by Mike Emmott, Associate Adviser
We are seeing the growth of the ‘gig economy’, otherwise known as the on-demand, freelance or sharing economy. One of the biggest players is Uber, whose cab drivers are offered work through an app, which also enables customers to request their services and pay for the ride. Launched in 2009, the company now operates in more than 35 cities worldwide and is valued at nearly $4 billion.
But are Uber drivers employees or independent contractors? The answer matters, both to the company and to its drivers. Some estimates suggest that employment status can make a difference to the employer's costs of over 30%. The company argues that traditional businesses are based on an outdated model, and that their kind of ‘disruptive innovation’ to the market is healthy. It also claims that its model creates jobs, and keeping their drivers busy keeps them happy, as well as offering customers a more convenient service.
A difference of opinion
However, not everyone is equally impressed. In the United States, the California Labor Commissioner’s Office ruled in June that an Uber driver should be classified as an employee, not an independent contractor, though the company is appealing.
In the UK, the GMB trade union is supporting a claim by Uber drivers that they should be paid the national minimum wage and benefit from statutory holidays. Although the basic principles are broadly similar in both countries, a significant difference is that the UK provides an intermediate status of ‘worker’, which offers some but not all employment rights. This is what the GMB is seeking on behalf of its members who are Uber drivers.
Whose side should we be on? Self-employment has boomed in the UK in recent years. Self-employed people have more control over when and where they work, and surveys suggest that on average they are happier than their employed colleagues. Nevertheless, most don't earn as much as employed people and increased flexibility to work when and where you like can also mean an uncomfortable level of insecurity.
‘Employee’ versus ‘worker’ status
When the GMB case against Uber is heard, it will highlight the unsatisfactory state of the law established by earlier cases on employment status. In order to establish the existence of an employment relationship, there are three tests: the individual has to show that he is required to perform the service in person; that there is ‘mutuality of obligation; and that the employer is able to control the way he does the job. A ‘worker’ has to show the first two of these – personal service and mutuality – but, rather than the employer being in control, the employer is a customer or client of the individual worker.
The application of these principles is often far from straightforward. The personal service test is not likely to be an issue in relation to Uber drivers, but the other two tests are both fraught with difficulty. In general, if the employer can control what the worker does, then the worker is likely to be an employee. But how much control is required? In any contractual relationship, each party can exercise a measure of ‘control’ over the other by virtue of the contract terms: it's all a matter of degree.
In California, Uber provided drivers with phones and had a policy of deactivating its app if drivers were inactive for 180 days. Drivers were told what were appropriate dress codes and means of communication with passengers, and the company also had powers to discipline and dismiss drivers whose ratings fell below a particular standard. Therefore, the ruling ordered the company to reimburse a driver his or her expenses and other costs.
The mutuality rule
Showing ‘mutuality’ could be a bigger problem for Uber drivers. The term means basically that both sides have to commit to do something. Mutual commitment is a fundamental aspect of any legally binding contract: there can be no contract without it. But how much commitment is required? Does it matter if the employer is not required to offer work, or if the worker is allowed to turn down work when it's offered?
In the leading case of Carmichael and Another v National Power ( 1 WLR 2042), the court found that workers who acted as power station guides on an ‘as and when’ basis had not established mutuality and so were not employees. However, there may be some form of ‘umbrella’ contract, even if there is no commitment to offer or accept particular work - otherwise no zero-hours worker could be an employee, whereas some undoubtedly are.
In the absence of an umbrella contract, mutuality may also be established in relation to individual projects or assignments, if not on a long-term basis. The problem here is that workers may have difficulty building up sufficient length of service to qualify for important employment rights, including the right to claim unfair dismissal.
Determining employment status in the UK
How do judges in the UK decide issues about employment status where the evidence is ambiguous? They may be motivated to protect individuals where they believe that employer claims that the individuals are self-employed are essentially a sham, aimed at denying people their employment rights. But that is hardly the case with Uber, where the sophisticated use of information technology to facilitate the relationship between drivers and customers is at the heart of its business model. Although it evidently reduces costs, this ‘arms-length’ relationship between the company and its drivers is essentially driven by the technology.
One - somewhat unhelpful - conclusion that can be drawn from case law in the UK is that, if it looks like an employment relationship, it probably is. For example, in Cassidy v Ministry of Health ( 2KB 343), Somervell LJ said: ‘One cannot perhaps get too much beyond this, Was the contract a contract of [employment] within the meaning which an ordinary person would give under the words?’ As the nature of employment shifts, it is becoming no easier to apply this test in any meaningful way.
The growth of the gig economy has only exacerbated a pre-existing problem. At its heart is the uncertainty that underpins the law governing employment status. The previous Government promised to review the issue and the Department for Business, Innovation and Science (BIS) is currently understood to be considering a public consultation on the issue.
We shouldn't underestimate the difficulties of establishing a clearer definition of what it means to be employed, or differentiating between employees, workers and independent contractors. But people participating in the labour market are entitled to know what protections they enjoy, and at present this can be totally unclear.
Employment status is also critical to determining issues about tax and social security. But these are not essentially questions that we should look to lawyers to answer. It is perhaps time to be asking more fundamentally what protection should be offered, either by employers or by the state, to people who participate in the labour market, whether as employees or as freelancers.