direction of travel in the law is because that itself will have practical implications for workforce structures going forward.

Ok, that is what we are going to be doing. We are going to start off with the practical and then we are going to go on to a bit more of the background so we can understand how things are going to be going in the future. So what are the practical implications? I think there are three the way the law stands at the moment.

The first is this: the written contract between the engager of labour services, the employer for want of a better word and the performer of those labour services, the worker, the employee is now not nearly as important as it used to be. Indeed, as turned out to be the case in Uber, it might even be irrelevant. That is the vital change to appreciate. We are not focused on contract anymore, we are focused on statute and the purpose of statute. What does that mean practically for you? It means that thinking that you can achieve a certain result that you can stop the providers of labour services by being workers by clever wording in the contract is not going to work anymore. All those thousands of hours, those tens of thousands of words, contracts that thick for drivers between an individual driver and a Dutch corporation- whoosh, whoosh, gone. You have to look at the reality.

So my second point is: how do we understand what the reality is?  And here is a bit of shameless self-serving. All that money you would have spent on lawyers drafting your contracts, now spend it on lawyers getting to know your business. Not just a briefing from the HR team or the General Counsel but actually coming into the business, speaking to the OP's managers, speaking to the people who are delivering the services, maybe even spending a day in their shoes trying to work out what is really going on. Because it is that kind of factual analysis which will give us the answer as to what is the status of the provider of the labour services. Are they a worker? Are they an employee? Are they self-employed? So that is my second practical point. This is now all about analysis not about drafting.

What is the third practical takeaway that I would like you to have from this? Well, the Deliveroo case may have opened up what I think- I might be wrong about this- but what I think is a brief window before another Court shuts it at some point which I think is quite likely, we will come onto that, that our old friend in these cases the substitution clause still has a bit of life in it provided that substations actually happen. You may recall, as I said particularly if you have heard me talk on this topic before, that one of the things which was a factor in influencing what was the status of the individual was whether they had to perform the services personally or whether they could send a substitute. And what you therefore had in contract after contract was a right of substitution and that right was often qualified, the person has to be approved by us, they have to be available at certain times, comply with certain things etc. etc. but there was a right of substitution in there.

In the Pimlico Plumbers case, the Supreme Courts said 'yes well there might be a right of substitution but if it is never used then, you know- really? You need to look at the reality of what is going on.

Well as we will see in a moment when we come to discuss the background, in Deliveroo some of the delivery riders did engage substitutes, not many but they did and the fact that that was a substitution clause which was actually used completely defeated the idea that these people could be workers because it completely defeated the idea of personal service which when we look at the slide I am about to put up in a moment you will see is key to the concept of worker.

Now, by various quirks the Uber decision came out after the relevant key finding in Deliveroo and that was not being appealed to the Court of Appeal. The Court of Appeal said look maybe at the first instance had Uber been there, we would not have got to this result but we are where we are now. So, if you have got a substitution clause in the contract and the substitution actually happens to a degree, then that at the moment might be enough to maintain the status of the providers of labour services as self-employed.

So, that is the third practical implication that I want you to take away. They are in summary, big long contract that are a waste link. What matters is the reality, do the analysis, look at the facts on the ground, look who has got the power in the relationship - we will come onto that in a moment- and then substitution clauses might be helpful if they are actually used for a bit longer.

Jane: You talk about ripping up the contract and focussing on the reality. Would you extend that to the usual sort of indemnity that everybody has been drafting for everything and if we are wrong on status you indemnify us worker for getting that wrong?

Jonathan: Absolutely. I never thought those clauses worked not least of which because there is an express statutory prohibition on contracting out of the relevant rights and indeed that express statutory provision is referred to in the reasoning in Uber. One of the reasons they say why all this elaborate contractual stuff does not work is here is this express provision on contracting out, and this is one of the reasons the Judge said in Uber why you have to focus on the statute and not the contract because the statute says you cannot use contracts to alter the rights. I have always had other concerns about those clauses. I think anyone who has still got one and anyone whose legal team has been involved in drafting them needs to think very carefully about them from an ethical perspective because they do not work. I do not think there is any reasonable chance that they will work and as solicitors we get into trouble for abusing our position as solicitors and if a lawyer has drafted a clause which says that indemnify us if we are wrong about your worker status. You know, we are solicitors, the company is huge, we are talking about drivers who are not paid very much at all. The in balance there in power and the potential abuse of power by the lawyer writing words which they know do not work- or should know do not work, that can get us into some ethical difficulties. So, yes… I mean, do not just rip that clause up, soak it in lighter fuel and set light to it. Okay, get rid.

