Anna Birtwistle and Clare Murray, CM Murray LLP
CM Murray’s Anna Birtwistle and Clare Murray explore the development of the “gig economy”, particularly in relation to Uber, and the difficulty of adapting traditional labour law classifications to this new business model.
From the tech hub of Silicon Valley, to the Loire Valley, to the rural valleys of Wales, the explosion of the so-called gig economy (otherwise known as the on-demand or sharing economy) has changed the way we live, the way we make purchases and the way we work. In the UK it is reported that an estimated 1.1 million people work within the gig economy and across the EU15, the number of so-called “independent earners” (working autonomously and paid per task) is reported to stand at between 60 million and 94 million. In the EU as a whole, gross revenues from the sector reached £21.6 billion in 2015 and it is predicted that in the UK alone the value of the gig economy will rise to £9 billion by 2020.
While the evolution of gig-businesses continues apace – from on-demand taxis to private jets, “task-rabbits” to on-demand medical services – the law in the UK and across Europe struggles to apply traditional classifications of the employee and the self-employed to the growing number of individuals engaged within this self-professed disruptive business model.
It is certainly a business model that has provoked intense debate, with some commentators labelling the working relationship as exploitative and designed to deny vulnerable and poorly paid individuals the rights and protections to which they should be entitled by law. Conversely, advocates of the model see it as innovative rather than exploitative, with drivers enjoying benefits such as flexibility and autonomy, and services being available to customers more cheaply as a result.
Since its launch in 2009, the poster-child of the gig economy, Uber, has attracted worldwide attention for its seemingly never-ending multi-jurisdiction litigation. While that litigation has included (but is not limited to) matters of regulatory and competition law, it is the question of employment status that has gone not only to the heart of Uber’s business model but also to the model of the gig economy itself.
Uber, in common with other on-demand companies, classifies its workforce as self-employed, in particular relying upon the flexibility of drivers to choose when they want to work. With that fundamental concept under attack across the world, many have questioned whether employee classification may mark the death knell for on-demand businesses as we know them, or at the very least a reimagining of those business models.
In this article we will review the latest developments in the UK dealing with employee classification, together with a brief comparison of other jurisdictions within Europe.
So far in the UK the law has come down heavily in favour of protecting the individuals working in the gig economy; a plumber, a group of Uber drivers and a number of bike couriers have all been successful in achieving findings that they were not self-employed and rather, should have been classified as “workers” (on which more below).
In October 2016, Uber drivers in the UK were granted worker status in the widely reported case of Aslam v Uber BV and others ET/2202550/15, now the subject of an appeal to be heard in September 2017. The 19 drivers in that case, backed by the GMB union, brought a collective action against Uber for breaches of the national minimum wage and failure to provide paid leave, as well as for whistle-blowing detriment in the case of two drivers. To succeed in each of those claims, the drivers were required to establish that they fell within the “worker” definition contained in the Employment Rights Act 1996.
Uber was unsuccessful in arguing that the drivers were in business on their own account. Uber’s proposition that it was simply a technology platform linking a mosaic of some 30,000 small businesses was deemed “faintly ridiculous” by judges. The decision against Uber focused on the factual reality of the relationship between the drivers, Uber and its end-customers, and was extremely critical of what was described as a deliberate twisting of the legal position through complex and convoluted contractual documentation. In reaching its decision the employment tribunal reflected on the extent of control exercised by Uber in relation to recruitment, choice of vehicle, setting of default routes and the cost of fares. In addition, the conditions imposed on drivers, including the ability for Uber to suspend the app where assignments were declined, together with the customer rating system, were found to be akin to disciplinary and performance management procedures.
The Uber case was followed in quick succession by two cases brought against on-demand companies providing bicycle-courier services (Dewhurst v Citysprint UK Ltd ET/220512/2016 and Boxer v Excel Group Services Ltd ET/3200365/2016), both of which have applied the tribunal’s reasoning in the Uber case in finding for the individuals. Further cases against courier companies are reported to have been lodged against Addison Lee, Hermes, DX and UK Express at the time of writing.
Notably, two additional cases are reported to be pending in the employment tribunal against Deliveroo, the food delivery firm, and The Doctors Laboratory, a provider of pathology services for the NHS, which go one step beyond the preceding cases in seeking to gain employee (rather than simply worker) status for the couriers. At the time of writing, Deliveroo is also awaiting the ruling of the Central Arbitration Committee (the body responsible for recognition of trade unions in the UK) which will determine the employment status of a group of riders in North London, and in doing so establish whether those riders can form a union for collective bargaining purposes.
While the cases above have all been decided in the first-tier employment tribunal (which is not precedent-setting), the case of Pimlico Plumbers Ltd and Mullins v Smith  EWCA Civ 51 in January 2017 took the question of employment status to the Court of Appeal and, following the trajectory of cases before it, was decided in favour of the individual gig worker. Particularly notable in this case was the fact that despite the claimant plumber being permitted to pass on individual jobs to other plumbers engaged by Pimlico Plumbers where he found more lucrative work elsewhere, he was still deemed to be sufficiently integrated in the business, and subject to the company’s control, so as to establish worker status.
