We are often told by economists and journalists that we live in a gig economy: a labour market characterised by the prevalence of short-term or free-lance contracts as opposed to permanent jobs. There has also been a lot in the Press recently about companies such as Uber and Deliveroo, who have sought to classify their workforce as self-employed, rather than employed, in order to take advantage of transient working practices and limited employment rights. Indeed, a Work and Pensions Committee has warned that “unscrupulous” employers are in a position to exploit low paid and low skilled workers.
The Committee has said that some companies are using the self-employed as a cheap source of labour, whilst taking advantage of the savings in respect of National Insurance Contributions and pension auto-enrolment. Whilst such companies may justify the situation by pointing out that a self-employed workforce promotes flexible working, the Committee’s view is that there is nothing to stop employment being flexible and it is profit not flexibility which is motivating them.
The Committee is due to report back in the Summer and it seems likely that National Insurance Contributions for employees and the self-employed will be equalised and that some individuals who have in the past have been treated as “self-employed” may need to be treated as workers and afforded the rights of workers such as national minimum wage and paid holiday. Please find more information about the review here: https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/inquiries/parliament-2015/self-employment-gig-economy-16-17/.
Whatever you think about the gig economy, it is clear that it relies upon the assumption that employers can choose to engage certain types of workers with differing employment rights.
The law draws distinctions between workers, employees, and the self-employed. These differentiations are significant because workers and employees have certain rights, such as the entitlement to the national minimum wage and paid annual leave. In addition to this, employees have further rights such as statutory sickness pay and protection from unfair dismissal after two years of service. Self-employed contractors have no such rights.
However, recent case law has shown that these distinctions are by no means hard and fast rules that employers can easily rely on by writing them into contracts. There have been a few notable court cases that have shown that judges will often look beyond the wording of the contract to analyse what the employment relationship is like in practice.
For instance, in Pimlico Plumbers and Charlie Mullins v Gary Smith (https://www.judiciary.gov.uk/wp-content/uploads/2017/02/pimlico-plumbers-v-smith.pdf) the claimant, who was a plumber who provided his own equipment and took personal liability for his work, was found to be a worker, and not a self-employed contractor. The court looked at the circumstances surrounding his relationship with the company such as the fact that he wore a company uniform and worked a minimum 40 hour work week, which were factors indicative of his worker status.
In the recent case of Aslam and others v Uber BV and other (https://www.judiciary.gov.uk/wp-content/uploads/2016/10/aslam-and-farrar-v-uber-reasons-20161028.pdf), the employment tribunal found that although the employment contracts were drawn up in order to show that self-employment status was intended to be created, they did not reflect the reality of the relationship. This landmark ruling has opened up claims from all of Uber’s 40,000 drivers in the UK, who are currently not entitled to holiday pay, pensions or other workers’ rights.
These cases have highlighted how difficult it can be for employers to take on staff on a self-employed basis because there is a risk that the law shall recognise them as workers.
This begs the question – does it still make sense for employers to take on self-employed people?
To answer this question, it is important to differentiate between the genuine instances of self-employment and the Uber-type classification. There are still clear cases where individuals are self-employed such as ‘consultants’ or ‘free-lancers’ working under a contract for services. Markers of a genuinely self-employed person are that they are in business for themselves, are responsible for the success or failure of their business and can make a loss or a profit, and can hire someone else to do the work for them. However, it definitely makes less legal sense in light of recent cases to opt for self-employment when the employment relationship is ambiguous without first taking advice. While there may be short-term gains for employers as they don’t need to pay for pensions or holiday pay, in the long-run there is potentially the chance that a court could rule that the workforce are actually workers or even employees.
In summary, there are genuine cases where people are self-employed, and can benefit from increased flexibility (such as working with multiple companies at the same time) and from a more favourable tax regime. However, employers need to consider carefully whether the people working for them legitimately fall into this category to avoid unfavourable decisions being made against them by the courts. In addition, it’s likely that there will be a change to the law stemming from the work and Pensions Committee’s findings, meaning that some of those treated as self-employed will be treated in the future as workers. Companies who rely on a “self-employed” workforce should consider reviewing their practices now in order to avoid storing up problems and liabilities in the future.
Head of Employment Law & Holistic HR
Tel: 0131 226 8216