With startups like Uber and Deliveroo facing tribunals due to the way they define those working for them, gig-economy entrepreneurs better get their heads around employment law
The gig economy has been hailed as a flexible and highly profitable solution for workers and startups alike. However, a string of tribunal hearings have recently revealed the many legal pitfalls entrepreneurs risk stumbling into when they choose to Uberise their workforces. “There has never been a more critical time for businesses to understand their responsibilities and the rights of the people working for them,” says Raphael Prais, lawyer at LHS Solicitors, the business law advice firm.
In March, Deliveroo became the latest startup to be called to face a tribunal for defining its riders as self-employed contractors. Over the past year, courier company Citysprint, ride-hailing startup Uber and plumbing company Pimlico Plumbers have all faced and lost similar cases. Uber is currently appealing against its tribunal ruling, while in February Pimlico Plumbers lost a similar appeal after a tribunal stated it had wrongfully defined a worker as a self-employed contractor for six years.
While it’s important to recognise that all these cases and rulings rest on their own individual facts, they clearly demonstrate the importance of defining the relationship between startups and the people they trust to provide their services. But given that working practices have changed enormously over the past few decades, this is easier said than done. “In the good old days, employment law was very simple,” says Stephen Morrall, employment partner at Hunters Solicitors, the commercial-law firm. “People were either employed or self-employed: they either had a contract of employment or a contract to do the work and get paid for it.” Nowadays, things aren’t as clear cut. Squeezed in between contractors and employees is a third category: workers. “A worker has a status that has neither all the protections and benefits of being an employee nor all the flexibility and advantages of being self-employed,” says Morrall. This status is the cause of much of the current confusion.
In the eyes of those who support the gig economy, the benefit of defining workers as self-employed contractors is that it gives them total control of when and how they choose to work. Contractors enjoy significantly more freedom than employees, in that they’re entitled to choose what work they take on. “In the gig economy, individuals are paid per job as opposed to a regular wage,” says Frank Ryan, employment lawyer at Vardags, the divorce law firm. “They’re usually understood to be self-employed – or at least that’s how employers have sought to label the relationship.”
And on the face of it, it may look like workers benefit from this arrangement. Indeed, they do enjoy many of the same rights as employees, such as paid holiday, national minimum wage and protection against discrimination. But workers aren’t entitled to some of the benefits that employees enjoy, which usually include sick pay, parental leave, protection against unfair dismissal and time off for emergencies. “The obvious downside is that they don’t have all the protections of an employee and therefore sacrifice job security for professional autonomy,” says Ryan.
While there’s no fast and hard rule for distinguishing whether someone is a worker or a contractor, there are some telltale signs to look out for. “What companies in the gig economy can ask themselves is if the people they engage with are truly independent,” says Morrall. The more restrictions a company puts on a person, the further away they are from being a contractor. For instance, in the Pimlico Plumbers case, plumbers had to hire and drive branded vans, wear the company’s uniform and work for at least 40 hours a week. In the tribunal’s eyes, this meant that the company exercised more control over the worker than it would have if he was self-employed.
Having recognised the difficulties in defining workers in the gig economy, it’s hardly surprising that the government launched a formal review of current employment legislation in November 2016. And while it remains to be seen exactly what the government will recommend when the review is published later this year, there’s a good chance that the way the gig economy employs workers will be one of the things it seeks to address. “It’s not impossible that we might see legislation specifically aimed at protecting gig-economy workers,” says Ryan. But in light of the reputational and financial damage that falling foul of employment laws can cause, it really is worth gig economy startups looking at their relationship with their workers before any new laws are brought in.