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Self-employed v workers – what is the impact of the Uber decision?

Employment contract, with terms of employment section Print publication

11/11/2016

The recent Employment Tribunal ruling that Uber taxi drivers are not self-employed but are, in reality, ‘workers’ (entitled to employment rights such as the national minimum wage and paid holiday) has sent shockwaves through many business sectors. Companies who use the services of self-employed individuals or contractors need to assess their exposure in this field to avoid similar claims.

Our specialist employment team has been following this case closely and in this article we consider:

  • Why the ‘self-employed’ Uber drivers were held, in law, to be workers.
  • What action businesses can take to assess the impact of this decision on their operations.

Uber’s business model

Uber has around 40,000 taxi drivers in the UK. It connects customers to drivers via an app. The customer pays Uber and Uber then pays a percentage of the fare to the driver.

Uber’s contracts with its individual drivers state that they are self-employed. This means that Uber treats its drivers, in effect, as running their own businesses.

What did the drivers claim?

The GMB union brought two test cases in the Employment Tribunal on behalf of two Uber drivers. The drivers said that their written contracts did not reflect the reality of their situation and claimed that they were not self-employed. Instead, the drivers claimed that they should be classed as ‘workers’ which gives them certain legal rights.

What rights do workers have?

‘Workers’ do not have as many rights as employees. For example, workers cannot claim unfair dismissal or statutory redundancy pay. However, workers are entitled to key rights including:

  • the right to be paid the national minimum wage (or national living wage if they are over the age of 25);
  • the right to take 5.6 weeks’ paid holiday per year;
  • a limit on their weekly working hours of 48 hours per week (unless they opt out); and
  • the right to auto-enrolment into a pension scheme with minimum employer pension contributions.

How did the Tribunal decide that the drivers were ‘workers’?

Uber argued that it was a mere technology company and not a taxi company. Uber’s main arguments were that:

  • it uses an IT platform to ‘hook up’ customers with available drivers in their area;
  • its drivers were free to choose when they wanted to accept work; and
  • they were not exclusively required to work for Uber.

The drivers argued that Uber exercises a significant amount of control over them on day to day basis including:

  • fixing the amount they could charge a customer;
  • controlling the manner in which they conducted their work (such as the routes that they could take); and
  • imposing disciplinary sanctions if they broke ‘the rules’.

The Employment Tribunal considered the arguments and found that the drivers were indeed workers rather than self-employed individuals.

Why did the Tribunal decide in favour of the drivers?

The Tribunal focuses on the reality of the day to day relationship between the company and the individual, rather than on the label placed on the relationship under the written contract between them. The Tribunal decided that Uber’s contract with its drivers stating that they are self-employed did not match the reality of the situation. The key reason for the Tribunal’s decision was their view that Uber had a higher degree of control over its drivers than you would normally expect in an arm’s length relationship.

This is a complex area of law and there have been many cases dealing with the issue of whether an individual is self-employed, a worker or an employee.

Uber has confirmed that it will appeal the decision and any appeal hearing is likely to take place in early 2017.

This could have huge implications for the growing ‘gig economy’ – what does the Government have to say about it?

Clearly, this decision does not tick the ‘business-friendly’ box. The Government  recently announced an independent review of modern working and employment practices. This review is part of a wider trend of government intervention, following the Government-instigated inquiry into working practices at Sports Direct. Please see our recent article for further information.

A spokesman for the Department of Business, Energy and Industrial Strategy said: “The Government is committed to building an economy that works for all. We are keen to ensure our employment rules keep up to date to reflect new ways of working, and that’s why the Government has asked Matthew Taylor to conduct an independent review into modern working practices.”

These issues will not just affect business – it goes without saying that any increase in the bottom line cost of engaging staff will be passed on to customers.

What claims can workers bring?

Once an Employment Tribunal has determined that an individual who was previously labelled ‘self-employed’ is in fact a ‘worker’, they can bring claims for:

  • breach of contract in respect of a failure to pay the NMW.
  • unlawful deductions from wages in respect of unpaid holiday pay and/or the NMW.
  • other breaches of the Working Time Regulations such as failure to provide rest breaks.

As well as bringing claims relating to previous service, an individual can also ask the Tribunal for a declaration that they are a worker and are entitled to be paid the NMW and receive paid holiday in the future.

What other risks are there?

If an individual is found to be a worker, the company contracting with them may also be exposed to regulatory issues including investigation by HMRC for failing to pay the national minimum wage. Penalties for such failures could include fines of up to £20,000 per worker and being ‘named and shamed’ on a government website. Serious breaches may also lead to individual company directors being disqualified.

What should you do if you are concerned about the impact of the Uber decision?

Uber have announced that they will appeal this decision so there will be more decisions to follow before this case is over.

In the meantime, we can help you to assess any risks that you may face around the status of your staff and the potential impact of the Uber decision on your business.

We would advise taking steps including:

  • Reviewing your current written and day to day arrangements with self-employed individuals, such as independent contractors or consultants. We strongly recommend that your solicitors are involved in this review to ensure that any documentation that is prepared as part of this review is covered by legal privilege. Otherwise, any review documents that you produce could be shared in a future claim.
  • If your business has a high risk of claims, you should take legal advice sooner rather than later to establish what your options are. You may wish to make some financial provision against the risk of future claims.
  • If you don’t already, keep records on all self-employed individuals working for you including the number of days and hours worked per week, what they have been paid and whether they have provided any substitutes if they are unable to provide the services themselves. There are other factors that you can record too such as whether they use their own equipment, the extent of their autonomy over working hours/tasks and so on. This could well turn out to be essential evidence in any future claim.
  • Consider how you might respond if anyone argues that they, like the Uber drivers, are workers and entitled to the legal rights that apply to workers.

The Walker Morris team has significant experience of advising on issues around employment and worker status and the best strategy for avoiding claims based on employment or worker status.

If you would like to discuss any of the issues raised in this article please contact David Smedley or Andrew Rayment.

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