Does the recent high-profile employment tribunal decision in the Uber case, which decided that a group of drivers were workers and not self-employed, signal the end of the road for similar labour models in the gig economy?
The short answer is: probably not. However, what is clear is that the direction of travel – drawing from developments in case law, the approach of HMRC and government scrutiny – is shifting towards protecting the rights of individuals and ensuring that their categorisation is properly representative of what is happening on the ground.
The Uber case shines a light on the high level of scrutiny on the labour model and, given the exponential growth of app-based platforms, the significant financial and reputational risks at play. So what practical steps can be taken to mitigate risk?
First, it's important to look closely at the surrounding context. That includes the legal tests surrounding 'employee' and 'worker' status and their distinction from genuine self-employment, which have been in place for more than 40 years. Their application to the new era of disruptive app-based businesses, providing on-demand services through highly flexible labour models, remains a real challenge and we are expecting more high-profile challenges ahead.
Second, the financial cost of getting the legal status of the workforce wrong could be many millions in back pay and additional benefits.
Lastly, the way businesses are classifying their workforce and concerns about the imbalance of power affecting individual rights are playing out in the public eye. Take, for example, the public scrutiny surrounding Sports Direct and its use of zero-hours contracts or the potential legal actions coming up against other app-based platforms such as Deliveroo. We are also seeing HMRC's crackdown on working off-payroll in the public sector as well as the government's 'Future of Work' consultation and its inquiry into low pay issues involving Hermes couriers.
Beyond the immediate headlines from the Uber decision, there is an equally important message: the legal tests surrounding worker/self-employed status won't be flexed to suit the chosen business model but that model can be configured to achieve the desired workforce classification.
Ensuring that contractual documentation between the business and the workforce is sufficiently clear, understandable and accurately reflects how the relationship operates in practice is a must. How much day-to-day operational control is exercised over what the workforce do and when, how, and on what terms do they do it? Complex and highly prescriptive arrangements that leave the workforce with little freedom to control which jobs they pick up and how they execute service delivery will increase the risk of them being classed as workers.
The risk is greater still if they have no flexibility to put forward someone else to fulfil the job. The right to use a substitute is one of the hallmarks of genuine self-employment. Careful consideration should be given to the financial and risk-sharing arrangements in place. An arm's length arrangement in which the individual shoulders financial and other business risks is consistent with them being in business on their own account. Particular attention should be given to the nature and frequency of payments and any penalties or adjustments applied and to which party bears the risks and responsibilities when problems or complaints arise.
Inevitably there is a balancing exercise to be carried out and no one-size-fits-all solution.
Richard Loxley is a partner and Patrick Thomas senior solicitor at DAC Beachcroft