Businesses could face fines for false self-employment

Draft bill proposes ‘worker’ status be the default for gig economy employers

Employers that wrongly classify their workers as self-employed should be fined, two House of Commons committees proposed this week in what would amount to a major clampdown on the concept of false self-employment.

The work and pensions committee and the business select committee, which jointly published a report in response to July’s Taylor review into working practice, suggested that gig economy workers faced the “unacceptable burden” of having to prove they were workers – rather than self-employed – to access basic employment rights.

The two published a draft bill recommending that individuals in the gig economy be considered ‘workers by default’, entitling them to employment rights and benefits such as holiday and sick pay. Alternatively, companies will have to prove that their working practices genuinely mirror self-employment.

The bill said the law around the gig economy should be tightened to stop companies using false self-employment status for “cheap labour and tax avoidance”, to prevent the law being used to facilitate workers’ exploitation for competitive advantage. That could have a knock-on effect on sectors such as retail and hospitality, which also make use of self-employment models.

The two committees proposed that companies in the gig economy either guarantee workers a set number of hours each week, or compensate them for uncertainty. The bill also aimed to rule out any changes to legislation that would undermine the national minimum wage and national living wage.

Frank Field, the Labour chair of the work and pensions committee, said the bill, which will now be put before the prime minister for consideration, would "end the mass exploitation” of people in the gig economy. “It is time to close the loopholes that allow irresponsible companies to underpay workers, avoid taxes and free ride on our welfare system,” he said.

The current situation puts an “unacceptable burden on workers to address poor practice through an expensive and risky court case while the companies themselves operate with relative impunity”, the report stated.

It also proposed imperatives for employment tribunals to consider the wider use of higher, punitive fines and costs orders if an employer has already lost a similar case around employment status, and enable the use of class actions in disputes over wages, status and working time. This may “reduce the chance and opportunity for employers to simply ‘wait and see’ whether individuals are willing to risk pursuing their rights”, according to the report.

Rachel Reeves, chair of the business, energy and industrial strategy select committee, said workers’ rights should not be sacrificed for flexibility: “[Gig economy employers] like to bang the drum for the benefits of flexibility for their workforce, but currently all the burden of this flexibility is picked up by taxpayers and workers. 

“This must change. We say companies should pay higher wages when they are asking people to work extra hours or on zero-hours contracts.”

Employment lawyers, however, warned that the bill’s proposal to place the onus of choosing the appropriate employment status on employers could lead to an unfair burden on businesses. Jane Amphlett, partner and head of employment at Howard Kennedy, said: “If the onus is on the employer to prove self-employed status in any claim, there will need to be careful thought given to deterring vexatious claims. 

“Working status is arguable and therefore it will be difficult in practice to evidence that a business had deliberately and falsely classified workers as self-employed in considering a punitive fine.”

Crowley Woodford, employment partner at Ashurst, said the bill would take a “major step towards destroying” the gig economy’s flexibility if implemented.

Leon Deakin, partner and head of the employment team at Coffin Mew, said that, if this bill were passed, it could “quite significantly” impact on the gig economy: “As the recommendations arising from the Taylor review and the ongoing high-profile litigation involving Uber, Deliveroo and others demonstrates, the current legislation and case law guidance is simply not fit for purpose.”

 Some of the gig economy employers embroiled in litigation around employment status have complained that the current legal framework prevents them from offering staff access to the minimum wage and holiday pay because this would make them workers by default. Others, such as CitySprint, have changed the details of contracts in what has been perceived as an attempt to follow in the footsteps of Deliveroo – which won a recent case around the self-employed status of its delivery riders after allowing them to provide substitutes if they were unable to fulfil shifts.