At the end of October 2016, Uber lost a landmark employment tribunal as to how the ride-hailing app company classified its UK drivers. Menzies Andrew Brookes evaluates the current status and the implications for UK businesses.
Before we go any further it is important to recognise that Uber have said they will appeal the verdict so it will be some time before we have certainty as to the true outcome. That being said the implications for Uber and the wider ‘gig economy’ could be huge.
What is the gig economy?
There are an estimated five million people who could be classified as independent workers in the ‘gig economy’. Workers often take on multiple small jobs or ‘gigs’ to offer flexible working capacity and/or supplement a full-time income. Common ‘gigs’ include food delivery, couriers, taxi drivers and video producers.
The Uber employment tribunal: what do we know?
The employment tribunal agreed that the individuals in the test case are workers, rather than self-employed, primarily because of the degree of control exercised over them by Uber. This seems to come down to the facts that Uber sets the rates that the drivers can charge and Uber provide the work. The driver is therefore unable to set his or her own rate and is reliant on Uber to provide work.
Who else does this affect?
It is not just Uber that are affected though and other businesses are already heading to the Tribunal. Cycle and motorcycle courier businesses Deliveroo, CitySprint, Excel, Addison Lee and eCourier all facing similar challenges about the availability of employment rights.
We are also aware that HMRC is challenging the status of self-employed drivers for Hermes as well as a targeted attack on the status of lorry drivers.
While the Uber case involved those in the so-called gig economy, it should be appreciated that the Uber drivers are supported by Trades Unions keen to widen the availability of employment rights. They have also indicated that the implications of the case will spread much wider than the gig economy.
Finally, the Government are undertaking a review of status and entitlement to employment rights as the nature of working changes.
Why should businesses be concerned?
The implications for businesses are two-fold. Firstly, self-employed workers could be encouraged by the success of workers in other cases and launch their own claims for employment rights such as National Minimum Wage and holiday pay. Secondly, there is the prospect of HMRC challenging the “status” of the worker and seeking to collect additional taxes and more significantly National Insurance.
The difficulty for business is that the employment tribunal is using three classes of status, self-employed, worker and employee. The current tax system however only deals with two categories; self-employed and employed. The genuinely self-employed or employed clearly slot into the same categories for both employment rights and tax/NIC, but the worker category is uncertain. Subject to a successful appeal by Uber, at best businesses could be left with a situation of workers being entitled to some employment rights even though they are taxed on a self-employed basis. However, in the current environment, it is possible that HMRC might also seek to treat workers as employees for tax and NIC purposes.
Something else to consider is that workers are likely to fall within the auto-enrollment scheme thus also adding the cost of pensions to businesses.
What should businesses do?
All businesses that pay people off-payroll should review their position and in particular:
- Review contracts to ensure they are still effective given this ruling.
- Check for effective warranties to protect the business as far as possible from employment rights and individual tax and NIC responsibilities.
- Review the way that the employment contract works in reality and that it clearly supports an engagement of self-employment.
- Keep up to date with HMRC announcements to ensure ongoing compliance.
- Seek professional advice.
Although the final ruling for the Uber employment tribunal and the UK gig economy is unlikely to be settled for some time, UK businesses need to take positive steps to prepare, protect and communicate any employment status changes. Failure to do so may result in heavy financial penalties and an erosion of internal and external trust in the business.
For assistance in reviewing your current arrangements, assessing the risks and implementing changes, or for any further information regarding the implications of the Uber employment tribunal, please contact Andrew Brookes at email@example.com or call 01252 541244.