What is the Gig Economy?
The growing gig economy has presented challenges for both businesses and tribunals and courts. You will have seen the employment tribunal ruling that Uber drivers are “workers”, not self-employed contractors. Thus meaning they will be entitled to national minimum wage, paid annual leave and whistleblower protection.
The Uber case is the first case that has tested employment status in the rapidly expanding “gig economy” . This tribunal decision does not rule out flexible business models which use self-employed individuals. Moreover, it is likely that the use of so-called self-employed independent contractors will be subject to increased scrutiny.
The new report by the CIPD, “The gig economy: What does it really look like?”, also highlights the need for employment status reform so that UK gig economy workers have a better understanding of their rights.
What does the Gig Economy Mean For You?
In essence, the hallmark of a self-employed relationship is one where the individual is carrying out a business on their own account where the status of the other party to the relationship is that of client or customer of that business. Relevant factors for determining whether this test is met include:
- the degree of control exercised by the “employer”. For example, less control means the individual is more likely to be in business on their own account;
- the exclusivity of the arrangement – a self-employed person may work for several different clients or customers;
- whether the individual is actively marketing their services to the world in general – if so they are more likely to be self-employed;
- the method of payment – self-employed people are less likely to receive a regular wage;
- who supplies any equipment used – self-employed people are more likely to supply their own equipment; and
- the level of risk assumed by the individual. For example, those in business on their own account normally assume the risk of the business failing.
Risks of Hiring Staff as Self-Employed Contractors
Does your relationship with the people working for you tick some of these self employed boxes?
If so, it may be that you can still legitimately categorise them as self-employed.
But, in employment status cases particular care needs to be taken when considering the control test. In the Uber case, the fact that Uber controls how much passengers are charged, requires drivers to follow particular routes and uses a ratings system to assess their performance meant that it was deemed to have sufficient control over the drivers that they were workers.
Further, if in fact the people working for you can show:
- there is a contract for personal service;
- you control them; and
- mutuality of obligation – this means the company is obliged to provide work and the individual is obliged to accept the work in return for pay. Then they may be successful in arguing that they are employees, and thus have even greater protection (eg protection against unfair dismissal). The tribunal found that the drivers were not “self-employed” but “workers”. Note, the tribunal did not say they were employees, so they will not (if the decision is upheld on appeal) be entitled to unfair dismissal protection.
What should I do now
I recommend undertaking a review of the people working for you using the factors above. If you consider there is a risk that your people should be properly classified as workers or employees, then assess the likely cost of a finding against you (we can help with quantifying this).
But, keep in mind that the decision in Uber will be appealed. However, we are unlikely to have a final determination for some time. Consequently, the best course of action may be to do nothing and wait and see.
Contact us for further advice