In the UK, what employment law rights and protections a person has depends on their employment status. Employees have the most protection, workers (often referred to as “limb b workers” due to s 230(b) or the Employment Rights Act 1996 containing the statutory definition) have less, and independent contractors the least. The rise of the so-called “gig-economy” has largely operated on a business model of classifying individuals as “independent contractors”. The widely renowned judgment handed down by the Supreme Court in Uber v Aslam last year caused many businesses in this area to take stock and reconsider their arrangements.
By way of brief reminder, the Supreme Court ruled last year that Uber drivers were not self-employed contractors but workers. In clarifying the approach Tribunals should take to status questions, they ruled that the contract was not significant. The fundamental question was whether the individual should be protected according to the purpose of the statute, which was to protect vulnerable workers in a relationship of subordination (“the statutory purpose test”). For more on Uber, please see our previous blog here.
While the judgment in Uber was fairly unequivocal in approach, questions have been left unanswered and there remains a lack of clarity over how Tribunals would apply Uber in practice. Subsequent Tribunals have noted the authority of this approach, with the Employment Appeal Tribunal (EAT) in Sejpal rejecting previous iterations of status tests as little more than “tools” to help with the application of the statute. Even so, this has left Tribunals with very little guidance as to how this should be applied as a matter of practice.
Johnson v Transopco UK Ltd – why is it different to Uber?
In Johnson v Transopco, the Claimant worked as a black cab driver from 2014. In 2017 he joined the Respondent’s app “MyTaxi”. The General Terms and Conditions for Taxi Drivers described drivers as independent contractors. The following year he was removed from the app. The Claimant argued he was a worker and claimed for failure to pay holiday pay and the national minimum wage.
In contrast to Uber, both the Employment Tribunal (ET) and EAT rejected the Claimant’s argument that he was a worker as:
- The Claimant was found to have been running his own business since 2014 and therefore MyTaxi was a client or customer of his. The work he did for others (primarily offering his services as a black cab driver via Transport for London) was not materially different to the work he carried out for the Respondent,
- This was reflected in the working relationship. In Uber, drivers were not provided with the contact information of the riders and were discouraged from making contact with riders. MyTaxi provided the name and contact information to the driver directly, meaning theoretically the rider could book that individual driver again, allowing them to grow their business,
- Unlike Uber, the Respondent did not “control” the Claimant. For example, Transport for London dictated how much a black cab driver could charge, drivers used their own skill to determine routes, his contact with passengers was not restricted and there was no requirement to use specific branding,
- In Uber, drivers could be subject to a disciplinary regime. Drivers could be blocked from the app for 10 minutes if they rejected three trips in a row or cancelled a trip. Similarly, if after 200 trips drivers had below a 4.4 rating, they could be subject to “quality interventions” and removed from the app if they did not improve. The use of the rating system in Uber was described as a “classic form of subordination that is characteristic of employment relationship”,
- This was not the case in The Claimant was under no obligation to accept rides. Moreover, the terms of the contract allowed for a free cancellation policy that the Claimant used, cancelling 35.4 per cent of his accepted jobs. Again, unlike in Uber there were no consequences associated with poor ratings. The EAT held this was to encourage drivers to maintain high standards rather than performance management, and
- The Claimant earned less than 15 per cent of his income through the Respondent’s app, averaging just 1.5 trips per day. As such, the Claimant was not dependent on the Respondent.
So, despite on the surface potentially being similar to Uber, the engagement did not fall within the definition of a “limb b” worker. The Tribunal and EAT were clear that Uber is not a “minimum threshold” for employment status. It depends entirely on whether the agreement, properly understood by the factual reality, falls within the intention of the legislation.
Practical difficulties posed by Johnson
As part of the statutory purpose test assessment in Johnson, the Tribunal noted it was significant that the Claimant earned 85 per cent of his income through other sources. The Claimant argued this ought not be taken into account as it might mean that two people working with the same entity and conditions have different statuses. The EAT rejected this. It noted that in some cases, such as Uber, particular universal features of the working relationship would determine status for all contractors. However, there are other circumstances where it is legitimate for the Tribunal to take what the Claimant did outside of the working relationship into account. Acknowledging this could lead to two claimants having different statuses, they held it was a legitimate factor to consider.
Commentators have critiqued the statutory purpose test as requiring indeterminate and highly subjective test on how vulnerable an individual is. This was already a complicated enough determination for HR to conduct, but following Johnson there are now new levels of uncertainty:
- At the outset of the relationship
The EAT’s statement that some features of the working relationship may make everyone the same status is not helpful, given the need to use the subjective statutory purpose test and assess whether the worker is vulnerable. It is unclear what specific features of the working relationship would lead a Tribunal to conclude the individual is within the intention of the statute, thus generating difficulties for both advisers and HR.
Even if the particular features of a working relationship could be known, it is unclear how HR are meant to factor in the relevance of what the individual does outside of the working relationship at the outset. If HR takes this information into account at recruitment, they are left in a difficult position. As some commentators have argued, this may look like an aspect of control via pre-employment vetting. If asked by a Tribunal why this information is taken into account, it would be unattractive to reply “to avoid limb b worker status”.
- During the relationship
According to the EAT’s comments on income earned elsewhere, status could alter regularly. It is not difficult to imagine an argument from a creative Claimant that on particular days or weeks, a contractor was in a dependent relationship with the engager and therefore should be treated like a worker for that period. Not only does this seem illogical, but it would be impossible (as well as undesirable as discussed above) for HR to determine, given that any recorded information could become immediately redundant when market conditions/the individual’s working patterns change.
How should employers approach status determinations?
Johnson is a useful reminder that employment status determinations are highly fact-specific. Getting it wrong could generate significant liability in both the ET (for example, see our Smith v Pimlico blog here) and with HMRC now that IR35 reforms are staying. With the government’s Employment Status consultation response indicating no immediate reform (for more see here), what should engagers do?
- Start from the facts and then determine status – don’t let the tail wag the dog
Given that Tribunals will look at the facts to determine status, it makes sense for HR to do the same. When auditing roles for status, consider how that worker actually works and make a determination on status from there, rather than imposing a worker status on a role and attempting to build the employment conditions around it. You might find the government guidance useful for an initial audit.
- Build questions of status into your review cycle
As your business and the law develops, HR ought to review worker status for particular roles to minimise risk exposure to a mass claim which could generate significant liability. Keep a particular eye on reports or studies which explore the phenomenon of so called “multi-apping” in your sector which might give more of an insight into the risk of a contractor becoming dependent in your business. While it might be unattractive to “vet” individuals to check for liability, other information that HR will have access to could well be relevant, including in respect of how it all fits logically together (albeit it should be done with caution and the benefit of legal advice where appropriate), for example:
- Has the individual requested payment to a business or personal account? A business account may indicate that person is more likely to be genuinely self-employed.
- How many jobs is an individual accepting and when are they accepting them? Is there a large time gap in-between a few jobs or is it consistent and regular?
- Is the individual regulated by a separate prescriptive regulatory regime or mostly by your terms?
While this will not give a precise answer, it may put HR on notice to identify particular individuals who may need to be consulted with further.
- Seek tailored advice
Every situation is different. Recent cases demonstrate the fine line on which a lot of these cases depend. Changing one or two facts could lead to a material difference so it is best to ask if you are uncertain.
With many thanks to Alex Evans, a current paralegal in our Employment team, for co-authoring this blog.
If you require further information about anything covered in this blog, please contact Alice Yandle or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, November 2022