16th June 2017
The word “gig”, if we think of its use in the music industry, suggests work that is casual and ad hoc but the recent cases show it is anything but this and technology and digital platforms also feature heavily in today's gig economy. In certain cases, this allows businesses to have a large workforce on standby to respond to rapidly changing customer demands, negating the need to have staff working fixed shift patterns.
All these arguments, together with those that suggest these business models empower workers and entrepreneurs, have led businesses to classify their employees and workers as self-employed. However, as we've seen in cases over the past year or so, there has been a raft of drivers, plumbers and couriers claiming not to be self employed but to be employees, or at the very least, workers.
By way of reminder, a worker is defined in employment legislation as an individual who works under a contract of employment or under any other contract under which the individual agrees to perform that work personally for the other party whose status is not that of a client or customer of a business carried on by the individual. This legislative provision is intended to differentiate those workers who are under the control of the business engaging them from those who are genuinely in business on their own account, and thereby self-employed.
For example, in the well-publicised Uber case, the Tribunal focussed on whether Uber’s 33,000 drivers were in business on their own account. Uber had tried to argue that it was merely a technology platform that put its drivers in touch with passengers, thus allowing those drivers to “grow their own businesses”. The Tribunal, however, found this proposition “faintly ridiculous” and noted that the drivers had no opportunity to grow their businesses or to negotiate or strike a bargain with passengers. Drivers were offered and accepted trips strictly on Uber's terms. In the Tribunal’s opinion, Uber could not be said to be a customer or client of the drivers, and therefore the drivers were workers.
The more recent Citysprint case shares some similarities with the ruling against Uber, and may send a signal that the decision in Uber was not a flash in the pan. Ms Dewhurst, a Citysprint cycle courier, had been engaged under a set of terms and conditions known as a “Confirmation of Tender to Supply Courier Services" which purported to treat her as self-employed. The Employment Tribunal, applying the principles set down in a Supreme Court case on employment status (Autoclenz), held that the “Confirmation of Tender" document did not reflect the reality of the relationship between the parties, which was that Ms Dewhurst had been recruited by Citysprint, had little autonomy over the manner in which she performed the services, and was integrated into the business. The Tribunal found that Ms Dewhurst was a worker, not a self-employed contractor, and therefore entitled to the two days' paid holiday she had claimed.
In the case of Pimlico Plumbers involving typically self-employed workers, the Court of Appeal upheld the decisions of the Employment and Employment Appeal Tribunals that had looked at, in particular, the issue of personal service. In this instance, Pimlico Plumbers (“PP”) allowed its workers to swap work between themselves and, on occasion, bring in an external contractor. The Tribunals had found that the contractual terms between PP and its plumbers contained no right of substitution and required personal service. The ability to swap work between them represented nothing more than an informal concession; and the limited right to provide a substitute was not inconsistent with the contractual requirement to provide personal service.
On the issue of whether Mr Smith was genuinely self-employed, the Court held that the tribunal had been correct in finding that the degree of control exercised by PP was inconsistent with PP being a client or customer of a business run by Mr Smith, and in particular because he had been bound by restrictive covenants. Mr Smith was an integral part of PP’s operations and subordinate to PP. He was therefore a worker of PP for the purposes of the Employment Rights Act 1996 and the Working Time Regulations 1998.
Decisions over employment status not only give rise to rights for the workers, but may also extend the reach of PAYE and the 13.8% NI Class 1 contributions, from which employers may previously have thought they were exempt.
A recent (2017) case in the First Tier Tax Tribunal (Dhillon)against a haulage firm determined that the firm’s lorry drivers were employed earners and therefore NICs were payable and PAYE applied. The firm had kept arrangements deliberately vague and unwritten and left it up to their customers to vet, approve and control the drivers. The tried and tested principle of "control" was therefore inconclusive, though the Tribunal was persuaded that the drivers were clearly not in business on their own account.
However, the Tax Tribunal noted this this was a marginal case and that an application of the standard tests did not produce a clear result. Instead, it applied the "overall" test common in tax cases and looked at the accumulation of detail to decide what picture it painted. Looking at the overall picture, the tribunal decided that the firm was clearly business savvy despite having kept arrangements uncomplicated. The relationship was one in which the firm was very much “the boss”, and led the tribunal to conclude that there was ‘mutuality of obligation’ in relation to each separate engagement. Despite the absence of an overarching global mutuality in between engagements, which is needed to establish continuity of employment and the ensuing employment rights, nonetheless the tax Tribunal found that the arrangement gave rise to a contract of service in tax terms, and therefore PAYE and Class 1 contributions.
So, what’s new? The answer is very little. The three pillars of employment status - control, personal service and mutuality of obligation - established decades ago in the case of Ready Mixed Concrete still have their place, and a very important place at that. However, the judgments in the cases of Dewhurst and Dhillon in particular, suggest that while a checklist analysis may still be employed, it won't be at the cost of a more impressionistic overview of the reality of the relationship.
Where does this leave businesses engaging thousands upon thousands of "gig-ees" or merely one or two putative self-employed contractors?
If you’re an employer operating in the gig economy, then know that the Tribunals and HMRC are live to the problems this emerging economy presents in terms of determining employment status, and they are prepared to adapt well established legal protections accordingly. After all, the rich pickings of PAYE and a further 13.8% tax take in the form of NICs are surely far too tempting for HMRC to resist. A degree of regulation is no doubt required, and once the Taylor Review (BEIS’s Independent Review of Employment Practices in the Modern Economy launched before the election) and the Office of Tax Simplification’s focus paper on tax issues in the gig economy are published, the direction of the Government’s travel on the issue of regulation will hopefully become clear.
If you’re a business engaging just one or two contractors on a seemingly casual or self-employed basis, then the principles reinforced by these recent cases - albeit in the context of the gig economy - will also apply to you. The best advice would be to review your existing arrangements on a case-by-case basis to assess the risk.
In terms of future engagements, the clear lesson from the various courts and tribunals is to avoid relying too heavily on carefully crafted documents intended to dodge issues such as personal service. This is shown in the Uber case, where the judge was disparaging of the lengths that Uber had gone to in trying to disguise the true nature of the status of its drivers. Finally, businesses should not assume that being deliberately vague and informal will be ambiguous enough to belie any inequality of bargaining power between the parties.