A host of recent cases, including cases brought against high-profile companies including Uber, Pimlico Plumbers, Addison Lee and Deliveroo have placed the employment status of people working in the ‘gig economy’ under scrutiny, but what is the difference between an employee, a worker and a self-employed contractor, and why does it matter?
What is an employee?
There are a number of different legal definitions of what an employee is, though none are comprehensive. Probably the best explanation is that an employee is "an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment". An employment contract is a contract of service or apprenticeship, whether express or implied, verbal or in writing.
What is a self-employment contractor?
A self-employed contractor used to be loosely defined as ‘anyone who isn’t an employee’ but following the introduction of the ‘worker’ category, the distinction is no longer that clear.
A self-employed contract is best described as someone who is in business for themselves i.e. someone who is not tied to a particular employer, takes control of their own business and is responsible for its successes or failures. Usually a self-employed contractor is responsible for their own tax, but it is possible for a person to have employment status under employment law but not for tax purposes.
What is a worker?
A ‘worker’ is a category between employee and self-employed. "Worker" status reflects the view that some individuals, while not full employees who are entitled to the whole range of employment rights, are deserving of some protection
A worker is defined as an individual who has entered into or works a contract of employment, or any other contract but is not, by virtue of that contract, a client or customer of any profession or business undertaking carried on by the individual.
The definition is far from clear and certainly leaves scope for speculation, but relevant factors include whether the individual is providing a personal service, whether the employer is a customer of the individual's business, and the degree of control the employer exercises over the individual.
This definition of a ‘worker’ also covers employees, so all employees are workers, but not all workers are employees.
Why does it matter?
There has been much debate over the definition of a ‘worker’ in relation to the "gig economy", where individuals are engaged by businesses on a flexible, ad hoc basis. The categorisation of a person as an employee, worker or self-employed contractor has huge implications for both tax and employment rights. A number of high-profile cases have been heard in the employment tribunals in recent years on this subject.
The Supreme Court delivered their decision in the case of Pimlico Plumbers v Smith & Another in June 2018. The Pimlico Plumbers case represented a landmark ruling. Throughout, the Courts have agreed with Mr Smith that he was a worker because he was required to use the firm’s van when working and was contractually obliged to do a minimum number of hours per week.
In the Supreme Court’s judgment, despite a clause in the contract purporting to allow Mr Smith to send someone else to do his work in his place, the reality of the rest of the terms meant that Mr Smith was required to carry out his work personally, which limited his discretion to make decisions i.e. he was not in business for himself. The court further decided that Pimlico Plumbers were not clients or customers of Mr Smith’s, and he was therefore a worker.
In the case of Addison Lee Limited v Gascoigne on which Judgment was delivered in May 2018, the fact that the Addison Lee drivers were required to drive a specific branded car, and to adhere to strict company rules including dress code and conduct rules, meant that Addison Lee had sufficient control that the drivers could not be considered to be self-employed.
As a result, the drivers were entitled to minimum wage and holiday pay (employment rights to which workers are entitled). Addison Lee’s lawyers estimated that holiday pay for each worker could amount to £4,000, with wages yet to be calculated. The workers involved in the case estimated that the wages would amount to approximately £2.50 per hour worked for each worker. With 3,800 drivers this is likely to be extremely costly for Addison Lee!
Prior to the Addison Lee case, in October 2016 drivers for Uber brought a claim in the employment tribunals asserting their worker status, and accordingly their employment rights. Uber lost their case in the employment tribunal, and in the Employment Appeals Tribunal. It was decided that Uber exercised sufficient control over their drivers to be considered their employer. As a result, when drivers had the Uber app switched on, they were workers entitled to certain important employment law protections, including the working time (including rest breaks, paid holidays etc) and national minimum wage regulations. Uber is expected to appeal to the Supreme Court.
However, it’s not all bad news for businesses! In November 2017, a tribunal ruled that Deliveroo ‘riders’ were not workers because they have a right to ask a substitute to perform a job for them, and accordingly had no employment rights. This case highlights the requirement for the person to perform ‘personal service’ in order to be considered a worker.
These cases, as is often the case in matters relating to employment status, are highly fact-specific, meaning that in each case careful consideration of the facts of the matter are key. Importantly, the cases show that the courts will always interpret the wording of the contracts in accordance with the reality of the relationship between the parties. As Pimlico Plumbers have found out, there is no point trying to draft contracts to suggest a self-employment relationship if that is not the truth of the matter!
These decisions will provide much needed clarity for employers and employees alike. They highlight the need to give real consideration to a person’s employment status. As Addison Lee, Uber and Pimlico Plumbers have discovered, a failure to do so could be a costly mistake.
If you have any queries about employment status or anything else raised in this article, please get in touch with Charlotte Braham in the Employment Department on 01494 893 529.