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Does the rise in the “on-demand” economy mean we need to reassess employee / contractor / worker status on both sides of the Atlantic?

Does the rise in the “on-demand” economy mean we need to reassess employee/contractor/worker status on both sides of the Atlantic?

Legal disputes involving Uber – the San Francisco based company connecting 1.1 million drivers worldwide to passengers through a smartphone app – are gathering apace on both sides of the Atlantic.  The respective arguments raised before the courts are likely to be watched with interest by the growing number of businesses and individuals operating in the on-demand economy on both sides of the Atlantic as two very different employment law systems seek to grapple with the competing interests of innovative new business models and supporting the rights of individuals operating within these new economic environments.

We understand that in the US, the legal debate is broadly divided between whether an Uber driver can be classified as an employee (which several Uber drivers have successfully argued) or, as Uber argues, an independent contractor (self-employed individuals hired for specific services).

In June this year, the California Labor Commissioner’s Office, determined that one of Uber’s drivers was in fact an employee (Berwick v. Uber Technologies, Inc.).  California is not alone in considering these issues: a number of states in the US have classified Uber drivers as independent contractors and a class action on the issue is currently progressing through the US legal system (O’Connor v. Uber Technologies, Inc. et al.,).

What is the position in the UK?

Unlike the US, in the UK, an additional status is potentially available to Uber claimants:  that of a “worker” (as opposed to the employee/independent contractor dichotomy in the US).

The UK’s GMB Union recently lodged the first claims in the UK to seek to establish that Uber drivers are “workers” rather than self-employed contractors.  Uber describes its drivers as  “partners” of the business (applying the common understanding of the word, rather than legal) and even “customers” of the technology it provides, meaning that, in their view, they are not required to guarantee certain minimum legal rights under UK law.  Four cases have so far been submitted to the London Central Employment Tribunal with more likely to follow.

“Worker” status as an UK concept

A “worker” is essentially an intermediate class created by statute sitting somewhere between an employee who works under a contract of employment (i.e. a contract of service) and an individual who runs his own business.

“Worker” status was a trade union concept initially created by UK statute in the early 1990s and which has been adopted in a number of UK statutes since (particularly since the 1997 Labour Government was in power).  The definition of “worker” most relevant to the Uber dispute (there are other definitions depending on the statute in question) is set out in s 230 (3) of the Employment Rights Act 1996. Broadly, a “worker” is defined as an individual who works under either:

  • A contract of employment; or
  • Any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.

The above same (or similar) definition is used in other regulations which give workers minimum rights.

How to determine “worker” status?

In the UK, the courts have considered a number of “worker” cases. The exact issues considered will depend on the statute in question, but set out below are some issues the UK courts may look at to determine “worker” status:

  • Personal service – whether an individual contractually undertakes to personally perform work or services (although a limited power of substitution is not inconsistent with the obligation to provide personal service).  However, if those services are provided by the individual as part of a business undertaking and the company to whom personal services are being provided is in effect the customer, the individual will not qualify as a “worker”.
  • Business undertaking – in determining whether the individual is carrying on a business undertaking  as opposed to providing services in a subordinate or dependent position vis-à-vis the company, the courts may look at issues such as the level of integration into the company; independence i.e. choosing how and when they work; involvement in company procedures (e.g. policies and appraisal systems); payment for when not in work; and specialist skills which give the individual greater bargaining position in the workplace.
  • Mutuality of obligation – akin to the test to establish employee status, mutuality of obligation must also exist between an individual and their “employer” for a person to fall within the intermediate definition of “worker”.
  • Services – whether the individual actively markets to the world in general (an indicator of self-employed status) or is recruited by a “principal” to work as part of business operations.

Previous examples of “workers” have included: self-employed labourers working as sub-contractors in the building industry, members of a limited liability partnership (see our news alert here for further information on LLP member “worker” status), a doctor providing services to a private cosmetic clinic once a week and a salesman who earned commission from referrals.

What does “worker” status mean in practice?

UK “workers” have less extensive rights than UK employees (i.e. no right to claim unfair dismissal, entitlement to statutory sick pay or the full range of family friendly rights etc) but many of the UK’s statutory employment protections do extend to workers, including  working time rights (i.e. paid annual leave, rest breaks, limits on a maximum working week), the national minimum wage, protection from unlawful deduction of wages, whistleblower and part-time worker protections, amongst others.

In the UK, the GMB Union argue that Uber’s drivers are not genuinely self-employed and therefore have worker rights including in respect of the national minimum wage and the right to paid holiday.  Uber denies such rights as they regard their drivers to be  self-employed.

Summary

Employee (mis)classification remains a hotly contested issue on both side of the Atlantic. The continued rise of the on-demand economy, typified by Uber, TaskRabbit and others, will only make this problem even more pressing as courts – both here and in the US – are required to deal with the evolution of working arrangements brought on by this new form of economy.

While any departure from the distinct two camps of employment and self-employment would probably be met with much ressistance in the US, it will be interesting to see whether the growth of the “gig” or “on-demand” economy could lead the US to consider the possibility of an intermediate form of working relationship (like that of “worker” in the UK / EU), as a means of addressing the competing needs for protection of working individuals without putting economic innovation into reverse.  We will keep you updated with further legal developments in this area as they emerge.