It is a significant decision not only from the perspective of having been determined in the Court of Appeal but also because it applies the worker test to quite a different type of individual who, unlike the drivers and couriers before him, was exercising a skilled trade in return for significant remuneration and was arguably in a stronger position of bargaining power than in those other cases. While each case will, of course, be determined on its own set of facts, it does therefore seem to demonstrate a willingness of courts to look behind contractual documentation and apply a generous interpretation of worker status to individuals working in on-demand business models.
While many facets of employment law will differ significantly from country to country, international employment lawyers tend to readily recognise the tests of other jurisdictions as they apply to employment status. Common considerations exist whether one is looking at common law or civil jurisdictions and focus on factors that include the level of autonomy of the individual providing services, the control exercised by the putative employer and the extent of integration into the business.
In the UK the position regarding classification is somewhat more nuanced than in those countries operating with a strict employee/independent contractor dichotomy, having three potential classifications: the self-employed; the worker; and the employee.
These classifications can be viewed as a spectrum, both in terms of the definitions themselves and the extent of statutory protections that attach to those definitions. At one end of the spectrum there are the genuinely self-employed, with very few rights; and at the other end is the employee with a full set of statutory rights. In the middle sits the worker who satisfies some but not all of the criteria required of an employee and consequently has some but not all employment protections. Key benefits to which a worker will be entitled include, among others, paid annual leave and rest breaks, national minimum wage, and whistle-blowing protection. By contrast, workers will not have the full protection afforded to employees, such as protections against unfair dismissal and the right to maternity leave and pay (without limitation).
Across Europe there is no uniformity to employee classification. Spain, like the UK, adopts a third category status for the “economically dependent autonomous employee”, defined as a person who regularly and personally carries out a professional activity for one client, from whom he or she receives at least 75 per cent of his or her income. Germany, by contrast, adopts distinctions for executive staff holding significant managerial powers and notably does not permit board directors to be classified as employees. In France, while there are clear distinctions between employees and the self-employed, a specific classification exists to cover employees working under an umbrella company for the purpose of performing services for the business clients of the employer.
Other European jurisdictions, much like the United States, only distinguish between the employed and self-employed. For example, Ireland, Italy, Portugal, the Netherlands and Switzerland all categorise individuals into one of two camps; but each has distinct tests in that regard. In France and Portugal, the presence of a relationship of subordination is key to identifying employee status. Similarly, in the Netherlands there has to be a relationship of authority, an obligation for the employee to personally carry out the agreed work and the payment of a salary to establish employment status. Swiss law, by contrast, places a particular focus on the individual’s integration into the working environment of the employer.
Across mainland Europe the on-demand business model continues to face legal resistance to the categorisation of its workforce as self-employed. In France, arguably one of the most protective employment law systems in the world, litigation is ongoing against Uber, which is being sued in the Social Security Court by the Payroll Taxes Collecting Entity claiming that the drivers should be considered to be employees.
Aside from litigation, various jurisdictions are addressing the issue of gig economy workers through legislative reforms. This includes includes tougher sanctions being proposed for “false self-employment” in Germany, and amendments being made to Portuguese legislation to allow the relevant state authority to trigger administrative proceedings where there is evidence of misclassification, with the potential for fines of up to €61,200 per misclassified individual to be issued against the offending company. The UK government is likewise reviewing legal aspects arising from the growing gig economy, including through parliamentary inquiries focused on the modern workplace and the adequacy of the UK welfare system for self-employed and gig workers, as well as through renewed focus within the tax authority on misclassification.
In addition, some jurisdictions, including France and Germany, have introduced criminal penalties where an intention can be shown on the part of the employer to misclassify the individual. These include fines for both natural and legal persons (up to a maximum of €1 million in Germany and €225,000 in France for legal persons), prohibition on conducting a particular business activity and even the possibility of imprisonment for individuals involved in the misclassification.
While some commentators have been quick to ring the death knell for on-demand businesses operating in Europe, it would appear that the most likely short-term response to employee classification issues will simply be the adaptation of on-demand business models with the additional cost of employment protections (as well as increased tax liabilities) ultimately being passed on to the consumer.
The more pertinent question raised by the gig economy in the context of employment law, however, may take longer to answer; that is, whether a significant overhaul of traditional employment classifications is required to better reflect the modern working world. In this regard, while we await the much-anticipated publication of the government-commissioned Taylor Report on this very issue, it is worthwhile taking heed of the judicial distaste demonstrated in the Uber case for contracts contrived by “armies of lawyers” that “misrepresent the true rights and obligations on both sides” when we are advising our clients.
Finally, looking ahead a little further, it is perhaps worth noting that in the not-too-distant future the question of employee classification may become academic for large segments of the gig economy. With Uber investing heavily in driverless cars, Amazon testing drone delivery and the predicted growth of AI in the workplace, the law may soon be grappling with what legal rights robots should have – never mind the employment status of the individual driving you home this evening.