Employment status, the gig economy and conceptualising the future

Jonathan Chamberlain: Hello and welcome to this podcast on employment status. What we are going to be talking about here are a couple of things.

Firstly, the themes which have been coming out from recent so-called gig economy cases, and we are also going to be what I call conceptualising the future. What might this look like?

Now two things: first, if you are looking for a primer in employment status issues - is somebody an employee, a worker, are they self-employed? - this is the wrong podcast for you. Fortunately, there are a couple of excellent podcasts on this theme which you can find elsewhere in our thread.

Secondly, when we're talking about conceptualising the future, just for once, I think it really is only just for once, we are not going to be talking about something that is a practical workaday solution - that is what we always aim to give you at Gowling WLG.

And here we are going to be doing something a bit different because, as you know, you cannot open a newspaper today or listen to the business news or watch it on the TV without employment status being discussed in some way, whether it is Uber or Deliveroo or Pimlico Plumbers or the Taylor Review or zero hours contracts, there is a great cauldron, bubbling cauldron, of debate around these issues and what I want you to have by the end of this podcast is an ability to take an informed part in that debate because as we point out in another one of the excellent podcasts to which I have already referred you, the difference as far as your FD or CEO is concerned between a large chunk of your payroll being employees or self-employed can be up to 10%25 of that payroll.

So these are big numbers and your FD or CEO, assuming that you are not an FD or CEO yourself, are going to be looking to the future, trying to gain, to be on the horizon as to what the costs of what the arrangements are for receiving their labour. So I think it is important that we all know what is going on so that we can have a view, so that we can steer the debate on the part of our organisations and so that we can take a best guess as to what is going to happen next.

So, the first section - what are the themes coming from recent cases? I think there are three. They are that reality is crucial. I would like to think that as a lawyer you would appreciate that unless you are all doing some very interesting drugs. The second is that mutuality of obligation is and always has been vastly overrated and is probably dead for all practical purposes and that, thirdly, the right of substitution is probably dishonest and not all that relevant.

Now let us pick up on all of those in turn and starting with reality is king because, as you know, if you listen to our excellent podcasts, working out whether somebody who is an employee or a worker or self-employed comes down to a multi-factoral test - mutuality of obligation, right of substitution, integrations, subordination, etc., etc., etc., and you stir all these together and you come out with your result and it can be quite difficult, it can be quite subjective, which is why there has always been a lot of pressure for a clear statutory test - we'll come onto that in the second half. But what is clear from the recent decisions is that the Courts, the Tribunals will look at what is actually going on, on the ground.

And if I can propose Chamberlain's first law of gig economy contracts, it is this: that the more words you write about the employment status of your labour, the less likely it is they are going to be turn out to be self-employed because this is a theme from the contracts, people have paid frightfully clever lawyers large sums of money to write in "this person is not any employee, this is a contract for services" and they have labelled them names like that "provision of courier services contracts", forget all that. The Court, the Tribunal does not have to show that this is fraudulent, the test is not that high, they look at what is actually going on and what is clear from some of the gig-economy cases is that the senior management of the company did not necessarily know what was going on in their own organisations, did not understand how these work practices were shaping, setting what is the legal relationship.

Now bear that in mind as we talk about these next two points, mutuality and substitution. Mutuality of obligation has been thought of as being the lodestar of the test for employment because of course it is necessary that employer and employee owe certain duties to each other, the employer is obliged to provide work and if the employer provides work the employee is obliged to take it and that is why you see all these contracts saying "we are not obliged to provide you with work and if we provide you with work you are not obliged to take it" but what has become clear is that practice has taken a wrong turn based on a misunderstanding of what the law actually is. The classic mutuality of obligation case, it is called National Power and Carmichael was about power station guides, and these were retired, semi-retired employees who would come and show visitors around the power station, whether they had continuity of employment between assignments because it was never in dispute in that case that whilst they were actually guiding, while they were taking people round the power station they were employees it was the bit in between that was uncertain. Was there mutuality of obligation then? 

Now, of course in relation to all these courier cases, driver cases, these are people who are in effect working nigh on full time for these organisations through whatever status they have, continuity does not come up. It is quite clear that in the time that they are working their status is what it is, we will come back to that in a moment, but mutuality of itself and those words in the contract are not determinative of that status, and it is a similar point in relation to substitution.

Again, this is something that for example the banks will say to start-up businesses "well you can employ people but if you go down the self-employed route then you can save X in national insurance contributions" (total bill to the UK £16 billion). Let that sink in for a moment that's £16billion that those who are on regular income tax are subsidising the engagers of so-called self-employed labour, not the white van men themselves, it is the people who use them who are getting the subsidy but I digress. What the banks and business advisors would say is that if you have a right of substitution in the contract then it cannot be an employment contract because it is in the nature of an employment contract that is about personal service. I contract with you to do a job, you pay me money, I do not have the right to send along somebody else to do it, but go back to how I started this section, reality is king. 

Although we might not have an absolute right of substitution as an employee, in reality even employees substitute, I mean I am not an employee so I suppose it does not really count but suppose I was an employee okay, if I was not here to do this podcast, I would have arranged for one of my colleagues to do it; "sorry, cannot make it would you mind stepping in for me?". We do substitute so making right of substitution again another lodestar, an absolute, is unrealistic and the reason why I started off by saying it is a lie is of course it never happens and that is another powerful reality is king point. It says in the contract you may substitute somebody else, nobody in practice ever does on those kinds of contracts not least of which because as we know in some of them you have to pay a penalty if you do not turn up yourself, you have to pay the company for finding somebody else so guess what happens? Everybody turns up the whole time. It's illusionary and the Courts look at the reality.

