The problems with the gig economy

The recent announcement that the Court of Appeal has decided that Uber drivers are workers, and not genuinely self employed, has again put the gig economy back in the spotlight. In this first in a series of three articles we look at the problems caused by the gig economy, the state of the current case law, and the potential solutions.

What is the gig economy?

The gig economy is used to refer to individuals who are assigned work via an app or website to perform short-term jobs. The classic examples are the Deliveroo service, which assigns work to delivery drivers, and Uber, assigning taxi drivers work. Generally the individuals performing the work have no guarantee of hours, use their own vehicles and equipment and take a proportion of the fee charged to the customer.

It is estimated by the Office of National Statistics that the gig economy was worth approximately £0.5bn in 2014 and it is forecast to be worth around £9bn by 2025.

Why have there been so many cases on worker status?

Employment law divides individuals into three categories: Employees, who have the highest form of protection, like entitlement to redundancy payments; Workers, such as those on zero hours contracts, who are entitled to some protection, including the national minimum wage, rest breaks and holidays, and the genuinely self employed.

The problem with the gig economy is that the traditional tests for employment status were not designed to deal with this new way of working.

Individuals in the gig economy are usually clearly not employees, as to be an employee the individual must be working under a contract of employment and there must be a mutual obligation for the employer to offer minimum hours of work, and the employee to perform the work when offered.

However, the question of whether or not they are workers is more complicated. Under the current case law, to be a worker an individual must:

• be working under a contract
• be obliged to provide personal service (i.e. they should do the work themselves rather than pass it on)
• not be a customer of a client of the business

The question of whether there is mutuality of obligation is also relevant as are all the surrounding circumstances.

Most companies in the gig economy carefully word their contracts with individuals to try and take them outside of this definition, for example providing that they don’t have to perform the work personally and can provide a substitute and that there is no obligation on them to accept work or be offered work. Most of the case law has therefore focused on whether the way the work is conducted in practice reflects the terms of the contract.

What are the drawbacks of the current test?

The problem with the current test is that many of the individuals wish to be able to work casually, completing work as and when they chose. This is what attracts many to the app platforms, so they can fit hours around studying or family commitments.

However, the drawback is the more flexibility they have; the less likely they are to be workers. As self employed individuals they have no security and very limited rights in law, although in practice they are likely to be tightly controlled by the company.

From the consumer perspective, if these individuals are not legally considered workers or employees, they are not subject to the working time rules, which provide for breaks and maximum working hours. This can raise issues particularly where the duties of the worker include driving, which as a result of long hours can become unsafe.

From the Government’s perspective, the Government already worries about lost revenue as companies engaging self employed individuals do not pay national insurance contributions. It is estimated this will cost the treasury £3.5bn in 2020/2021. This figure is undoubtedly going to rise with the gig economy which is expected to expand.

It is also harder to ensure individuals pay the correct tax, as tax cannot be deducted at source. This is further complicated by the fact that the definitions of worker or self employed for tax purposes are slightly different to the employment law tests. Another loss of revenue could result from the fact that uncertainty will lead to more and more cases reaching employment tribunals, the cost of which is now covered with public funds.

Those companies that chose to engage individuals as workers or employees struggle to be competitive due to the higher cost of paying the national minimum wage and national insurance and pension costs.

Summary

Due to the uncertainty for casual workers of their rights, the current framework of deciding employee and worker status has been heavily criticised as no longer fit for purpose. It is important that the Government acts promptly to address the current gap, and clarify the status of these individuals.

We’ll look at the current state of the case law in our second article. In our third article we will then look at the possible solutions to address this situation.

If you are concerned about the status of individuals working for your organisation, or have any questions in relation to the gig economy, please contact myself or Sarah Hayes.