Strategy & Operations » Leadership & Management » The legal challenge to the gig economy

Michael McCartney, a partner at Fladgate LLP, discusses the implications of claims brought against companies like Uber and Deliveroo

 

Hermes is the latest to face a legal challenge to its business model following claims that its couriers should be classed as ‘workers’ rather than ‘self-employed’ persons.

This claim (which is backed by the GMB) follows a succession of claims brought against companies like Uber, Deliveroo, DX, City Sprint and Amazon, all of whom operate in the gig economy.

The burgeoning “gig economy” refers to those who, like musicians, turn up to work at individual gigs with no future commitment beyond that.

According to a report by McKinsey, Independent work: Choice, necessity and the gig economy, there are some 162 million people in Europe and the United States (or 20% to 30% of the working population) who engage in this type of work. Of these, 70% have chosen to undertake this type of work as a preference either as a free agent or to supplement their regular income.  Only 14% were found to do so reluctantly because they could not find permanent employment.     

The problem which has led to the GMB and others intervening on behalf of these employees is the apparent inequality of bargaining power between the gig workers and those who hire them.

Such companies have faced a public backlash because while their business model offers the benefits of greater flexibility, by stipulating that gig workers must be self-employed they also seek to avoid the costs implications and minimal responsibilities of ‘worker’ protection.

A ‘worker’ is in a distinct group with a status below that of an employee’.  He or she is defined as someone who works under a contract ‘whereby the individual undertakes to perform personally any work or services other than as part of a profession or business undertaking carried on by the individual’.

Workers do not qualify for unfair dismissal protection, maternity, adoption or paternity pay, statutory sick pay, or redundancy payments.  Like employees, however, they do benefit from discrimination protection, whistle-blower protection, paid holidays, mandatory rest breaks, and an entitlement to the national minimum wage.

To avoid these implications, gig economy employers typically resist worker status for those they hire.

In the case against Uber last October the Employment Tribunal heavily criticised Uber for the remarkable lengths it had gone to to compel drivers and passengers alike to agree “as a matter of contract” that Uber was not a taxi service.

The judge referred to the “fictions, twisted language and even brand new terminology” resorted to by Uber in an effort to maintain the idea that it was a technology platform and its main role was to introduce the passenger to the driver.

The Tribunal held that this was not consistent with the level of control exercised by Uber over the recruitment of drivers and the service they provided, which involved Uber withholding the passenger’s name from the driver, setting the fare, determining the route, and authorising any reimbursement to passengers. The Tribunal concluded that there could be no real question that the Uber drivers were workers.

For those companies like Uber and Deliveroo, who operate in the gig economy, this finding has very serious financial implications.

The crucial issue here is the requirement to pay their workers a national minimum wage and holiday pay, which are calculated against the actual hours spent at work and not solely the period of time spent on a particular job or passenger.

In other words, Uber and others would need to find a reliable way to keep track of the waiting periods between jobs and ensure that they paid the national living wage and provided holidays reflecting those periods. Deliveroo has already made it clear that it could no longer function in such a scenario.  Uber, for its part, has appealed the Tribunal’s ruling and a decision is expected later this year.

For finance directors operating in this sector this is likely to prove a major headache.  There is obviously a high degree of risk that the Tribunal’s decision in the Uber case will eventually be upheld and lead to the roll out of a similar approach across other companies reliant on the gig economy.

Accordingly, it would be sensible to undertake an audit to measure the potential disparity between an individual’s take home pay and the national living wage of £7.50 (taking into account the estimated waiting periods between jobs).

A similar exercise is also required in relation to holiday, where companies will need to pay a prorated equivalent to 28 days’ holiday per year (based on full time work).

Having carried out this exercise and weighed up the impact it may then be sensible to make a provision in the company’s accounts in case of any future challenges to the company’s employment model.

Given the importance of the gig economy, particularly with the advent of Brexit, it is not surprising that the Government has taken an interest in this area and could well propose a solution.

A review was recently carried out by the Business, Energy and Industrial Strategy Committee of the implications of different types of independent working status including freelancers, contractors, the self-employed (including the fictional self-employed), and workers.

It concluded that there are major benefits to the UK economy as well as to individuals and that it is important to maintain the current level of flexibility on offer.

This is particularly attractive to those with childcare responsibilities and others wishing to supplement their incomes. Such individuals were, however, found to be severely disadvantaged by a lack of clarity about their rights and by the burden of proof in contractual status claims.

As a result, the committee recommended: firstly, the development of an online tool to assist independent workers in understanding their rights; and secondly, the establishment of a task force to examine whether there might be a case for a new category of worker/employee with reduced rights in return for greater autonomy/flexibility.

The latter suggestion may well be picked up in the ongoing Taylor Review on modern employment practises commissioned by the UK Government on 1 OCtober 2016.

If so, it is likely to provide encourgaement to those operating in the gig economy. It remains to be seen, however, if the Government will find time in its busy legislative calendar to implement such a recommendation.

In the interim, those operating in the gig economy may well be forced to face up to the challenges of worker protection.

 

Michael McCartney is a Partner at Fladgate LLP.