The gig economy: are there legal risks in your employment agreements?
The rise of the gig economy has led to intense media and political focus on the rights of flexible workers.
The rise of the gig economy has led to intense media and political focus on the rights of flexible workers. With changes to legislation on the horizon and test cases going through the courts, any shortcomings in the employment arrangements with your flexible staff could leave you open to costly legal claims.
Industries with atypical business patterns, for example, where customer demand will fluctuate according to the time of day or the season, are clearly less well-suited to orthodox employment arrangements. As a result, zero-hours contracts or the engagement of casual staff on a self-employed basis, have become popular ways for businesses in some sectors, such as hospitality, to tap into a more flexible labour force.
However, the rise of the “gig-economy” and subsequent high profile legal challenges brought against businesses like Uber and Deliveroo, has led to new scrutiny being placed on the rights of flexible workers.
With political pressure to crack down on cases of abuse, the Government commissioned the Taylor Review, which was published this month and makes extensive recommendations for reform. In this context, any discrepancies between employment agreements and the reality of the duties personnel are carrying out, could leave businesses with serious problems.
Any workforce can be broadly split into three categories - self-employed independent contractors, workers and employees. The lines between the three are becoming increasingly blurred due to pressure to extend the scope of workers’ rights and case law is changing the way the in which law is understood. Where an individual sits somewhere on the border of two of those categories, there is often room for legal challenge.
The core issue at present is whether flexible staff fit within the legal definition of ‘workers’ and are therefore entitled to rights such as holiday pay and the minimum wage.
As we’ve seen in high profile rulings against Uber and Citysprint, employment tribunals declined to accept the labels applied by the employers. Individuals who were being categorised as self-employed were held to be ‘workers’, in terms of their duties and relationship with the business, and by ruling in their favour, the tribunals gave them key rights such as paid holiday and minimum wage protection.
The rules around zero hours contracts are also likely to change further. The Taylor Review recommends that workers on zero-hour contracts should have the right to request guaranteed hours from their employers after 12 months. In response, employers will need to be able to justify why zero-hours contracts are appropriate. Under the recommendations, employers would also be obliged to publically report on these requests and the numbers agreed to.
While the Taylor review will not have an immediate impact, it is inevitable that changes in the law will follow. Businesses need to review their HR profiles now, to protect themselves.
Incorrectly classifying workers carries a risk in terms of running up a large financial liability in respect of rights such as accrued holiday pay, arrears of pay where the minimum wage has not been paid and the risk of unfair dismissal claims on termination.
Businesses would be well advised to carry out an audit of their human resources to establish whether flexible personnel are classed correctly as employees, workers or self-employed and, crucially, whether those classifications make sense in the context of the roles they are actually performing.
When it comes to those on zero-hours contracts, employers will be required to establish an honest justification for why these staff are not on full time contracts, (for example the unpredictability of their staffing requirements).
If there is uncertainty about any of the above, then you are likely to be carrying risk. Where both parties are content to work on a flexible basis, tension is unlikely. Experience suggests that the risks are greatest where employers attempt to use flexible contracts to deny rights to their workers.
Now is a good time to make operational adjustments to ensure personnel are being used correctly, removing ambiguity around their status and, where appropriate, establishing new contracts to introduce greater clarification.
At the heart of the gig economy debate is the need to protect access to legitimate flexibility, which can benefit both businesses and employees, while clamping down on unscrupulous employment practices. The latest proposals are, therefore, a welcome sign that the Taylor Review is taking a balanced approach. By placing the onus on the worker to trigger a review of their hours, the proposals would allow employees that are happy to work without agreed hours to continue the arrangement unchallenged. This is a much more flexible way to address the problems that can be caused by zero-hours contracts, than an outright ban.
- Audit employment contracts to ensure staff are correctly classified
- Make operational changes to reflect those classifications
- Introduce new employment contracts where required
It is incumbent on employers to justify their employment arrangements. Indeed, the Taylor Review recommends that ‘burden of proof’ in employment tribunal proceedings should be on the employer to prove the individual is not protected by relevant employment/worker rights, not the other way around. Rather than waiting for legislation change to force their hands, employers should pre-empt reform and ensure they are in active dialogue with staff about the terms on which they are engaged, to avoid surprises and historic claims in the future.
Michael Ryley (email@example.com) is a Partner in the Employment, Pensions and Immigration Team and is based in London.