So those are the trends that are coming out of the cases. The next thing that I wanted to talk about was what I call conceptualising the future. Here I obviously want to touch on the Taylor review, it is of course in the nature of these things as I record it the Taylor review has not been published but sod's law dictates that it will be out about five minutes before you listen to this so I'm just going take some guesses as to what is going to be there and the other thing I want to talk about is the tax position because Taylor was forbidden at first from looking at tax and of course they could not actually consider the problem without doing so but we will come back to that.

I want to bring in what the academics are talking about because believe it or not I think the academics are really relevant here, I think they are always relevant behind the scenes, those of us in practice either as lawyers or in HR or as FDs do not see it but here some fresh and interesting thinking is going on which could well have a practical impact in the medium term, and then obviously I want to try and draw all of that together, Chamberlain's crystal ball, what is this going to look like? So, the Taylor review set up to try and bring some sense to all of this but given the very limited remit, it was not to look at tax at all and nor was it to look at the underlying economics and that is unfortunate because there are much, much bigger factors at work here than the black and white legal tests. I chaired a panel at a conference recently organised by Oxford University which brought together employment lawyers, economists, tax experts, think tanks, trade unions, industry, if you like to do Taylor and beyond in a day and pour all these things into the mix and see where we got to and some really interesting things came out of that. On the economic side, the UK's real wage growth is the worst in the whole of the European Union apart from Greece and where that wage growth is really bad, real wages sorry are still below on average where they were at the end of the 2007 crash, and where that growth is worst or lack of growth, or going into reverse, is in the so-called self-employed sector which of course has expanded massively since 2007 and so what we are seeing is this growth of insecure, poorly paid labour and it is concentrated very much in the 18-24 age group, huge extrapolation this because I have not seen the figures but are we surprised that those people broke for Corbyn? There is a big social and economic effect going on here and then I mentioned earlier the £16billion figure, Phillip Hammond's proposed change to National Insurance contribution would have made a difference of about £530million, peanuts next to the £16billion that is lost as it were through employer NICs that don't get paid because people are self-employed. Now as one speaker at the conference put it, "well you can forget any big change to that any time soon because how are we gonna put £16billion on to what is only about 12%25 of the workforce", that being the so-called self-employed percentage and that clearly is not gong happen any time soon, we might be able to change it gradually over time, but simply harmonising the NICs race is not going to happen.

So how are we going to deal with it and this is when I want to come onto what the academics are saying because they are the ones talking about really quite a radical approach to this. All the accountants at the seminar, from both the Inland Revenue and from private practice, Inland Revenue shows my age, Her Majesty's Revenue and Customs, I do apologise, were talking about "we need better tests, we need clearer tests". That is because they work with they work with numbers, those of us that work with words know that a so-called clear test is just something that we as lawyers can game and the business models and tax will be utterly bent out of shape to fit in with whatever that so-called clear test is. The view from the lawyers, both academically and crucially in private practice, was that actually the current test worked pretty well, it is the organisations that are trying to bend them out of shape. There was somebody from one of the gig economy companies there who said, "we should have a new status, gig economy worker" and all the rest of us just looked at him and said "no, that is what workers are, it is already there in the legislation, it works as well as anywhere else" and we had speakers from Australia, the US, Sweden and France, only Sweden managed to avoid these problems incidentally, but that's another story.

So, what are the academics saying? Some are saying let us do away with the contract of employment all together. A contract is a nineteenth century notion introduced into the employment relationship to try and give people some rights, it has outlived its usefulness, that would be radical. Other academics are saying let us not concentrate on who is the employee, let us look at who is the employer and different rights might be split between different organisations, between holding companies, between what are now investors and shareholders, these are really radical ideas. How will these follow through into Taylor? How will these follow through into legislation? I cannot see Taylor coming up with anything quite so radical.

The way he has worked has been quite interesting, he has flown kites at various times throughout the process and one of the kites that has flown the highest is this idea that the provider of labour services is to be deemed an employee and it is for the hirer of those labour services to prove otherwise. I think that one could well have legs, because that is quite powerful and that I suspect will cut out a number of, what many commentators think are, abuses of the system. I think we could see a lot of beefed up guidance of dispute resolution mechanisms, this is one of the characteristics present in the Swedish system where the self-employed organise into trade unions and they have advisory services which back them up so it is much clearer, people know where they stand without having to go to Court. Interestingly, everybody in the conference with the exception obviously of Civil Servants, have to remain scrupulously neutral, thought that Tribunal fees had had a really severe impact in this field because the people who are precarious with the most to lose have the least ability to fund claims through the system and that if we were going to remove some of the most egregious injustices then that would be one of the things that had to change. I suspect that is beyond Taylor's remit but we shall see, these are really interesting times to be hirers of labour services.

Thank you very much for listening, if you would like to discuss any of these issues please do contact me or any of the team, my Partner, Jane Fielding in particular, as you can tell I am happy to talk about this for hours and I promise you I will keep it as practical as you need it to be or as conceptual as you would like it to be.

Thanks.