The ‘gig economy’: from the margins to the mainstream
The ‘gig economy’ is a term that is hard to avoid nowadays. But what is it exactly and what does it mean for the outsourcing professional?
The so-called ‘gig economy’ is a term used to describe a labour market in which flexible, short-term contracts, or freelance working, is the norm, as opposed to ‘traditional’ employment relationships. New research conducted by the CIPD suggests that around 1.3 million people are engaged in such work in the UK. Many of these 1.3 million people will be content with the flexible way of working. However, others put up with it because it’s the only work they can secure, and they are unhappy about their employment status and legal rights.
Over the past year, a few employment law cases have hit the headlines because they involved well-known companies that many of us have probably used to make our lives easier, namely Uber, CitySprint and Pimlico Plumbers. All these employers now have one thing in common: they have all been unsuccessful in their attempts to convince the employment tribunals that they owe only minimal obligations to those who work for them.
First and foremost, it is important to understand that UK law recognises three categories of employment status: employees, workers and the self-employed. Each category affords a different level of rights and protection as follows:
The following factors tend to indicate that an individual is an employee:
- Mutuality of obligation. There is an obligation on the organisation to provide work, and an obligation on the individual to accept that work when it is offered.
- Control. The company exerts control over the individual and tells him what to do, when and how.
- Personal service. The individual is required to do the work personally and may not get someone else to go to work in their place for the day.
Rights: a full suite of rights, including unfair dismissal protection and entitlement to receive redundancy payments after two years’ of service; statutory sick pay and maternity pay (and other family friendly payments)
There are only two criteria:
- Work personally. Individuals must be obliged to do the work personally.
- No business undertaking or professional service. The individual must not be providing a professional service or operating a business undertaking for clients or customers.
Rights: Entitled to some rights and protections, although fewer than an employee. For example, entitled to take holiday and to receive holiday pay, national minimum and living wage and protection under the working time regulations.
No legal definition of self-employment, but if an individual is neither an employee nor a worker, they will likely be self-employed.
Rights: Not entitled to paid holidays or employment rights, but may, in limited circumstances, be able to claim discrimination in the civil courts.
The Recent Cases
Uber, Citysprint and Pimlico Plumbers all tried to argue that the drivers, bikers and plumbers at the heart of their businesses were self-employed contractors. They went to significant lengths to try to retain that categorisation because self-employed persons enjoy the fewest statutory rights as outlined above (and are, therefore, often the cheapest way to engage staff).
The tribunals found, however, that the drivers, bikers and plumbers provided a personal service and did not run their own business undertakings. Rather, they were given instructions by the companies and were expected to work when required, and were under the companies’ control. They were workers.
Practical impact on Outsourcing Transactions
Under the Transfer of Employment (Protection of Employment) Regulations 2006 (“TUPE”) an “employee” may transfer from transferor to transferee. However, the definition of employee in TUPE is wider than is normally used for employment protection purposes. It includes:
- any individual who works for another person under a contract of service (i.e. a contract of employment) or apprenticeship; and
- any individual who works for another person under any other contractual arrangement.
The genuinely self-employed are expressly excluded.
During outsourcing transactions there is a tendency to acknowledge the TUPE rights of employees and to approach the transaction on the basis that workers and the self-employed do not have those rights, including the right to transfer.
However, presumably there was a reason why the definition of employee in TUPE is broader than the definition of employee in, say, the Employment Rights Act 1996. When faced with this kind of anomaly, employment tribunals tend to assume that the drafting reflects the government’s intention to cover a broader category of people than just employees, meaning workers. There is no reason to think that their analysis would be any different in relation to TUPE. This would mean a finding that workers are properly covered by the extended definition of “employee” in TUPE.
The recent cases have highlighted the importance of status, and the difference it can make to the extent, and value, of an individual’s rights. It is inevitable that others engaged in the gig economy will be inspired to seek clarification of their status and to assert their rights as a worker.
Deliveroo delivery drivers are currently awaiting a determination on whether they are properly self-employed or workers. If they are workers, then they have foregone sick pay, holiday pay and the national minimum wage as a result of their incorrect classification. They will also become eligible to transfer under TUPE. The repercussion of that for a notional transferor is that he inherits many more staff under TUPE than expected, together with accrued liabilities arising from the transferee’s prior incorrect classification of the workers as self-employed.
This risk will not arise on every outsourcing. However, those businesses providing services using a gig economy model should be subject to careful due diligence by any transferor. Where the transferee and transferor are directly contracting, they can address the commercial risk through appropriate warranties and indemnities.
However, where the transfer is between non-contracting service providers, the transferee needs to consider reserving some flexibility in the pricing model offered to the client to help soften the blow of unexpected labour costs.
About the Author
Katie Clark is Partner in the London office of international law firm, McDermott Will & Emery. She has significant experience advising on all aspects of contentious and non-contentious employment matters. Katie’s client base spans multiple business sectors and includes global corporations, financial institutions, FTSE 100 companies, manufacturing companies, service providers and start-ups.