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Employment status: employed or self-employed?

In an ever changing world where technology, social media and customer expectations are constantly changing, we’ve seen a shift in modern business models. This often leads to confusion regarding a worker’s employment status and the rights and responsibilities they hold with their employer.

A recent case in the news focuses on the employment status of taxi drivers working for the innovative taxi company, Uber.  Their business model is driven by technology whereby an App provides a platform for private hire taxi drivers to be matched to passengers at competitive rates.  The drivers work for Uber on a self-employed basis, the aim of which is to bring about flexibility to the driver (they can drive as much and as little as they want) and Uber do not incur the cost and liability of employing so many employees.

This employment model, however, is being challenged in the courts at the moment and if successful, could see costly implications for Uber and other companies who operate a similar model.

So what are the different ways of engaging a workforce?

Broadly speaking there are three categories in which companies engage their workforce as follows:

Employee – employees are entitled to all statutory employment rights. These rights are vast but include things like the right not to be unfairly dismissed, the right to the minimum wage, the right to take family related leave such as maternity and adoption leave and much more.

Self-employed – there is no employment contract with people who are self-employed and they are not afforded any statutory employment rights. The company pays the individual a fee rather than a salary and the individual is responsible for running their own business.

Worker -a ‘worker’ is neither an employee, nor self-employed but s/he does have some employment rights such as the right to the minimum wage, the working time regulations and part-time workers’ regulations. Their employment rights are limited, however and are not afforded the same protection as an employee.

How can these categories be challenged in court?

Whilst it appears easy to distinguish between the different categories, when a claim is made, the courts don’t just rely on what’s stated in the employment contract.  They will apply a lot of weight to what happens in practice and the behaviours that are exhibited by the company and the individual.  Whilst the contract may say that an individual is a worker or self-employed, how the arrangement operates, in practice, may be quite different, which could bring about a successful claim.

In the Uber case, a group of drivers are claiming that they should be ‘workers’ rather than self-employed contractors.  They are arguing that because Uber track set routes by GPS, use driver ratings, allegedly make unauthorised deductions from fares for bad passenger reviews and invoke penalties for not picking up fares, they should be classified as a worker.  They are arguing therefore that if they are a worker, they should be entitled to the statutory employment rights enjoyed by ‘workers’.  If successful, this could have costly implications for Uber in relation to the minimum wage and holiday pay, both in the future and in respect of underpaid wages and holiday pay.

It’s also worth noting that some cycling courier service companies who use self-employed cycling contractors, are also subject to similar challenges to that of Uber.  The contractors are also claiming that they should be regarded as ‘workers’ and therefore enjoy the statutory employment rights that come with that status.

What factors are taken into consideration?

You may be questioning the employment status of individuals within your Company.  If so, previous case law has provided some useful guidance to help determine the employment status of different groups, as follows:

  • Who decides what the work will be?
  • Who decides the way the work will be done?
  • Who decides the means to be used?
  • Who decides the timescales?
  • Who chooses and removes the people in the team?
  • Who provides the equipment and materials?

As well as the guidance above, there are also other influential elements that can help to determine the employment status.  These are:

  • Anything that suggests employment. Examples of things that would indicate employment would be disciplinary and grievance procedures and the payment of holiday and sick pay.
  • If the individual has his or her own staff. If the individual has their own staff, it is more likely to indicate a self-employed arrangement.
  • The number of clients. If the individual provides their services to a number of clients, they are likely be deemed as self-employed.
  • The negotiation of fees. Where an individual negotiates different rates for each job s/he does, they are more likely to be found to be self-employed.

What should you do?

You may be a company who operates a similar model as some of the companies mentioned above.  Until we know the outcome of the tribunals, it’s impossible to advise on the implications and any action you should be taking.  However, if you are considering introducing a similar resourcing model or already have one in place, here are some things that you can do to help protect yourselves from similar challenges.

  • Ensure that when engaging someone for work, you are choosing the most appropriate contract type. Use the guidance above to determine this.
  • When setting up the contract, be that for an employee, worker or self-employed, make sure it is very clear about who is responsible for what and the employment status of that individual. Without a contract, a tribunal can only rely on practice, which may be different from your intentions.
  • Carry out an audit of the existing contracts you have in place and take steps to make the employment status clearer if needed.
  • Make sure that the practice matches the contract. As stated earlier, tribunals don’t only look at the contract type, they also consider the behaviours and practice between the company and the individual if the employment status is being questioned.

If this article has highlighted any issues in relation to your own organisation, please do not hesitate to contact us.