Melanie Stancliffe takes a deep review on the Uber appeal impact on employment status,

‘The Supreme Court has the final say on the employment status of Uber drivers’

Melanie Stancliffe, expert employment lawyer, delivered one of the first keynotes to the IOC on the Taylor review of modern work practice in express courier logistics, she was at the IOC round table back in 2017. She is tipped to keynote at the IOC fellows' heads of industry virtual round table, May 18th event.

Here she explains the implications on working in the express courier sector with her colleague at law firm Cripps Pemberton Greenish, Camilla Beamish.

On Friday, the Supreme Court handed down its decision in Uber v Aslam which concluded that the employment status of Uber drivers is rightly that of “worker” rather than “self- employed”. This is a judgment that will affect, not only the working rights of tens of thousands of Uber drivers, but will also have huge implications for how all “gig economy” workers are treated.

In this particular case, two Uber drivers brought claims against Uber asserting that they were “workers” and should be paid minimum wage and paid holiday. The model that Uber has developed means that it classified its drivers as self-employed and the contractual documentation in place supported the drivers’ status as self-employed individuals. However the courts found that the contracts did not accord with the reality of the working arrangements.

This confirmation has followed the decision in favour of the drivers in 2016 and Uber losing a subsequent appeal in 2018. The unanimous decision of the Supreme Court to dismiss Uber’s appeal will now be binding. This decision means that the Uber drivers are entitled to claim the national minimum wage (including back pay for minimum wage), and significantly that they should be paid the minimum wage from the moment they clicked on the app until their clocked off, their entire working day, not just when they had a passenger in their cabs.

Adding to the cost for Uber, the drivers were also found to be entitled to 5.6 weeks’ paid annual leave each year and to receive other rights afforded to workers such as protection from discrimination and from detrimental action or dismissal if they blew the whistle.

Of equal concern for Uber, HMRC are likely to seek unpaid VAT from Uber as Uber, not the drivers, was responsible for its payment.

Why is employment status an issue in the “Gig Economy”?

The essence of a gig economy business model is to provide services to consumers at a competitive price. This is partly achieved by shifting the risk/cost of the service provision from the owner of the “platform” to those who actually provide the service i.e. the driver or tradesman, by using contractual arrangements that try to ensure that the service provider who uses the platform is classified as self-employed. However, this classification doesn’t sit well with the current interpretation of the law on employment status which is protecting the individuals.

As a result, over the past five years we have seen a plethora of high-profile legal decisions concerning employment status, particularly in the “modern gig economy” areas such as delivery drivers and couriers involving big names such as Uber, Addison Lee, Deliveroo and Pimlico Plumbers.

What are the different types of employment status and why are they important?

There are three different types of employment status. Originally English employment law only recognised two categories of individual – employees and the self-employed. However since the 1970’s the new “in-between” category of “worker” has emerged:-

Employee – someone who has entered into or is working under a contract of employment;

Worker – someone who is engaged under a contract for services to perform work personally for another party whose status is not that of a client or customer;

Genuinely Self-Employed – someone in business on their own account where the organisation for whom they work is their client or customer.

The distinction in status is important as it will:

-Confirm what protections and rights apply to the individual concerned and the cost and obligations of the “employer”. An employee has a higher level of protection and more rights than a worker and somebody who is self-employed has the fewest rights; and

-Impact on the appropriate tax treatment of any payments made to the individual (as IR35 is extended to the private sector from April 2021).

The most significant differences in the rights of employees and workers are those that relate to the termination of employment - only employees have the right not to be unfairly dismissed, the right to receive a redundancy payment and the protection of the ACAS Code on disciplinary and grievance procedures.

Workers have lesser protection but they do enjoy rights which will involve a cost for the businesses that engage them – paying 28 days of leave each year, paying the National Minimum Wage for working time, ensuring breaks and working hours limits are observed, providing a statements of terms and pay for new workers and ensuring there is no discrimination.

Self-employed individuals only benefit from the discrimination protection.

Tests of Employment Status

The tests of employment status are well established:-

Mutuality of Obligation: The test considers whether there is an obligation on the employer to provide work and a corresponding obligation on the individual to perform work. If either party can refuse then this minimum requirement does not exist, so there is unlikely to be an employment relationship. In Uber, there were penalties on the drivers if they refused a certain number of rides so the situation wasn’t clear cut.

Control: Looks at the degree of control an employer exercises over what the individual does, how an individual works and the times at which the individual works. The more control an employer exercises over an individual’s work, the more likely the individual is to be an employee or at least a worker. Where, as in the Uber decision, there was dependency on the business, then employment or worker status is likely to result.

Provision of Personal Services: Considers the right of the individual to provide a substitute to do work if they are unable to work on a particular day (for example because they are ill or on holiday). If the individual has this right and exercises it on a regular basis, they are more likely to be a worker or self-employed. In Uber, the driver was licensed and only they could do the work so services had to be provided personally.

Both a worker and an employee can provide personal service, but for an individual to be an employee they may be obliged to do the work provided (mutuality of obligation). For example to be a “worker”, the organisation would not be under an obligation to provide on-going regular work (just “as and when”) and, in turn, the worker would not be obliged to accept the work when it is offered.

In the case of a self-employed contractor, by contrast the features of mutuality of obligation, personal service and control are all absent.

What facts did the court take into account in the Uber case?

In deciding the Uber drivers were workers rather than self-employed, the Supreme Court considered that the following parts of Uber’s business model were key:

-Uber set the fare which meant that they dictated how much drivers could earn;

-Uber set the contract terms and drivers had no say in them;

-Uber constrained drivers’ freedom to choose when to work once logged into the app;

-Uber controlled the way in which the service was delivered;

-Uber restricted drivers’ ability to communicate with passengers;

Looking at these and other factors, the drivers were found to be in a position of subordination to Uber, dependent on Uber for work and Uber exercised significant control over their work.

Takeaway messages

For businesses operating business models which rely on self-employment arrangements, it is more important than ever for businesses should look closely at all of the arrangements with those on and off payroll.

Businesses need to make a choice about how they will work with individuals. The Uber decision has created a stark choice - businesses can either exert control in which case they will engage “workers” or “employees”. Alternatively, if they allow real freedom, then those who work with them are likely to be regarded as “self-employed”. This analysis is an exercise which many businesses were already undertaken in Q1 to prepare for IR35. The Uber decision has solidified the need for businesses to urgently re-evaluate their approach.

Businesses need to ensure that any documentation that governs these relationships genuinely reflects the day to day working practices. The tribunals (and HMRC) have consistently signalled they will look beyond the terms of any “sham” contracts so you will need to amend your contracts to factor in all the elements that point to the freedom outlined above and genuine self-employment.

Where any grey areas are identified, businesses should seek legal advice and consider how they will deal with individuals who would now be classified differently. Whether this is issuing new contracts, buying out liabilities or waiting to see the action the individuals take, it is wise to make provision in their accounts for financial liabilities to those who have historically been treated as self-employed.