Kathleen Morrison: Dodgy definitions of employment won't wash

Kathleen Morrison is a Professional Support Lawyer with Brodies LLPs employment team. Users of BResourceFull Workbox, Brodies online HR site, can access detailed information on employment status and workers rights.

Uber is by no means alone in facing claims that its staff are workers, despite being labelled self-employed. Claims from couriers, plumbers and foster carers have all been widely reported.

So why does employment status matter? Employees, workers and the self-employed have different levels of protection under UK employment law.

Workers don’t benefit from the full spectrum of rights available to employees (in particular they can’t claim unfair dismissal); but workers have more rights than the self-employed.

Importantly, workers can claim the national minimum wage and paid holidays. And the stakes, insofar as holiday pay is concerned, have just risen.

The European Court of Justice decided last week that Mr King, who was wrongly classed as self-employed by Sash Windows (and therefore denied paid holidays) can claim for untaken holidays stretching back the full 13 years to the start of the relationship. A potentially costly decision for Sash Windows and others like them.

So what is the status of our contractors, freelancers or consultants? Cases on employment status are fact-sensitive. For Uber, the tribunal and the Employment Appeal Tribunal were clear: Uber could have devised a business model in which its drivers were self-employed; this was just not the case on the facts.

It’s well known that simply labelling an individual as self-employed will not stand if it does not reflect the practical reality. But perhaps Deliveroo have cracked it, with the Central Arbitration Committee recently finding that its riders are self-employed. However, to make that possible, Deliveroo had to allow them an ‘almost unfettered’ right to substitute someone else to do their work. For other organisations, the risks of that approach could make it a non-starter.

Moreover, this may not help Deliveroo escape liability for paid holidays, as arguably the EU ‘worker’ test that applies is wide enough to catch its riders.

Even if you’re confident in your current set-up, this isn’t a time for complacency.

A strongly-worded report from the Work and Pensions Committee in May 2017 criticised companies for using self-employed workforces as a means of avoiding responsibilities towards workers and the public purse. It concluded that definitions of employment and self-employment are ‘straining at the leash’, and championed a presumed ‘worker’ status, which employers would have to disprove if they wanted to adopt a self-employment model.

The Taylor Review in summer 2017 suggested having a clearer definition of workers, and taxing all workers as employees. It also backed equalising national insurance for the employed and self-employed, to remove incentives (for both individuals and companies) to use self-employment.

The government wants to ensure that individuals who effectively work as employees are taxed as such even if they choose to structure their work through a company. With this in mind, there was speculation before the Budget that the Chancellor might shift responsibility for determining whether IR35 applies (and, if it does, for paying tax and national insurance) from intermediaries to employers in the private sector.

Doubtless, this is an attractive option for Mr Hammond given the indications that making the change in the public sector in April 2017 increased compliance. For now, there is to be a consultation, but change seems almost inevitable.

With all of this in mind, now is a good time to review the employment status of your workforce. Think about whether your self-employment designations would stand up to scrutiny, and the impact potential changes could have on your business.

Kathleen Morrison is a Professional Support Lawyer with Brodies LLP’s employment team