So if those are the practical implications, let us now talk about the background, and here I want to action some law. We discovered before this can be quite slow, working from here. Let me try clicking that button. There!  Good, hopefully it will not let me move on automatically because I have clicked far too many things, but let us go with that.

Right, what is up in front of you is some raw law. This is actually Section 203 of the Employment Rights Act; this is the battlefield, okay. This is Flanders, this is territory over which the French; the Dutch; the Belgians; the Prussians; the Germans; the British have been clashing for ever. Only of course, in this case, it is not Flanders and it is not national armies; it is plumbers; it is delivery drivers; it is couriers; it is car washers, it is all about this.

Not necessarily this particular piece of legislation, this type of language turns up in various points in the legislations as we will see in the Deliveroo case, which was about union recognition in a different statute entirely but the concept is the same. This is the definition of "worker" and in particular limb B worker, we are looking at B, paragraph (b).

In this Act, a worker… "an individual who has entered into or works under… any other contract whether express or implied" and it is express whether in writing or other… here is the important stuff "whereby the individual undertakes to do or perform personally" - remember that one "any work or services from another part of the contract who's status is not by virtue of the contract that of a client, customer of any professional business undertaking carry on by the individual."

That language, "limb B workers" is what all these cases are about. Is the contract a relationship? One of personal service undertaken to perform work personally and when a status is not under the contracts, that of a client or customer or professional business. So that is what all the cases have been about.

Now, that is our battleground, what happened in Uber? Well, the Uber case is really interesting. I mean many of us have been using Uber for years and Uber's business model to a large extent… I mean they would say it is built on flexibility… it is mainly about arbitrage and national insurance rates actually. They say they fortune if they do not have to pay NICs in respect of workers.

But it is also about all the other benefits that accrue with workers' status, in particular holiday- paid leave. If you have got thousands and thousands of drivers as Uber has, these are big chunks of money and Uber has fought tooth and nail. It lost in the Employment Tribunal; it lost in the Employment Appeal Tribunal. Interestingly, what it said, at this point, was "we are not going to concede workers' status to all our drivers because we have changed our contracts". And this only applied to a few drivers at this particular time.

They lost in the Court of Appeal and then they came to the Supreme Court and they really lost in the Supreme Court, I mean really, really lost. Their central case, which is… this is all about the contractual relationship between the driver and the passenger and Uber BV in Amsterdam merely acts as an agent to introduce the passenger to the driver and the driver accepts the private hire.

And the Supreme Court says "well, just before we get on to all these interesting considerations about workers' status, your contractual argument is absolute rubbish!"  They do not use those words but what they said is "under the law regulating mini‑cabs in London, basically, the only people allowed to accept bookings from passengers are licenced mini‑cab providers. Your drivers are not licenced mini‑cab drivers, are they? So your case, Uber, would make criminals out of all your drivers and indeed you, so that cannot be right, can it? There must be a presumption that whatever arrangements you have got in place are operating lawfully."

So, even before the Supreme Court got on to the analysis that I am about to deliver here, Uber had lost and it is those fancy arguments; all that contracting with a Dutch BV and all this sort of nonsensical idea that the drivers were independent contractors contracting with the passengers. It was just blown out of the water completely and Uber, at that stage, if they ever thought that they were just going to be able to redraft their contracts in a different way - that was finished, right from that point onwards.

There is nothing for Uber in the Supreme Court judgment, nothing at all gives them any comfort about their business model. And that is before we even start the next bit, which since… unless you operate a mini‑cab business in London, is the interesting bit for you. And that is this: we have all approached these cases before, remember me and my jugs of water, on the basis of working out what the contracts was. Remember that reference that I put up in a slide a moment ago - it does refer to any other contracts.

