The rise of the gig economy and worker status

Wednesday, 22nd February 2017

In recent years we have seen the explosion of start-ups operating in the gig economy, such as Deliveroo and Uber. The gig economy is a way of describing the business model whereby a business engages individuals to perform freelance work, often on a temporary or "per gig" basis and treats them as self-employed contractors, as opposed to permanent employees.

Proponents of the gig economy describe it as a working environment which offers flexibility to those working within it, and control over the hours they work. As this business model generally sees workers being paid for the "gigs" they do, such as a delivery, or a taxi ride, rather than a regular wage, it also provides flexibility to employers who will only pay when work is done and staff costs are not incurred when demand is low. However, the opposing view is that it offers very little in the way of workplace protection and is a form of exploitation. 

With an estimated 5 million people working in the gig economy in the UK, and technological advances meaning that this business model is becoming ever more popular, clarity over the employment status of those working within this market is crucial.

We have recently seen a number of legal challenges going through the courts, addressing such issues, and we are starting to see a trend in the way in which the courts are approaching these working arrangements.

Last October, an employment tribunal ruled that Uber drivers in the UK were workers rather than self-employed and were therefore entitled to holiday pay, paid rest breaks and the national minimum wage. Whilst labelled a "landmark" ruling by campaigners, this was a first instance decision and is currently being appealed by Uber.

However, a similar case has now reached the Court of Appeal, and, being the highest court to so far consider workers' rights in this growing world of gig economy, its judgment is of significant interest.

The case

In Pimlico Plumbers Limited & anor v Gary Smith the Court of Appeal was asked to review the decisions of both the Employment Tribunal and the Employment Appeal Tribunal who had found in favour of Mr Smith.

Pimlico Plumbers had engaged Mr Smith as a plumber for approximately five and a half years. When they terminated the relationship four months after Mr Smith had suffered from a heart attack, he brought a claim for unfair dismissal, wrongful dismissal, entitlement to pay during medical suspension, holiday pay, unlawful deductions from wages and disability discrimination.

His rights to bring such claims turned on his employment status. Although Mr Smith traded as a self-employed plumber and his contract with Pimlico labelled him as an independent contractor, the Court of Appeal found that he was a worker for the purposes of the Employment Rights Act 1996 and the Working Time Regulations 1998.

When first considering whether Mr Smith was an employee, the Court of Appeal considered the fact that Pimlico was not obliged to offer him work on any particular day, and he was not obliged to accept any particular job. Further considerations included his ability to arrange his business affairs to his own advantage, including charging Pimlico a mark-up on materials he obtained and supplied for jobs, and deducting business expenses for tax purposes. Based on these factors, it followed that the Court of Appeal found him to be self-employed. 

However, this did not preclude him from being classed a worker. The key requirement to take him within this class was the obligation on him to perform work personally and that the "employer" should not be the client or customer of a business that he was operating. An extensive analysis of Mr Smith's right to provide a "substitute" was undertaken as part of this assessment. They also considered the extent of the control Pimlico had over Mr Smith, including him being subject to onerous restrictive covenants, precluding him from working as a plumber in any part of Greater London for three months after termination.

After detailed consideration of the factual evidence in this case, including the contract and associated documentation, the Court of Appeal agreed with the Tribunal and Employment Appeal Tribunal's rulings that the definition of worker was met. 

Comment

Whilst this case has certainly been high profile at a time of significant interest in worker status and in the gig economy, it is hardly legally ground breaking. Whilst Pimlico Plumbers have indicated that they will be appealing to the Supreme Court, it seems unlikely that such an appeal will be allowed.

It is also true to say that these cases are very fact sensitive, and we should be cautious to directly apply this ruling to other businesses who may have slightly different working arrangements.

Having said that, the importance of this first Court of Appeal decision should not be underestimated. It confirms the current trend of the courts to recognise the inequality of bargaining power for some individuals entering into these engagements, and the willingness to look behind the labels placed on staff by businesses, instead considering the reality of the underlying arrangements.

Businesses adopting this gig economy business model would be well advised to carefully analyse their working relationships and consider the status of those working for them.

For further information relating to the classification of employees, workers and self-employed individuals, please contact the Ashfords Employment Team.

This article has been written by Su Apps and James Crotty

Key Contact

Su Apps

Legal Director

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+44 (0)1392 333808


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