by Kevin Ryan
The “gig economy” is an increasingly used phrase which is applied to working relationships characterised by short-term highly flexible contracts carried out by independent contractors. In essence, it describes structural changes to business models facilitated by technology.
A classic firm would typically consist of many full-time employees, with most tasks being completed in-house. The first shift away from this was the outsourcing of departments – such as accounting, IT and security – and a refocusing towards the core competencies of the business. This was usually carried out with the oversight of a business process outsourcing (BPO) agency who would act as a mediator.
Pioneer digital platforms such as Uber and TaskRabbit have given rise to an array of others which offer firms the ability to connect with contractors without the associated overheads of a BPO agency acting as a middleman.
Firms can now put out individual tasks to tender and have contractors bid for the job. The Economist paints the picture of a hypothetical firm of the future consisting of no employees at all, and outsourcing all individual tasks to tender with AI selecting contractors based on machine learning algorithms – we are not quite there yet!
The key challenge you will likely encounter as a business with this model is what obligations do you owe to the workers you engage that fall within the gig economy? This is where our current legislation on employment status struggles.
Employment status has bearing on the protections available to a worker as well as the tax treatment of their pay. For instance, an employee is protected against unfair dismissal, must be paid the National Minimum Wage and as a business you may need to pay Employers’ National Insurance Contributions. Meanwhile, a genuinely self-employed contractor is entitled to none of these protections.
The question then is – what is an employee? The definition can be found in a hodgepodge of acts and case law. In legislation the ultimate factor is whether a contract of service (i.e. worker is available to carry out tasks usually under the supervision, control and direction of an employer) rather than a contract for services exists (i.e. services are being delivered by a person or persons), without much further elaboration. The primary employment status test is derived from the case Ready Mixed Concrete heard in 1968. The hallmarks of employment set out in this case are – mutuality of obligation, control and personal service.
Workers in the gig economy may find themselves in a position of personal service, with the inability to substitute work to others, or be under a level of control from their contractor which is more akin to a worker or employee than self-employed.
This was the case in Pimlico Plumbers where an “independent contractor” was deemed to be a ‘worker’ which afforded him entitlement to backdated holiday pay. This case did not set any new concrete precedent on establishing if someone is a worker, and this is where potential changes to legislation may occur in the future.
The Taylor review of modern employment practices and the associated rights of workers recommended that contractors of digital platforms be classed as dependent contractors, which may entitle them to extra protections. In response to this, the government launched a consultation over clarifying employment status tests – this could be in the form of codifying case law tests into legislation, or adopting other forms of tests. Countries such as Germany and the United States have formal tests to determine employment status, and we may look to those as an example. Another question was whether the tax treatment of dependent contractors should be the same as employees.
Until a solution is found it is likely that more cases will be brought forward – this month for instance, freelancers working at the National Gallery have brought a case to an employment tribunal arguing their employment status. The Court of Appeal will also hear an appeal in the case against Uber in October 2018.
In the meantime, if you engage workers which fall within the gig economy it is advisable to be cautious about whether the employment status of these workers will be subject to a later challenge.
We will be running a joint event with The HR Dept Newcastle soon, which will cover the Gig Economy, so watch this space for an announcement on that.