By Andrea London
Over the last few years we have seen an increasing number of companies in the modern economy move away from traditional employment models for their workforces. As a result of new technology platforms, a need for cost efficiency and an increasing emphasis on flexibility in the workplace, businesses in the 'gig economy' manage their staff on a wide variety of working patterns, or in new contractor-based structures.
Companies such as Uber, CitySprint and Deliveroo use app technology platforms to purchase labour from their workforce of contractor-drivers or couriers 'per gig' (i.e. a car journey or a delivery).
Companies such as Sports Direct, and JD Wetherspoons are using 'zero hours' contracts to maintain a bank of available workers without set working hours, ready to meet the fluctuating demands of the business when they arise.
There has been much media and public concern about these new working methods in the modern economy and the ensuing risks of worker exploitation due to the lack of employment protections.
Proponents for these new ways of working claim that workers benefit from flexible hours and control over how much they work and when. However, critics say that the flexible nature is of most benefit to the businesses - who pay only when the work is available and don't incur staffing costs at times of low demand.
They maintain that the much-boasted flexibility isn't necessarily mutual with workers often being requested (or rather 'required') to work at very short notice and feeling unable to turn down work or risk having future work denied to them.
The working status of individuals engaged in the gig economy has been much challenged in recent high-profile cases bought against Uber, CitySprint and Pimlico Plumbers. [For more information on these challenges, click on this link]
It has also been of particular importance to the Government. On 1 May 2017, the Work and Pensions Committee published the results of its inquiry into the gig economy.
Its report concluded that many companies are using self-employed 'contractors' as cheap labour whilst avoiding their responsibility towards workers/employees and the extra costs of employer national insurance, pension auto-enrolment and the apprenticeship levy.
According to the report, the idea that flexible employment is contingent on self-employment is a myth and profit, not flexibility, is the motive for using self-employed labour in many cases. It recommended that 'worker' status should be default and it would be for a company to bear the burden of proving otherwise.
Earlier this month, former aide to Tony Blair, Matthew Taylor, published a long- awaited review of modern working practices. This 115 page 'Good Work' Report examines non-traditional working models and the suitability of the current legal framework to support employers and safeguard workers within them.
It makes a number of recommendations to address what it coins as 'one-sided flexibility'. It also makes some best practice and general public policy suggestions on topics such as the equalisation of national insurance, development of the apprenticeship, skills and training framework, cash in hand payments and the consolidation of pregnancy and maternity leave legislation.
The Government has indicated that it intends to take the findings of the Report seriously and so the report should be of interest to all employers, but particularly to those operating and engaging staff on casual, agency or zero-hour contracts. An overview of the key recommendations of the Report are set out below:
The Report recommends that legislation should set out clear employment status principles so that individuals can easily understand what rights they are entitled to. The current three - tier approach of employees, workers and the self-employed should remain; however, 'workers' should be renamed as 'dependant contractors'. This status should apply only to workers who are not employees (the current legislative definition of 'worker' includes individuals working under an employment contact e.g. employees) - so the status issue would be significantly clarified.
The Report recognises that the right of substitution included in many gig-economy service contracts is a barrier to individuals looking to gaining 'worker' status.
It recommends that the definition of 'dependant contractors' should place less emphasis on the requirement to perform work personally and place greater importance on the control a company can or does exercise over the individual's work. The need for personal service should be maintained in any employment contract.
Paying workers in the modern economy
On this issue, the recommendation is that workers should continue to be remunerated based on their output, provided companies are able to demonstrate through data that the average individual working averagely hard successfully clears the minimum wage with a 20% margin of error (known as 'piece rates').
In respect of zero hours and casual contracts, it is suggested that a higher National Minimum Wage should be applied to hours which are not guaranteed. Where a contract includes hours that are guaranteed, these will be paid at the Standard National Minimum or National Living Wage and any hours the individual works beyond that are paid at the higher rate. The aim is to encourage businesses to guarantee hours as far as is reasonable within their business.
The Report also suggests that the tax status of new 'dependant contractors' and employees are closely aligned and that the use of unpaid internships is stamped out.
Basic Statutory Rights
Currently employees are entitled to a written statement of terms within two months of the start of employment. The report recommends that this statement should be issued from Day One, and to workers as well as to employees. The report also recommends that the right to a written statement of terms is a standalone enforceable right.
The Report considers the issue some casual workers have in building the minimum continuity of employment of two years required to qualify for some employment rights.
