The so-called ‘gig economy’ is a phrase that’s become increasingly popular. But what is it exactly and how could it affect us – especially when it comes to employment status?
It’s been described as a labour market characterised by the prevalence of engaging independent contractors or freelancers as opposed to permanent employees.
Gig economy workers generally consist of couriers, delivery drivers and taxi drivers and instead of a regular wage, they get paid for the ‘gigs’ they do. In the UK, it’s estimated that five million people are employed in this capacity.
Supporters of the gig economy claim people can benefit from flexible hours, giving them control over how much time they work as they juggle other priorities in their lives. In addition, the flexible nature often offers benefits to employers, as they only pay when the work is available and don’t incur staff costs when the demand is not there.
Opponents to the gig economy state that this type of engagement is a form of exploitation with very little workplace protection.
While this type of ‘no-ties workforce’ is undoubtedly of benefit to the way some types of organisations operate, it does create a level of uncertainty over their employment status.
Traditionally, people who work within the gig economy were classed as independent contractors – i.e.self-employed – and not as employees or workers. That means they have no protection against unfair dismissal, no right to redundancy payments, and no right to receive the national minimum wage, paid holiday or sickness pay. It is these aspects that are proving contentious.
So what’s the difference?
The difference between an employee and a worker is defined within Section 230 of the Employment Rights Act (ERA). Generally, an employee will work to the terms within a contract of employment, and will carry out the work personally.
A contract exists when terms such as pay, annual leave and working hours are agreed. Although the contract doesn’t have to be written down to be valid, it is best to record the main terms and conditions of employment in writing.
Employees are entitled to a wide range of employment rights, including all those to which a worker is entitled. Examples of employee rights include:
a written statement of employment
an itemised pay slip
the National Minimum Wage
holiday pay, maternity and paternity pay etc
the right to request flexible working hours
the right not to be discriminated against.
A worker will also work under the terms of a contract or other arrangement to do work or services personally for a reward. Workers generally have a limited right to send someone else to carry out the work, such as a sub-contractor.
Workers are also entitled to some employment rights including:
the National Minimum Wage
protection against unlawful discrimination
the right not to be treated less favourably if they work part-time.
A self-employed person will run their own business and take responsibility for its success. Self-employed people are more likely to be contracted to provide a service for a client. They will not be paid through PAYE and don’t have the same employment rights and responsibilities as employees or workers.
There have been a number of recent cases that have challenged employment status, with Smith v Pimlico Plumbers being one of the most important.
Pimlico Plumbers describe their plumbers as ‘self-employed operatives’. The wording of the contract suggested that the claimant, Mr Smith, was in business on his own account, providing a service to Pimlico Plumbers.
Plumbers are required under the contract to wear Pimlico’s branded uniform, use a van leased from Pimlico with a GPS tracker and the company’s logo, and work a minimum number of weekly hours. Mr Smith could choose when he worked and which jobs he took, was required to provide his own tools and equipment, and handled his own tax and insurance.
There was no express term allowing the plumbers to send a substitute to carry out work on their behalf, although there was evidence that they could swap jobs with each other.
Following the termination of this arrangement, Mr Smith brought numerous tribunal claims, including unfair dismissal. It was found that Mr Smith fell short of satisfying the test required in order to be deemed to be an employee. However, the Court of Appeal found that Mr Smith was classified in legal jargon as a “limb (b) worker” as defined in Section 230 (3)(b) of the ERA. He was therefore not entitled to claim unfair dismissal – but he did have certain basic rights such as holiday pay.
The key factors in the Court of Appeal determining that he was a worker included that there was:
an obligation of personal performance
a requirement to work a minimum number of hours, and
a degree of control exerted by the company over Mr Smith’s work.
The employment status of workers has also been confirmed in cases relating to Uber and City Sprint.
New ways of working
The Department for Business, Energy & Industrial Strategy (BEIS) is holding an inquiry into a range of working practices.
The Taylor Review on Employment Practices in the Modern Economy will consult on employment practices in the UK and review how these need to change in order to keep pace with modern business models.
It is highly likely that the gig economy will be a central part of this review, which should hopefully provide more clarity in relation to these types of working agreements.
Julie Thompson is Employment Affairs Policy Development Adviser