In the UK the spotlight is again on the gig economy with a joint report – ‘A Framework for Modern Employment’ – and draft Bill published by the Work and Pensions and Business, Energy and Industrial Strategy (BEIS) Committees, which aims to ‘close the loopholes that allow companies to use bogus “self-employment” status as a route to cheap labour and tax avoidance’ and which would ‘put good business on a level playing field, not being undercut by bad business’. The report seeks to build on Matthew Taylor’s Good Work Review, calling for the ‘best of the Taylor Report recommendations’ through ‘new laws’, as well as ‘much tougher enforcement, to weed out those businesses seeking to exploit complex labour laws, and workers, for their competitive advantage’.
The government’s formal response to the Taylor Report is expected in the next month or so and it will be interesting to see which of the measures set out in the draft Bill will be adopted by the government.
These recommendations are made in the same week that the government is expected to announce (in the Budget on 22 November) further measures to eradicate avoidance of income tax (PAYE) and social security (NICs) by use of self-employment models in the staffing and gig economy supply chains. This will probably involve increased liability (under an extension of the so-called IR35 legislation) for end users and intermediaries where “personal service company contractors” are paid on a self-employed basis but should not have been.
So what does this new report call for?
The report makes a number of recommendations – some reflected in its draft Bill and others which would need to be enacted via secondary legislation:
- An ‘urgent and overwhelming case for increased clarity on employment status’ met by primary legislation which emphasises ‘the importance of control and supervision of workers by a company, rather than a narrow focus on substitution in distinguishing between workers and the genuine self-employed’. Details are set out in the draft Bill.
OC Comment: There have been many discussions about this sort of measure over the last few years in many countries (not least to assist in tax collection). Many commentators feel that if it were easy to resolve uncertainty about status with new legislative wording, the UK and other countries would have implemented this sort of change many years ago. In practice this new proposed legislation may not greatly assist individuals who want clarity about what rights they are entitled to.
A ‘worker by default’ model
- The introduction of a new presumption of ‘worker by default’ for companies above a certain size, which would require companies to prove that their working practices are genuinely reflective of self-employment, or otherwise provide a ‘basic safety net of standards of rights and benefits to their workers‘. Details are set out in the draft Bill.
OC Comment: Reversing the burden of proof in status claims would present many users of gig workers and other contingent workers with some problems. Such a measure in the 2014 Intermediaries tax regime has been instrumental in closing down a number of “Sole Trader” tax avoidance arrangements.
Section 1 statements
- A duty on employers to provide a clearly written statement of employment conditions is extended to cover workers, as well as employees. The right should apply from day one of a new job, with the statement to be provided within seven days.
OC Comment: This reflects the Taylor Report call for greater transparency. Online platforms would need, if their gig workers are in fact “workers” of the end user/consumer, to put in place on their Apps formats of statements of terms.
- The government should extend the time allowance for a break in service while still accruing employment rights for continuous service from one week to one month.
OC Comment: This would present many users and suppliers of gig workers and other contingent workers with some problems, especially in industries like hospitality and healthcare where assignments are often short and intermittent.
- An obligation on Employment Tribunals to consider the increased use of higher, punitive fines and costs orders if an employer has already lost a similar case.
- Class actions should be available in disputes over wages, status and working time, reducing the chance of and opportunity for employers to simply ‘wait and see’ whether individuals are willing to risk pursuing their rights.
OC Comment: Whether the proposed class action for these sorts of claims can overcome the difficulties that the class actions in the Competition Appeals Tribunal have experienced will be keenly observed. The approach makes sense, but whether it can be implemented is another matter.
- No legislation should be introduced which undermines the National Minimum Wage or the National Living Wage.
- The government should work with the Low Pay Commission on a pilot for workers who work non-contracted hours to be paid a premium on the National Minimum Wage and the National Living Wage. The Low Pay Commission would be responsible for identifying suitable companies for the pilot, based on workforce size and turnover. Details are set out in the draft Bill.
- The so-called ‘Swedish Derogation’ loophole that enables agency workers to be paid less than permanent employees doing the same job must be closed.
- Companies should guarantee hours that reflect periods worked each week or compensate workers for uncertainty.
OC Comment: The importance of the NMW / NLW have been emphasised and it is clear that it will become further entrenched in UK law. Some of these measures are complex and we would expect them to require a long period of consultation before they could be implemented.
- People on worker contracts, as well as employees, should count towards the 50 workers needed before a company is covered by the Information and Consultation of Employees Regulations; the threshold for implementation of the regulations should be reduced from 10% to 2% of the workforce.
OC Comment: It would be interesting to see how this proposal, in which Matthew Taylor is thought to believe strongly, would play out in relation to workers supplied via third party staffing companies. Would end users have to consult with those workers?
- The government should bring forward stronger penalties, including punitive fines, for repeat or serious breaches of employment legislation.
- ‘Naming and shaming’ should be expanded to all non-accidental breaches of employment rights by businesses and supply chains.
- The government should provide the Director of Labour Market Enforcement and the main enforcement agencies with the resources necessary to undertake both reactive and proactive roles, including deep-dives into industrial sectors and geographic areas, and supply-chain wide enforcement actions. Extra resources needed should be funded through higher fines on non-compliant organisations.
OC Comment: Whilst the average NMW fine may be low, the increased cap on fines of £20,000 per worker has already got the attention of companies. Further fines may get some headlines, but whether it would drive compliance is another matter. As with many things, better and clearer education would definitely assist.
We believe that the Director of Labour Market Enforcement and Matthew Taylor both believe that supply chain abuses will not be eradicated unless end users/hirers are jointly liable with intermediaries for all breaches of employment laws in relation to gig workers and other types of contingent workers. We expect more proposals of this nature in coming months.
So what next?
Whilst recognising the demands of Brexit, the report stresses that the government must ‘seize the impetus the Taylor Review has created to improve workers’ lives’ and ‘not allow addressing urgent issues in Britain’s labour market to fall by the wayside’.
We now await the 22 November Budget statement about tax changes in this area, and the government’s formal response to the Taylor review on modern working practices, expected before the end of this year. This report and draft Bill will inevitably be factored into that response, as will the Budget announcements. Employment status is also a current issue for our courts – we await the outcome of any appeal by Uber against the recent Employment Appeal Tribunal (EAT) decision (which upheld an earlier ET decision that the claimant drivers providing services via the Uber app were workers and, as such, entitled to minimum employment rights); and a further gig economy case is due to come before the EAT within the next couple of weeks. Early 2018 will also see the Supreme Court looking at employment status in the Pimlico Plumbers case.
In the meantime, businesses operating in the gig economy and using contingent workers of all types are unlikely to revert to traditional employment models but rather will continue to develop and adapt their staffing structures to ensure their business works the way they want it too. Indeed, it is important not to lose sight of the flexibility that the gig economy brings for many individuals. The challenge the government must now answer is how to protect those individuals who are vulnerable whilst enabling businesses operating on traditional, new and developing platforms to compete on a level playing field.