It recommends that the relevant break in service for the purpose of this calculation should be extended from one week to one month. Further, employees on zero-hour contracts who have been in post for 12 months should have the right to request a contract that guarantees hours that better reflect the hours they have actually worked.
The review recommends a reform of Statutory Sick Pay so that it is a basic employment right accrued on length of service to which all workers are eligible regardless of income (in a similar way to how holiday is accrued now). It also suggests that individuals should have a right to return to work after a prolonged period of illness.
With respect to annual leave, the Report suggests that the reference period for calculating annual leave should be increased from 12 weeks to 52 weeks to account for the seasonal nature of some casual and zero-hour jobs.
It is also recommended that business should be allowed to pay its employees and workers annual leave on a 'rolled up' basis - albeit with appropriate safeguards to ensure that people did not work 52 weeks a year as a result.
The Report also considers that individuals should also have the right to request flexible working arrangements on a temporary as well as a permanent basis.
The Report recommends that agency workers should be provided with information which is transparent in terms of both rates of pay and those responsible for paying them.
It further proposes the abolition of the 'Swedish Derogation' whereby agency workers can opt out of their entitlement to the same pay and conditions of an employee (after 12 weeks) in exchange for a permanent contract with the agency which provides for payment in-between assignments.
Agency workers should also have the right to request a direct contract of employment when they have been placed with the same hirer for 12 months, and an obligation on the hirer to consider the request in a reasonable manner. Clearly however, this could have significant implications for the agencies themselves.
The Information and Consultation of Employees Regulations (ICE) were set up in 2005 to encourage long-term information and consultation arrangements between employers and employees.
Currently the ICE Regulations apply to organisations of 50 or more employees where there is at least 10% (minimum 15 employees) support. The Report recommends extending the ICE Regulations to include workers and reducing the threshold for implementation from 10% to 2% of the workforce making the request.
Reporting Obligations and Enforcement Rights
The recommendation on this issue is that large companies should be required to report on their model of employment, their use of agency services, the number of requests they have received from zero hours contract workers for fixed hours, and the number of requests they have received for permanent positions from agency workers.
When taking their claim to the Employment Tribunal, the Report recommends that Claimants should be able to get an authoritative determination of their employment status during a preliminary hearing and before paying any fees.
Further, the burden of proof should be on an employer at the outset to prove that an individual is not entitled to relevant employment rights, not the other way around (as presently).
With respect to enforcement of statutory rights, it is suggested that the HMRC should be given the ability to enforce core pay rights including sick pay and holiday pay as well as minimum wage issues.
The report notes that currently BEIS has the power to impose fines on employers who fail to pay a Tribunal award; it recommends that this power is extended so that the Government has the power to enforce the payment of an award without an employee or worker having to initiate additional and separate Court proceedings. In addition, for employers who do not pay awards within a reasonable time, a naming and shaming scheme is proposed.
There was some concern with the reluctance of businesses to apply an Employment Tribunal's determinations on working status to other individuals in the business who work under similar working arrangements.
It recommends that the Government creates an obligation on Employment Tribunals to consider the use of aggravated damages and costs orders if an employer has already lost an employment status case on broadly comparable facts.
Further, Employment Tribunals should be allowed to award uplifts in compensation when there are further breaches against workers with the same or materially similar working arrangements.
So... What should employers do now?
Some of the recommendations in the Report are clear and ready to implement and others will require much more consideration and exploration.
How and when the Government implements the proposals in the Report will remain to be seen, however it only seems a matter of time before individuals operating as 'self-employed contractors' or similar in the current gig economy are reclassified by the courts as 'workers' (or equivalent), and so will be entitled to clearer and enhanced employment rights such sickness and holiday pay and potentially 'piece rate' pay increases.
In light of the findings of the report, our current advice to employers would be:
Evaluate your business models and employment structures to determine if and how the recommendations may affect you if implemented.
As appropriate, start to think about forward planning / budgeting for any potential additional employment costs connected with a reclassification of (part of) their workforce, e.g. holiday / sick pay, pension contributions and increased NI costs.
Employers should also be alive to shifting public and political attitudes regarding the use of casual workers and self-employed contractors, as well as current legal challenges.
There is a risk that businesses could face informal or formal employment status challenges from their own staff - incited by the recent media coverage.
Companies, in particular those involved in the gig economy service provision should ensure they are prepared to justify the use of their working model and the employment status of their workforce.
The Report appears quite well received, so it may be the case that employers who ignore it could ultimately do so at their peril!
For any further guidance or information on this matter or any other employment-related enquiries, please contact Andrea London, Partner and Head of Employment.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.