Six practical takeaways from Supreme Court decision on gig workers

The Supreme Court decision in Uber has generated significant media interest. For those operating in the gig economy, it is important to understand the immediate ramifications (see our separate Insights for an explanation of why the court reached its decision, and the wider implications of the case).

1. Remember each case is fact specific

The decision is not a green light for all individuals engaged in platform operations to successfully claim statutory protection.

Here, the SC identified five factors which pointed to the individuals being workers for the purposes of the applicable statutory rights:

• the organisation dictated how much drivers were paid;
• the terms on which the drivers performed their services were dictated by the organisation (the drivers had no say);
• once a driver logged into the app they were constrained in rejecting trips as the rate of acceptance and cancellation was monitored with a penalty once a certain level of trips were declined or travelled;
• significant control was exercised over the drivers in the way they delivered their services, including a ratings system which was used as an internal performance management tool rather than for passengers to choose their driver; and
• communications between passenger and driver were kept to the minimum preventing drivers from establishing any relationship with a passenger. Indeed the drivers had little or no ability to improve their economic position through professional or entrepreneurial skill.

Having found the drivers to be workers, a further analysis of when they were working for the purposes of the statutory regulations was also a "matter of fact and degree" and whilst they were found to be working when they logged into the app (rather than simply when they were driving), the SC alluded to the fact that a different analysis might well have applied in other circumstances.

In contrast to this "very tightly defined and controlled" service provided via the app, the SC pointed to an example of an accommodation platform where suppliers were responsible for defining and delivering the service being offered, setting the price and communicating with customers directly. The SC noted that platforms can differ in how the operate in fundamental ways such that suppliers may properly be regarded as performing their services for the customers who purchase those services, rather than for the platform.

2. Understand the risk of claims

The issue of contractors potentially being able to claim employment or worker status is not new, with concerns over potential abuse balanced against the potential flexibility such platform operations provide for those seeking to supplement their income whilst in other employment or studying. However, the SC decision propels the issue back into the spotlight, particularly at a time when job security and guaranteed benefits will be high on many individual agendas. Organisations may well now see more individuals asking questions about their rights and entitlements, with potential ramifications on company brand.

3. Assess the full scope of potential liabilities

The financial stakes in any successfully employment status claims will be high. As well as holiday pay and minimum wage liabilities, organisations will also need to consider carefully current and historic employment, tax and national insurance liabilities, which could raise the pay bill significantly. Such liabilities will extend to former as well as any current workers.

HMRC has made clear that National Minimum Wage is an area where it is focusing enforcement efforts and an area where organisations and directors could be exposed to criminal liability, back payments and penalties, and public scrutiny through HMRC's naming and shaming regime.

It should also be remembered that worker rights extend further, for example, including auto-enrolment for pension purposes. Workers are also protected from discrimination, any detriment for whistleblowing and less favourable treatment on part-time working.

Should worker status be successfully determined, the practical implications should not be underestimated. HR departments will also need to ensure workers receive their statutory entitlements, including s1 statements setting out minimum statutory information and conduct right to work checks.

All this is on top of the forthcoming IR35 changes from 6 the April 2021 which will require platforms that pay workers to deduct income tax and social security/NICs in respect of previously self-employed gig workers who "fail" the IR35 test. Given that the IR35 status test is based employment case law, any engagement of a PSC contractor which risks being re-classified as a "worker" engagement also risks being inside IR35, regardless of what the terms of engagement say.

And perhaps the biggest issue for platforms and users is that if the agency model so many platforms use does not hold up in court (as it has not in this case), they may have huge VAT liabilities and may have to put up their prices to consumers significantly for future gigs. HMRC may well argue they should have been charging, and should from now charge, VAT for all gigs booked though the site. (Until this case the platforms might have argued, amongst other things, that the supply was by a driver whose services were under the VAT threshold and therefore not VAT-able).

4. Consider whether you need to change how you engage or supply gig workers and other non-employed individuals?

Importantly, against this backdrop, organisations should now step back and consider their business model and how this sits with their strategy. Should changes now be made to how the operations are structured and how the service is provided?

The control over the drivers here was central in the SC's finding; they were in a clear position of sub-ordination having to comply with stringent conditions relating to the way in which they performed the services and potential penalties for non-compliance. Organisations will need to balance carefully any reduction in control with the standard of service provided and any impact on brand in the market. And platforms will need to be careful to ensure that the "agency" basis of working is understood by all.

5. Review your terms of engagement

The SC was clear that any terms in a written agreement which purports to classify the parties' legal relationship or to exclude or limit statutory protections by preventing the contract from being interpreted as a contract of employment or other worker's contract are of no effect and must be disregarded.

With such provisions likely to be considered unfavourably, now would be a sensible time to review terms of engagement. This will require careful consideration of what terms reflect the reality of the relationship and which may have merely been included to reduce the risk of an employee/worker status finding; such as a right of substitution which it is clear no party ever intends to use.

6. Keep a watch on future developments

We must now wait and see if legislative reform in this area is forthcoming. Proposals in the UK – set out in the Good Work Plan in 2018 – have centred on a possible statutory test on employment status, as well as greater protection for workers (such as the "s1 statement" statement which came into force in April 2020). Platform providers may instead lobby for wider reforms such as Proposition 22 in California exempting delivery and transportation from labour law requirements.

Recommendations on potential legislation are also due to be released imminently by the European Commission and whilst such reforms will not directly impact the UK, consideration will need to be given to these developments in light of obligations under the EU-UK Trade and Cooperation Agreement and the UK's wider position in the market.

The decision also comes at a time when the UK is consulting on non-competition provisions in employment contracts amid concerns that these hamper entrepreneurial spirit; something which the gig economy itself can potentially harness depending on the relationship between the parties.

Our specialist workforce solutions team are advising clients on digital platform models and the implications from a tax, employment and contract law perspective. Getting employment status determinations right is now more important than ever with IR35 rules coming into force this April. Please do contact us for further advice in this area.