If your business relies on self-employed contractors or you use the services of self-employed individuals on a regular basis, you may have felt a degree of apprehension following the recent Uber and CitySprint cases. Both cases concerned individuals engaged on a self-employed basis in the burgeoning "gig economy". In each case, the "self-employed contractor" argued that they were, in fact, a worker and the employment tribunal agreed.
There are many other companies operating within the gig economy with business models based on self-employed individuals providing flexible services but which don’t incur employment costs (such as the national minimum or living wage and holiday pay). Of course, self-employment is nothing new and is not unique to the gig economy. In many disparate areas of industry, it is common to find individuals working for a business on a self-employed basis. For many of those individuals, working self-employed has benefits for them in terms of flexibility and taxation. But, potentially, where there are individuals working within any business, on a self-employed basis, providing regular service, there is a risk that they could claim to be workers.
Why does it matter?
Self-employed individuals are not entitled to any of the employment rights which benefit those classed as workers. These include:
5.6 weeks of paid holiday each year;
the national minimum and living wage;
a rest break if their working day is over
6 hours long;
daily and weekly rest;
a maximum working week of 48 hours.
These rights are quite extensive and could increase your business costs significantly if someone you engaged on a self-employed basis later successfully argues they are a worker.
So, self-employed or worker?
Unfortunately, the issue of whether an individual will be regarded by an employment tribunal as a worker or as self-employed is not always straight forward; and the labels the parties give to themselves and their taxation status, is not determinative. Individuals who are genuinely in business on their own account, who take the risks of the business not being a success, who provide all their own equipment, have their own insurance, raise invoices and have a right to provide a substitute, are likely to be classed as self-employed.
But where these matters are not so clear cut, the issue becomes more uncertain. The Employment Rights Act, Working Time Regulations (and the national minimum wage, and part-time workers legislation) defines a worker as someone who works under a contract “whereby the individual undertakes to do or perform personally any work or services for the other party” (so long as that other party is not a client or customer of any business undertaken by the individual).
Over the years, the Employment Appeal Tribunal has clarified that various factors must be considered when considering worker status. These are:
Personal service (a limited right to provide a substitute will not necessarily defeat a claim but an unfettered right to provide a substitute provided that it is not a sham will);
Not carrying on a business undertaking (a tribunal will consider, among other things, the degree of control between the parties, who is taking the risk and, the duration and exclusivity of the relationship);
Mutuality of obligation;
Whether the individual markets his services generally.
What to do
At the outset, consider what work or services you need an individual to perform or provide. Do you need to be in control of how and where the work is provided? Can they genuinely provide a substitute (and will this be an unfettered right)? Above all, remember that the labels the parties attach to themselves and even the contractual terms are not always determinative and a tribunal will seek to ascertain the realities of the relationship. If you cannot properly consider yourself to be the individual’s client or customer because of the nature of the relationship you need, be aware of the risk and consider engaging them as a worker or reviewing your business model.
