A Worker or Self-Employed? That Is The Question

A Worker or Self-Employed? That Is The Question

Key Contact: Claire Knowles

Author: Dan Evans

In the past few years, the Court of Appeal and the Supreme Court have made headlines determining ‘workers’’ status for people working in the gig economy. This has led to a lot of confusion, which has left many businesses uncertain how best to categorise their people, and individuals unsure what employment status they have, and what employment status they want to have.

Employment status – why it’s important

The primary reason that employment status is important is because each category is entitled to a very different benefit’s package.

The key difference is how the relationship functions in practice. We take a brief look below at definitions and benefits for each category.

  • Employees – are essential staff that are usually (but not always!) engaged under a written contract of employment. A business has a high level of control over employees and tells them what work to do, when, where and how to do it. Employees are entitled to the full spectrum of statutory rights including all worker’s rights listed below and protection from unfair dismissal, statutory redundancy pay, family rights’ benefits and a minimum notice period to terminate employment.
  • Workers – are individuals who personally perform work or services for another, when the other party is not a client or customer of the individual performing the work. They are entitled to basic rights, including the right to be paid national minimum wage, holiday pay and the right to join a union.
  • The self-employed – are individuals working for themselves, who do not work for another individual or company, unless that individual or company is a client or customer. The self-employed are not entitled to any worker rights (beyond protection from health and safety and discrimination) and are free to decide when, where, for whom and how they will do any work.

The recent employment status cases have focused particularly on the gig economy, where individuals have been wrongly classified as self-employed, when they should have been classified as a worker for the business. Case law has confirmed that the courts will look beyond the contract, to understand how the relationship works in practice, to determine the true working status of the individual.

What are the risks of getting it wrong?

A business that wrongly classifies its workers as self-employed could potentially be brought in front of an Employment Tribunal. With the level of press coverage and public scrutiny that worker status’ claims are receiving, it is likely to open the flood gates for other alleged ‘self-employed’ individuals, seeking to unravel their own working arrangements. Defending an Employment Tribunal claim is a costly and time-consuming process, which if unsuccessful, results in the business being liable to pay the claimant(s) compensation.

If an individual is wrongly categorised as self-employed, rather than a worker, the individual is usually entitled to compensation for backdated holiday pay and for a potential shortfall in national minimum wage payments. In certain circumstances, the backdated holiday pay can go back to when the working relationship began.  This has the potential to a cause the business substantial financial harm.

Factors that indicate worker status

  • Personal Service

An individual who is required to personally perform a service is very likely to be held to be a worker. In the most recent case of Stuart Delivery Ltd -v- Warren Augustine (2021), the Court of Appeal held that the primary question when deciding worker status was – is the individual required to perform the work personally?

Providing an individual with an unfettered right of substitution to send someone else to do the work in their place, is extremely convincing evidence to establish a genuine self-employed relationship.

Mr Augustine was held to be a worker, as despite his contract providing a right to appoint a substitute, it was found that he had no control over the process and could only mark his shift as available, in the hope that another individual already engaged with the company would volunteer to take the shift. This was held to be much more akin to member’s of a workforce agreeing to swap or cover each other’s shifts.

  • Control

The level of control that a company holds over an individual, will also be taken into consideration when determining an individual’s employment status. In the case of Uber BV -v- Aslam (2021), the Supreme Court highlighted the following factors which emphasised the level of control Uber had over its drivers, which was indicative of a worker relationship:

  • Uber keep control over remuneration, deciding how much to charge and whether to issue refunds.
    • The drivers have no opportunity to negotiate terms and sign up to standard terms and conditions.
    • Uber control what information is provided to the drivers, monitor the drivers and reserve the right to log the drivers out if the level of cancellations is held to be unsatisfactory.
    • The drivers are also not permitted to establish a relationship with the passenger to benefit their own business.

The Deliveroo model (a genuine right to substitute)

A series of court judgements, which most recently was upheld by the Court of Appeal held Deliveroo’s riders to be self-employed.

A key finding in the Deliveroo case was that the riders did not have an obligation to provide personal service, instead the riders had a right to substitute, which was found to be virtually limitless and there were no consequences if a rider substituted, or declined, a job. The only condition which limited the right to appoint a substitute was that the substitute must not have had previously had its own agreement terminated, because of a material breach of the supplier agreement. A reasonable request to say the least.

The key features of Deliveroo’s right to substitute are that the rider who originally accepts the job agrees to:

  • retain responsibility of the order;
  • arrange for the substitute to be paid (Deliveroo pay the rider and the rider can agree a different fee with the substitute);
  • complete right to work checks;
  • ensure the substitute is trained; and
  • ensure the substitute has appropriate equipment to complete the job (the driver can lend their own equipment)

There was evidence of the right to substitute being used in practice. The Court of Appeal held that the frequency with which riders exercised the right of substitution was not a material factor, what mattered was the legal relationship between the parties. However, it did recognise that how frequently a substitution clause was exercised might be relevant in ascertaining whether the right was genuine.

Looking ahead

The Deliveroo model does offer a potential blueprint to resolve the gig economies recent woes with employment status. However, the law is continuing to develop on this, and the courts have made it abundantly clear that each case will turn on its own facts.

What is of primary importance is that a business structures the relationships with its people in a way that will best serve its business. The courts will always look behind the contract, to understand how the relationship works in practice. It is therefore much more economical for a business to correctly categorise its people from the onset, and then structure the pay and benefits accordingly.

We are experienced in tailoring contracts and agreements that protect our clients and allow them to effectively manage their people. If you require any advice or support on this talk to a member of our Employment Team today.

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