Published with permission from Barlow Robbins
The expansion of the ‘gig economy’ is riddled with legal and fiscal pitfalls for those workers deemed self-employed. Is it time that the legal framework governing this business model brings parity with the rights of those with “permanent” employment contracts.
On the 1st May, 2017, the Work and Pensions Committee of the UK Parliament published a report on the remarkable increase of so called ‘self-employed’ workers in the ‘gig economy’. The term ‘gig economy’ is used to describe a range of different types of business models but a common feature of them all is the reliance on intermediary digital platforms or apps to connect businesses’ customers to a workforce of putative or purportedly self-employed workers.
The ‘gig economy’ businesses operate in industries that have historically relied on genuinely self-employed workforces such as taxi services. However, new digital technology enables such businesses to operate on a much larger scale and in a different way, which has significant implications for the businesses, the workers, the UK Treasury and the welfare state.
The self-employed proportion of the UK labour force is now 5 million people which represent 15% of the overall workforce. This increase in self-employment reflects the current record level of “employment” reached in the UK, where we have a diverse mix of 30 million workers ranging from traditional full- and part-time employees serving under contracts of service, a variety of different types of personal service workers, many of whom agree to zero hours contracts or other casual labour arrangements, through to the genuinely self-employed such as consultants and independent contractors. One-man-band sole traders, traditional equity owning and managing partnerships and members of limited liability partnerships are also self-employed.
A worker’s “employment status” determines not only his or her rights under UK (and EU) employment, or labour law, but also, independently or separately from that, his or her tax status. For example, a worker who provides his or her service or services through an intermediate personal service company can be deemed to be employed for tax purposes, but as a matter of employment law self-employed and therefore not entitled to protection from, say, unfair dismissal or redundancy. While self-employed tax status generally confers significant tax and social security contribution advantages, for employment law purposes such people have very few rights at work, limited to health and safety and some protection from discrimination.
Employees on the other hand enjoy a full complement of employment rights. These include the right to the national living/minimum wage, protection from unlawful deduction of wages, statutory holiday pay and rest breaks, protection from discrimination, statutory sick pay, shared parental leave pay, minimum notice periods, protection from unfair dismissal, statutory redundancy pay, among other rights.
There is an intermediate employment law status of ‘worker’ under S 230 Employment Rights Act 1996. They have some employment law rights, namely the national minimum wage, protection against unlawful deduction from wages, statutory holiday pay and rest breaks, protection from discrimination generally and as part-time workers.
A string of recent employment tribunal cases since October 2016 involving gig economy businesses engaging large workforces of purportedly self-employed contractors (Uber - taxi services, CitySprint - courier services, Pimlico Plumbers - Plumbing services) have established, at least at first instance, that the gig business model is not merely disrupting and reshaping existing working practices in those industries but is placing reliance upon a bogus model of self-employment. In all of the cases reported so far, contractors treated by their employer as being self-employed have been found to be statutory S 230 workers who enjoy the intermediate employment status and the attendant rights. The Parliamentary Work and Pensions Committee concludes that the apparent freedom of self-employment extended to such contractors not only fails to protect them from exploitation but also places a strain on the public purse as a result of lost taxes. In these gig business models, workers do not in reality control the work they do or have equality of bargaining power. On the contrary, they provide a personal service, are in a subordinate position to their ‘employers’, and do not determine their own hours or pay. However, even if individuals are found to be workers from an employment law perspective, they will often still be self-employed for tax purposes because there is no intermediate status under the tax legislation.
The Committee recommends there should be a statutory default of S 230 or similar “worker” status for individuals. Companies wishing to deviate from this model would need to present the case for doing so, shifting the burden of proof on employment status over to the better-resourced employer. As there is no “worker” status in tax law, tax status would be unaffected. However, the committee recommends that social security contributions should be equalised for the employed and self-employed, something that the Conservative government recently promised and then quickly abandoned.
Interestingly, as Britain prepares to Brexit, the whole world of work is being scrutinised by a number of government commissioned reviews including the widely publicised and briefed Taylor review. I would not be surprised if British governments of the future, of whatever political persuasion, do not, as is feared by some, create a low-wage offshore tax haven, but continue to provide gold standard if not gold-plated employment laws, whether, in the event, we are in or out of the Single Market and Customs Union.
David Ludlow, Employment Law Partner, Ecovis UK Legal Barlow Robbins LLP