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Worker Misclassification and Employee Status in Focus: Innangard Report & Uber-flexibility article

Who do they think they are?  We take a more in depth look at employment status
Worker Misclassification: The Innangard international report focuses on the issues and consequences of worker misclassification in nine key jurisdictions.  Find out more here.
Article: Is the “gig” up for Uber-flexibility under UK employment law? Sarah Chilton and Wonu Sanda consider the implications of the UK Employment Tribunal’s judgment in the recent “Uber” case, including whether or not warranties and contractual indemnity provisions relating to status in driver contracts are likely to be enforceable.
Innangard International Report on Worker Misclassification in Nine Key Jurisdictions

The latest report from Innangard, the international employment law alliance of which we are a founding member, focuses on the issues and consequences of worker misclassification in nine key jurisdictions and is available to read here.

This report covering Australia, England, France, Germany, Ireland, Italy, the Netherlands, Spain and Portugal takes a cross-border look at each of the following:

  • employee and worker status, including the criteria for classification of employees and workers;
  • worker protections against misclassification;
  • civil, criminal (where applicable) and tax consequences of misclassification;
  • recent developments and cases in each country;
  • top tips to address misclassification risks in each country.
Find out more here.
Is the “gig” up for Uber-flexibility under UK employment law?

Most people will be familiar with Uber, the app which allows users to order a taxi directly from their smartphone.  The passenger pays via their account, which is linked to their credit card.  The drivers can accept or reject the trips and can choose how often, when and for how long they work.  It provides flexibility for both driver and passengers, which has been hailed by many as the reason for its huge success and growth in the last few years.

The Employment Tribunal in London recently handed down the much awaited judgment in the case involving Uber drivers.  Nineteen drivers had brought a claim under the Employment Rights Act 1996 (ERA), the National Minimum Wage Act 1998 and the Working Time Regulations 1998, alleging a failure to pay the minimum wage, and a failure to provide paid leave.  Two of the claimants also complained that they had suffered a detriment on the grounds of whistle-blowing, under ERA.

To succeed in any of these claims, the drivers first had to establish that they were “workers” within the definition in ERA.  There was a preliminary hearing on 19 July 2016 to determine the status of the drivers.   The tribunal found that the drivers were workers, opening the door to a host of statutory employment rights.

The Employment Spectrum

Under UK law an individual can be categorised as self-employed, a worker or an employee.  You might think of this definition like a spectrum, both in terms of the definition itself, and the statutory rights which it brings. Genuinely self-employed at one end: where the individual has few rights, does not satisfy any of the criteria for a worker or an employee; and employee at the other end: where the individual satisfies a material amount of the “employee status” criteria and gets the full set of statutory employment rights.  Then there is the worker, sitting in the middle, who satisfies some of the criteria, but not enough to be an employee, so gets some of those rights, but not as many as an employee.

A worker is defined under section 230(3) ERA as an individual who has entered into or works under:

  • 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.
This definition of a worker applies not only to relevant worker rights under ERA, but also to worker rights under the National Minimum Wage Act and the Working Time Regulations, which together cover key entitlements including (without limitation):
  • paid annual leave;
  • a right to daily and weekly rest breaks;
  • protection from detriment as a result of whistle-blowing; and
  • the right to be  paid the national minimum wage.

Under the Equality Act 2010, which has a slightly different definition of worker, a worker would also be entitled to protection from unlawful discrimination. In practice, if someone satisfied the definition of a worker under ERA, then they are quite likely to satisfy the definition under the Equality Act, although whether that would work in reverse may not be so clear.

Incidentally it has been argued by some commentators that such workers may also attract protection under other legislation, such as the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).  This applies a wide definition of “employment” and defines an employee as any individual who works for another person, whether under a contract of service or apprenticeship or otherwise and whilst there is no case law, it is likely that this would include “workers” (under section 230(3) ERA).  The Equal Pay Act already allows those who are “employed” under: a contract of service; a contract of apprenticeship; or a contract personally to do work to benefit from its protections.  Workers (under section 230(3) ERA) and even some self-employed people whose contracts require personal performance of the work may potentially equally benefit from these protections.  This is an issue generally likely to be an area for further development in case law in future.

So, the tribunal’s decision in Uber was going to be critical, not just for Uber and the two drivers named on the claim, but most likely for many other Uber drivers and individuals working for other businesses in the “gig economy” who may now be able to argue that they are workers with the set of rights that entails.

Worker status: an Uber driver’s route from A to B 

The judgment in the case contains an illuminating analysis of how Uber operates in practice. The driver does not know the passenger’s destination until they pick them up. Uber determines the route that the driver should take, and departures from this route are forbidden and may have adverse consequences for the driver.  Further, Uber calculates the fare for the trip, taking account of time and distance covered. Surge fares are applied when demand for Uber outstrips supply. Drivers can agree lesser fares with passengers, but cannot charge more than the fare set by Uber and were a driver to charge less, Uber would still be entitled to charge its “Service Fee” calculated on the basis of the recommended fare.

Uber prepares an invoice which is sent to the driver, but this paperwork does not go to the passenger; the passenger has in fact already paid the fare. Uber then pays drivers weekly the amounts they have earned, less a service fee which is now 25% of the fare.

If a passenger complains that they have been overcharged, Uber makes a decision whether to issue a refund or other compensation to the passenger. Often the driver is not told about this, and not given a chance to dispute any refund given to the passenger.

