New developments on employment status explained

What are the implications of the Deliveroo ruling? And will proposals in a new draft bill make a difference to the gig economy muddle?

Deliveroo appears to have done what others couldn’t by successfully demonstrating that its riders are self-employed rather than workers. This contrasts with Uber’s recent failure at the Employment Appeal Tribunal to overturn the decision that its drivers are workers – as well as the tribunal decisions against CitiSprint and Pimlico Plumbers on the same issue.

Deliveroo’s case took a different route to the other gig economy cases on employment status. This was a claim brought by the IWGB union to the Central Arbitration Committee (CAC) for union recognition, rather than a claim by individuals through the employment tribunal system. However, ultimately the same issue needed to be determined: whether Deliveroo’s riders are workers.

While decisions on employment status are taken on the basis of a multi-factorial analysis, the CAC focused its decision on the ability of the Deliveroo riders to substitute someone else to do their job for them. The ability for an individual to substitute someone else is one of the key facts used to determine whether the individual is required to give personal service – a key element of worker status.

Many employers insert a clause in the contract with their staff to reflect the ability to substitute, to support the argument that they are self-employed, but often this does not reflect the reality of the situation. The CAC determined that in Deliveroo’s case it did. Deliveroo riders are genuinely able to substitute someone else in to make a delivery on their behalf, either before or after accepting a particular job.

While consistent with existing case law in this area, the CAC’s decision does nothing to provide the clarity needed in the law on employment status – particularly with reference to the growing gig economy.

It is timely that a couple of days after the CAC’s decision, the House of Commons work and pensions committee published its paper, A framework for modern employment, together with a draft bill to implement proposed changes in this area. The aims set out in the paper and the bill reference some of the key recommendations in Matthew Taylor’s review of modern employment practices, which was published in July.

The key proposals of the committee’s paper are changes to primary and secondary legislation. These include:

  • a new definition of self-employment;

  • the introduction of a ‘worker by default’ model for businesses that use a substantial amount of self-employed staff;

  • the introduction of a pay premium (on top of national minimum wage and national living wage) for those individuals who work non-contracted hours;

  • extending the ability for individuals to gain rights that require a qualifying period of service; and

  • enhanced abilities for employment tribunals to award costs orders or fines to businesses that are repeat offenders.

While each of these proposals is laudable, it is questionable whether a number of them are practical, and whether they will improve the current uncertainty in the law. For example, a new definition of self-employment is likely to be accompanied by a swathe of case law to clarify its meaning.

Employees have recourse to claims in the employment tribunal, but the committee’s paper does not make clear which forum will adjudicate on the ‘worker by default’ proposal. Finally, the introduction of a pay premium and the extension of rights related to qualifying service is likely to increase the burden on businesses, and stifle the innovation and entrepreneurialism that is central to the gig economy.

However, it is early days. The proposed bill is at its earliest stage, and the government has yet to formally respond to the Taylor report, which it is anticipated to do later this year.

Sarah Ozanne is an employment lawyer at CMS