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What is meant by the gig economy & the workers status test

Sunday 29 July 2018 - By Kathleen Powell - Co Founder and Director of Colossus Systems

In today’s article we shall be discussing what exactly the gig economy is and the comparison between the different types of employment status.

WHAT IS THE GIG ECONOMY?

The term gig economy has developed in recent years from the increase and demand in short-term contracts and individual freelance gig type work in the UK employment market. The gig economy enables individuals to carry out work on a flexible basis with the idea of giving them a choice of whether they want to accept or reject work. The effect this has had overall on the employment market has helped reduce the level of unemployment overall, however due to the risk of exploitation by large corporations the government is under increasing pressure to address the issue surrounding the gig economy and how this currently affects employment law and the rights of individuals . Theresa May commissioned the Taylor Review report to be undertaken in response to the growing concerns around the new modern employment models and the need for clarity in the law surrounding workers status.

WHAT IS THE DISTINCTION BETWEEN EMPLOYEES, WORKERS AND SELF-EMPLOYED:

There is a great need to clarify the line between worker status and self- employment as this is where there is the greatest risk of vulnerability and exploitation. 1

As the law currently stands there are 3 categories of employment status these are employees, workers and self-employed, we shall look at each in turn. Tweet: It is important to establish the nature of the employment relationship to determine the rights to which the individual is entitled It is important to establish the nature of the employment relationship to determine the rights to which the individual is entitled. https://tinyurl.com/yauxzd5f

EMPLOYEES:

The definition of employee is essentially based in common law and the courts have constructed several tests to help determine whether somebody is an employee. Namely (1) does the individual have a contract, (2) do they carry out work personally (3) does a mutuality of obligation exist - meaning the employer has to offer work and the individual has to carry out the work provided and (4) does the employer have control over the work that the individual does 2.

The statutory definition of an employee emphasises this common law provision s230(1) and (2) states an employee means an individual who has entered into or works under a contract of employment". A "contract of employment means a contract of service or apprenticeship, whether expressed or implied and if expressed whether oral or in writing" 3.

The tribunals and court will also consider the intentions of the parties, the level of integration into the business and whether the individual provides their own equipment and if they take any financial risks 4.

The employee has extensive employment rights such as right to claim unfair dismissal and statutory redundancy pay providing that the employee has been with the company long enough 5. The definition is still somewhat unclear, and this can be seen by the history of case law concerning individuals whose status has been contested.

WORKERS:

A worker is entitled to core employment rights and protections but not as extensive as the rights afforded to employees; under s230(3) of the Employment Rights Act 1996, it states that a worker is an individual who entered into works under a contract of employment, or any other contract, whereby the individual undertakes to do or perform personally any work or services for another party to the contract and that they're not in business on their own account, where they have their own clientele.

The rights afforded to workers include holiday pay, working time rights, protection from whistleblowing and entitlement to be paid the national minimum wage. Whereas employees are also entitled to redundancy and unfair dismissal after a qualifying period 6.

SELF-EMPLOYED:

The difference between employee, worker and a self-employed person is that the self-employed person is in business on their own account. They will run their own business and take all the risk involved in being in business, they're more likely to be contracted to perform a service for a client and will not be on PAYE. They will not be protected by most employment law 7.

EMPLOYMENT STATUS TESTS:

It is evident that an individual's status cannot be made clear in the contract alone and it for this reason that the Employment Tribunals consider the way in which the parties behaved in the duration of the relationship. The courts and tribunals have established a range of tests and factors to help provide some clarity for determining employment status, we discussed these tests above when we looked at employees.

The approach used by the courts and tribunals is called the factual matrix and a disparity between the contract terms and the factual matrix can result in a finding that the contract is a sham 8.

In order to provide clarity, the government must make legislation clearer. As recommended in the Taylor review the legislation must do more, and the courts do less if we are to improve clarity. The employment statuses need to be distinct and not open to as much interpretation and so ambiguous that only the courts can fully understand the basic principles 9. Tweet: In order for businesses to know exactly what their responsibilities are to their workforce and what is to be expected from their workforce it is imperative that this complex area is made simple In order for businesses to know exactly what their responsibilities are to their workforce and what is to be expected from their workforce it is imperative that this complex area is made simple to understand rather than being spread over many statutes and complex case law.

There have been several recommendations that the three-tier approach discussed above that we currently operate should be replaced 10, we have seen the suggestion of a system similar to tax with a binary choice between employment and self-employment, this method was rejected by the Taylor review and instead a recommendation to rename the current category of people entitled to rights under "worker" status to "dependent contractor" whether this will be enough to clarify the law in this area is yet to be seen, however, I find it extremely unlikely. The Taylor review fails to address and clarify what being self-employed really means and providing recommendations for a statutory definition of self-employment could help distinguish and provide much needed clarity when determining whether an individual is a worker or self-employed.

Interested in learning about how online HR software can help you distinguish your employees, workers & self-employed people; to avoid costly tribunal claims, take a look at how self-employed worker checks, and worker status tests can help click here

  1. '"Worker by default" status proposed in new gig economy Bill', 20 November 2017, Personnel Today
  2. Employment status Q&As: 'Commonly asked questions on the legal issues relating to employment status', 21 November 2017, CIPD
  3. s230 (1) and (2) Employment Rights Act 1996
  4. Labour & European Law Review, 'an Employee or a Worker?', 28 September 2005, Thompsons Solicitors
  5. Astra Emir, 'Uber drivers found to be 'workers' not employees', 15 November 2016
  6. Astra Emir, 'Uber drivers found to be 'workers' not employees', 15 November 2016
  7. Jeremy Fitzgibbon, 'Determining employment status', XpertHR
  8. Jeremy Fitzgibbon, 'Determining employment status', XpertHR
  9. Good Work: The Taylor Review of Modern Working Practices - Chapter 5 - Clarity in the law
  10. Good Work: The Taylor Review of Modern Working Practices page 35 and The Taylor review: 'What employers need to know', 11 July 2017, Personnel Today
  11. Rob Moss, 'Good work or bad? Reaction to the Taylor review', 11 July 2017, Personnel Today

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