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The show’s over for the gig economy

Dec 15, 2016 Mike Fitzsimmons

As 2016 begins to count down, so too does the ticking time-bomb regarding employment status.

We look at how the recent tribunal against Uber will affect employers who make significant use of agency staff, freelancers, sub-contractors or consultants.

How the gig economy disrupted the traditional model

Media references to the ‘gig’ economy (where the world of work is described in terms more relevant to a karaoke DJ) are now commonplace. Throughout the 20th century, people tended to work for one employer but the changing technologies of the 21st century have brought a more transient workforce – flitting from assignment to assignment, workplace to workplace.

Some organisations have always relied on people other than their own regular staff. Agency workers, seasonal, casual and bank staff , and the self-employed often provided ad-hoc support.

But today’s high technology workplace is wreaking havoc with the traditional employer/employee model.

Traditionally, work in the UK has been divided between three main groups. First were those the organisation directly employed. Enjoying a relationship of mutual obligation with their employer, they turned up to work and their employer paid them.

The employer exercised complete control and direction. In return employees enjoyed a package of terms and conditions, often with contractual enhancements exceeding statutory provisions.

The second group were workers; more arms-length in the employment relationship. They received basic provisions – the minimum wage, statutory sick pay and holidays but little more. Those finding work through an agency (currently estimated at close to one million in the UK) are typically classed as workers.

The third group were the self-employed.

Here there was no mutuality of obligation, control or direction. In the past, the self-employed tended to be craftsmen – builders, plumbers, electricians, decorators. You agreed a price with them and they, or someone they appointed, arrived to do the work. You didn’t control or direct them. They turned up and left when they chose.

The role of tech and apps in the employment world

With the explosion of technological innovation over the last twenty years, the line between employment and self-employment has become increasingly blurred. There is no better example than the online transportation network Uber.

In little over five years this has gone from an American start-up to a multi-national player worth billions of dollars. Uber says of itself that it is “the smartest way to get around – one tap and a car comes directly to you.” The service is app based for both driver and passenger and therefore Uber claims it is solely a technology company connecting willing drivers with eager passengers.

Unfortunately, that’s not a view shared by a recent London employment tribunal. As their damning judgement puts it:

The notion that Uber in London is a mosaic of 30,000 small businesses linked by a common platform is to our minds fairly ridiculous.

The tribunal identified thirteen major considerations which, in its view, proved drivers work for Uber, and not that Uber works for its drivers, saying:

The driver carries Uber passengers to their destination. Uber is not a client or customer of a business carried on by the driver.

And they’re not the only major technology business facing similar challenges.

HMRC recently launched a major inquiry into logistics giant Hermes and its parcel delivery drivers. Take-away food delivery company Deliveroo is facing similar challenges, and there are many more waiting in the wings. At the heart of the matter is the assertion that those providing services for Uber, Hermes, Deliveroo and the like are all self-employed.

So what does the Uber ruling mean for employers in 2017?

The ramifications of these cases extend way beyond employment tribunal claims. Uber will inevitably challenge the tribunal judgement – otherwise they must address standard employer requirements like tax and national insurance considerations, auto-enrolment pensions, holiday provisions and statutory sick pay.

It would punch a massive hole in the hull of their financial model. Following the decision, HMRC has now begun to investigate whether such companies are avoiding tax and national insurance obligations.

The House of Commons Select Committee on Business, Energy and Industrial Strategy has also waded in, launching an inquiry into the gig economy and the future world of work. It’s probing agency work, zero hours’ contracts, self-employed status and the status of workers as well as other topics.

And the Prime Minister recently expressed her concern that up to half a million Britons could be incorrectly classed as self-employed. With diminishing tax returns, HMRC and government interest in this matter may not be entirely altruistic!

Business organisations representing traditional employers are also up in arms.

They claim that gig organisations operate unfairly and there’s no longer a level playing field. For instance, London taxi drivers claim they’re being priced off the road because Uber currently unfairly avoids statutory obligations.

In the 19th century Hansom cabs dominated London’s streets. At the height of their popularity 7,500 of them plied for hire, but by 1927 there were just 12; the motorised taxi cab had replaced them all.

Now we have Uber.

So, are we just witnessing the relentless march of progress once again? Or is the gig phenomenon a more sinister lurch towards the casualisation and tax avoidance of an increasingly low pay economy?

Whatever the answer, we’re destined for a bumpy ride throughout 2017.

Contact the Moorepay employment law team to discuss your particular concerns or queries – contact the team or call 0845 619 1743.

Mike Fitzsimmons

Mike Fitzsimmons

Senior HR Consultant

Mike is a Senior HR Consultant within the Moorepay Policy Team. He is responsible for the developing of employment documentation and is an Employment law advisor. With over 30 years of senior management and HR experience, Mike has managed teams of between 30 and 100 employees and is familiar with all the issues that employing people brings. He has also served as a non-executive director on the Boards of several social enterprises and undertook a five year tour of duty as Executive Chair of a £30+ million annual turnover Government agency.