Gig Economy Working: sham self-employment?

This article first appeared in Recruitment International.

Gig economy working – used to describe the trend towards workers taking work on a “gig” basis, on flexible, generally short-term assignments, in contrast to a traditional employment model – is on the rise but what are the employment law implications?

Uber, who provide the popular transport app, has recently found their working relationship and arrangements with their drivers under scrutiny. On 28 October 2016, an employment tribunal held that Uber drivers are “workers” and not self-employed contractors, notwithstanding written contracts stating otherwise, affording them certain employment rights.

Case Summary

Uber has around 40,000 drivers in the UK. Claims for failure to pay the national minimum wage and holiday pay were brought by some current and former Uber drivers. They claimed that Uber instructs, manages and controls its drivers so that they are not genuinely self-employed.

Uber’s defence was that the drivers are self-employed contractors, able to work for other organisations, including direct competitors, and who must meet all expenses associated with running their vehicles; must fund their own individual Private Hire licenses; and treat themselves as self-employed for tax purposes.

Uber’s contractual documentation with its drivers and passengers were considered closely by the tribunal and described as containing “fictions” and “twisted language”, using terminology which “merits…a degree of skepticism”, inconsistent with how the drivers were operating in reality. It was held that the drivers were offered, and accepted, trips only on Uber’s terms. This was a “dependent work relationship” and not a contract at arm’s length between two independent business undertakings. The tribunal stated:

“The notion that Uber in London is a mosaic of 30,000 small businesses linked by a common platform is to our minds faintly ridiculous. In each case the ‘business’ consists of a man with a car seeking to make a living by driving it… if there is a contract with Uber it is…not a contract under which Uber is a client or customer of a business carried on by the driver.”

The effect of the Uber judgment

The drivers are entitled to employment rights applicable to “workers” – an employment status falling somewhere between “employee” and “self-employed”. Whilst “workers” do not have employment rights applicable to “employees” (such as protection from unfair dismissal and the right to a statutory redundancy payment after two years’ service), they are entitled to rights under the Working Time Regulations 1998 (such as paid annual leave), the National Minimum Wage and protection in respect of whistleblowing (amongst others). This was a costly decision, given the number of Uber drivers.

Practical points

Uber is appealing and the first instance judgment of the tribunal is not binding. Nonetheless, it provides a useful analysis of the contractual terms and Uber’s working practices which will serve as a lesson for other businesses operating on a gig economy basis.

Those who are treated as “self-employed” in similar circumstances may be more likely now to bring claims relating to worker status, albeit that they will need to weigh up the risk of losing the more favourable tax position enjoyed by the self-employed. Note that tax was not a consideration in the Uber case and that an individual may be considered by HMRC to be self-employed for tax purposes but a “worker” for employment rights purposes. Staffing companies providing self-employed individuals to end-user clients will already have the “Agencies” legislation (s.44-47 ITEPA 2003 and intermediaries) on their radar, but the Uber case was about employment rights. Where contractors are supplied through limited companies, the limited company, not the employment business takes responsibility for the employment rights of the individual supplied.

This decision should catalyse the prudent business engaging contractors, consultants, freelancers and/or casual workers, to review their workforce and to consider the employment status and contractual terms of anyone providing services. Uber may have simply got it wrong -the tribunal stated that nothing in its reasoning should be taken as doubting that that Uber could have found a model which meant that it was not engaging “worker” drivers. Uber’s chosen model “failed to achieve that aim”. Remember, the reality of the working practices will be scrutinised as much as the contractual terms – and may be set aside, as Uber has discovered.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.