So, let us look at the terms of that contract. The Supreme Court turned that on its head. They said, 'what we look at is, not the contract but the purpose of this statute'. They looked at a case… another Supreme case called Autoclenz and Belcham - this was about people washing cars, and this is another employment status case. And this is the one where the Supreme Court said "look, it's not enough just to look at what the written contract is, you have to look at what the reality of the relationship is". Remember that… those two men in a field, buying and selling a horse, not really consistently the idea of employment contract.

Well Autoclenz did not actually mention two men in a field with a horse, but that is basically what it said. In employment cases, you have to look at the reality and Uber's case was "yeah, yeah but Autoclenz… you only look at the reality where the contract isn't clear and the contract is clear in our case". Here are pages and pages and pages, you have got this Dutch company, you have got the individual, there is lots of it you know. Everybody knows what their contractual positions are.

And this is what the Supreme Court said, the bit that I have highlighted:  'The primary question is one of statutory interpretation, not contractual interpretation.'  So we start with looking what the purpose… what the words of this statute say and what the purpose of this statute says. And as I mentioned, a moment ago, in reply to Jane's question, this statute has language which says "you can't contract out of this". So, the emphasis is very much on the reality.

What is the purpose of this statute? It is to protect vulnerable workers, vulnerable people, where there is an imbalance of power and there is paragraph after paragraph in the Supreme Court decision detailing the control that Uber had over the drivers and the lack of control the drivers themselves had. They cannot negotiate rates; if they do not take on drivers they get penalised; and they have to conform to certain standards etc. etc. etc. And that was enough, more than enough, to found that central imbalance.

So, we are looking at power now, not contracts, not words, but what is the reality of the power in the relationship? And that gave me my first couple of practical implications for what it is that we need to do. Not rely on fancy drafting but look at how things are actually working on the ground. And really I would have thought that was maybe the last major clarification that was needed on employment status. But this case was intended to be definitive, the last word if you like.

But then came the Deliveroo decision. I mentioned a moment ago, when we talked about practical implications, that what we are concerned about is here: a substitutional clause that was actually used. To give you some background to Deliveroo, this was an application by the independent workers of Great Britain Union that Jane described for union recognition, in relation to Deliveroo riders in London. And the case goes- not through the Employment Tribunal- but to the Central Arbitration Committee which is chaired by a judge, her Honour Judge Mary Stacey, as she was then.

And only workers, broadly speaking, and employees can apply for union recognition under the scheme. If these people are self‑employed, as Deliveroo's case was, you cannot have a union of self‑employed people. What is really interesting is that, as proceedings were going on the Union applied for recognition, Deliveroo introduced a substitution clause into its contracts with the riders. Because the idea of substitution, as we have seen before, can be fatal to the idea… up to now has been fatal to the idea of personal service. If you can put somebody else in, it is not personal service any more- it is not personal to you.

And here is the key finding that I have put on the screen… 'from the Central Arbitration Committee. The Central… and in super difficulty', they say, "is that the substitutional right is genuine, drivers have a right to substitute themselves", there is evidence of it being operated in practice. And there is one witness… so he was subcontracting for a 15‑20% cut when he went on holiday. Now, that was the position found by the Central Arbitration Committee and the Union also said "look… whatever those fancy definitions and things, we have a human right - Article 11 of the Convention incorporated into English domestic law, we have a human right to organise as a trade union".

And they appealed, not on the findings of fact about substitution made by her Honour Judge Stacey. They appealed on the Article 11 grounds. That went off to the Court of Appeal and what you have got in the Court of Appeal is… not a discussion about applying Uber to the substitution clauses, which could have been quite helpful. What you have got is this (laughs) really sort of "whoa!" highfalutin theoretical case about human rights and looking at courts and at cases in the Court of Human Rights, looking in the Courts of Justice in the European Union.

And one of the cases was about Romanian Priests, for example, are they allowed to organise in a trade union? Not terribly helpful for most practical considerations. And also looking at wording of relevance to Independent Labour Organisation ILO Conventions to which the UK had signed up. The Court of Appeal found itself looking at the wording of the ILO Convention and said, "well looking at that, looking at this Romanian Priest case, then we think the question of substitution is really important and you are stuck with the findings of Judge Mary Stacey". You did not appeal those, you could not appeal those at the time so you are stuck with it.