Terms exist between Uber and the driver, and Uber and the passenger.  Drivers may not be replaced with substitutes and the right to use the Uber App is non-transferrable. There was evidence produced at the tribunal that Uber drivers must attend induction sessions and, although it was denied by Uber, that there was any form of interview, there was reference to an email issued by Uber inviting prospective drivers to “Book an interview slot NOW!”

There are also certain provisions which apply in the arrangement between Uber and the driver which tend to show a degree of control by Uber over the driver’s conduct, by way of example, if a driver declines three trips in a row they may be liable to be forcibly logged off the App by Uber for 10 minutes.

Despite these employee-like indicators the tribunal came to the view that Uber drivers are under no obligation to switch on the App, and therefore when the App is switched off there can be no question of any contractual obligation on a driver to provide services, which is a necessary feature of the relationship between an employer and an employee. Further it decided that there is no “umbrella” contract that could link the contractual obligations entered into by the driver with Uber in respect of each individual trip so as to create an overarching employer-employee relationship.

At the other end of spectrum, it was found that Uber drivers are responsible for all costs incidental to owning and running the vehicle including fuel, repairs, maintenance, MOTs, road tax and insurance. If the driver does not have their own smartphone, a smartphone can be hired from Uber for £5 a month (but they are modified so they can only be used for Uber). Although this may weigh in favour of independent contractor status, the tribunal did not consider it definitive and were struck by how far Uber had gone to try and match its description of what happens with its analysis of the legal relationships between it, the driver and the passenger. Quoting Shakespeare in Hamlet, and with reference to the evidence of Ms Bertram, Uber’s Regional General Manager for the UK, Ireland and Nordic Countries, the Tribunal said “The lady doth protest too much, methinks.”

However, of key importance, the tribunal found that once the App was switched on and the driver was within the territory in which he or she was authorised to work they were able to accept assignments. It was not in dispute that the drivers had to provide their work personally, and ending up in the middle of the spectrum the tribunal found that the Uber drivers provide that work pursuant to a contractual relationship which fell within s230(3) of the ERA: one of a worker and with the usual worker entitlements mentioned above.

Additionally the tribunal found that many other features of the contractual relationship reinforced the claimants’ case that the organisation runs a transportation business and employs drivers as its workers. They found that Uber markets a product range and they were not satisfied that the product range belonged to any of the drivers. The tribunal also agreed with the recent decision of the North California District Court involving Uber that Uber “sells rides”.

The next stop

So what is next? Is this the death-nail of the “gig economy” in the UK?  What of Deliveroo, Amazon restaurants, Hermes couriers and others?  There is no doubt that many drivers are attracted to Uber by the flexibility they offer but is there any reason why flexibility and worker protections should be mutually exclusive? Indeed, it is likely that many of those drivers would greatly benefit from the national minimum wage, paid holidays and rest breaks.

It may be that in an attempt to circumvent the effects of this new ruling, other gig economy companies may seek ways to discourage individuals who work for them from asserting worker status and bringing statutory worker claims. Two means adopted so far which we have seen include inserting in the contract with the individual:

  1. a warranty, whereby the contractor promises not to bring any claim alleging worker status in the employment tribunal or civil courts.
  2. an indemnity against any costs incurred by the company should the contractor bring a claim alleging worker status.

It was reported earlier this year, that Deliveroo have such provisions in their contracts (https://www.theguardian.com/law/2016/jul/25/deliveroo-workers-contracts-ban-access-to-employment-tribunals).

A company may seek instead that their contractors provide an undertaking, in effect a promise, that they will not bring any claims.  However it is doubtful whether such a warranty or undertaking would be enforceable. A warranty or undertaking is likely to fall foul of the restrictions on contracting-out of statutory employment rights other than by way of an ACAS settlement or a settlement agreement (which would require amongst other things that the individual take independent legal advice before waiving their rights and that the agreement relate to particular proceedings; this would not be satisfied by the inclusion of a general waiver of rights that may be pursued on the basis of worker status).

Additionally, it is likely that an indemnity for the company’s costs, should an individual sue on the basis of worker rights would be seen as an unenforceable penalty clause, that is, a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. This is particularly the case given the unequal bargaining power between the parties in a ‘gig economy’ Uber-like relationship and the likelihood that a court would be loath to agree that avoiding liability for statutory worker’s rights was a “legitimate interest” that could be protected in this way in the first place.   Further, workers (together with employees) have a statutory right not to suffer a detriment for exercising their rights under the Working Time Regulations 1998 and the National Minimum Wage Act 1998.  The enforcement of such an indemnity could in itself be regarded as an unlawful detriment, contrary to the provisions contained in these pieces of legislation.

You might then wonder why any “gig economy” company would have included such terms. It is possible that they hoped the term would act as a psychological deterrent to the drivers, but it is understood that nonetheless worker claims are in the pipeline against at least one if not more of gig economy companies using such provisions.

Uber have indicated that they will be appealing this judgment so the story may not end here.  However, for the time-being, and if Uber lose any appeal, the flexibility which is such a large part of the attraction of these Uber-like relationships, may be curtailed by UK employment law.  It is possible the Government will acknowledge that this area of the law is ripe for review. Interestingly though, other countries such as the USA are looking sidelong at worker status, with its more limited set of statutory rights compared to employment status, as an alternative solution to the binary employed/self-employed approach in their own country. Watch this space.

CM Murray LLP are employment and partnership law experts and regularly help businesses manage the various risks associated with worker or employee misclassification.  For more information, please contact Sarah Chilton or Wonu Sanda, or your usual contact at CM Murray LLP.

We are a founder member of Innangard, an international employment law alliance which brings together leading employment law specialists from around the world to collaborate on international and cross-border employment law and HR issues.   For more information click here.
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