But the Court said "had Uber been decided before the CAC looked at it, it might have come out differently, but hey, we are where we are now". It is fair to say that the reaction to this decision has been, how can I put this? Well,Alan Bogg, Professor of Employment Law at Bristol University - how he put it on Twitter - "what is periocular… it is an occasional use of substitutes by a few riders, by the way with a substitution clause introduced after the application for trade union recognition, has effectively blocked access to a basic protection from trade union victimisation in an entire company - can this be right?"

Well, other commentators have waded in about what they see as the fetishisation of substitution rights and as long ago as 1967, which is where this page is taken from… "I should have read this at university, I might have read it at university, I don't remember, that's why I have nightmares about my finals" but this is taken from 1967 and it is the bit at the bottom that I think is really interesting. It is by Emmett, a lawyer… you know "a gardener is not, it seems, entitled to delegate the entire work to somebody else" and that is right is it not?

Just because you occasional substitute somebody does not mean that the fundamental relationship is not with you. You know, you do not hire riders as employment agencies in their own right, you hire them as riders - you would expect to have your primarily relationship with the rider. The substitution clause might be occasionally used, it was never used in Pimlico Plumbers, it is occasionally used in Deliveroo but does that really change the whole nature of the relationship?

As long ago as 1967, you will see a little footnote at the bottom, footnotes are always interesting - this has been treated as merely one factor although an important one amongst the many to be considered. Exactly so!  Substitution should not be a magic "get out" clause and that is why I said, when we were talking about the practical implications of all of this that I think that, for now, if you have a substitutional clause and it is actually used, that is as the law stands, probably enough to remove providers of labour services, drivers, couriers etc. from worker status. But I do not see that lasting, I do not see that lasting.

Judges are not really sheepish, it is not how they write but you could imagine that Lord Justice Underhill who said "actually, I think it would be a good idea for these workers to organise…" actually said it in the judgment "you know he is doing what he is doing because he is a classic common lawyer constrained by authority". But that is not the direction of travel, which is why I do not think that substitution clauses have much of a life for much longer.

Thank you for bearing with me during my own personal nightmares, thank you for bearing with during the discussion of the background law which I do think helps illuminate the practical situation that we find ourselves in. Jane, are there any questions which I have not picked up already as we have gone along?

Jane: There are some questions. There is quite a specific one in the chat which is, "can you let us know which statute expressly prohibits contracting out of a legal right please?"  And of course there are a few of those, are there not?

Jonathan: Yes, it depends which legal you are referring to (laughs), sorry I hate using the word "depends", which legal right we are talking about. But there is a general prohibition in the Employment Rights Act and I cannot, for the life of me, remember which section it is now.

Jane: Section 203, is it not, in the Employment Rights Act, I think.

Jonathan: Which says that you cannot contract out of the provisions of this Act and there is similar provisions in the Equality Act and that tends, of course, the need for a settlement agreement process if you are settling disputes arising out of your statutory employment rights because you cannot contract out of them unless you go through the settlement agreement process.

Jane: And there is another one, "given everything that you have said and the definition that you took us to, do you think we need…" and I guess the second question is, "will we get a new statutory definition of what is an employee; what is a worker; what is a self‑employed..?"

Jonathan: We might. We know that the Law Commission are thinking about this, they have not yet published their next programme of work. They are asking for views as to what should go into their next programme of work. There are some employment lawyers… there are a lot of accountants who think that life would be so much easier with a clear statutory definition. I think life would be easier in the sense it would be a lot easier for Jane and me to make money if we have a statutory definition because we will be gaining it as soon as it comes out.

The advantage of the lack of clarity that you might say at the moment, is that it is actually a lot harder to gain and post Uber it really is much harder to gain. You are looking at this in a very different way, so I am personally not convinced that a new statutory definition will be helpful at all but I suspect that there are a lot of people out there who think that there is a clarity to be had. We will keep finding ingenious ways of working. As I said, when I was looking at this stuff in 1988, who had ever heard of an App?

Jane: Yes and I guess what might be more useful would be going back to what you were saying about Uber, it was really about National Insurance savings etc. and there is the tax. What would be really useful is not to have different tests for tax and employment, that would be more useful in practice would it not?

Jonathan: I was going to nod vigorously in agreement right up until the last moment. I thought what you were going to say was that we need is to reform a whole system of labour tax.

Jane: Oh well, maybe that can be done?