The future of working practices in Scotland Contents

2Employment status and modern employment practices

6.A person’s entitlement to employment rights is determined by their employment status; under the current framework individuals fall into one of three categories:

The statutory definitions of employees and workers are set out in the Employment Rights Act 1996, but these are very brief and have been supplemented by case law. Employees are entitled to a written statement of the main terms and conditions of their employment within two months of starting work,8 but workers and self-employed people are not, so it will not always be obvious to someone starting a job what their employment status should be, and whether their employer is according them the proper status.

7.There have been concerns that changes to the ways that companies meet their labour needs have put pressure on these statutory definitions. The rise of contractualised labour, the emergence of the “gig economy” and examples of “bogus self-employment” have all tested these definitions of what it is to be an employee, a worker, or self-employed, and how to determine which category someone falls into.

Flexible working and bogus self-employment

8.Although employment rates in Scotland have recovered since the 2008 recession, Stephen Boyd, Assistant Secretary at the Scottish Trades Union Congress, told us that “the quality and security of work that has been generated through that period has been significantly less than employment that was generated prior to the financial crisis”,9 and Bryan Simpson, a member of Unite’s Executive Council, stated that in the last five years the situation had “got a lot worse in terms of low-paid jobs, precarious work, insecurity of contracts, and contractual instability”.10 We have heard evidence that some businesses have been replacing what had been a secure job with a guaranteed salary by recruiting new staff for an insecure job with worse terms and conditions,11 and that there are many people who cannot find permanent employment in Scotland, with over 100,000 workers in Scotland—around 5% of all employees—on temporary contracts, 42,000 of whom were seeking permanent employment.12

The gig economy

9.The “gig economy” refers to people working on a self-employed basis using mobile platforms to find individual jobs. Both the company which runs the platform and the worker receive payments for each job, but workers are not guaranteed an income. Some people use these apps as their main source of income,13 while others use it as a means of topping up other income.14 Our predecessor Committee took evidence from representatives of Deliveroo and Uber, who argued that this business model provides flexibility to the people using their apps,15 which they said the vast majority of their drivers value above all else.16 Uber also stated that self-employment was already prevalent in the courier and private hire sectors, and that their business model mirrored these pre-existing arrangements.17

10.Although companies such as Uber and Deliveroo have expanded rapidly in recent years, their business models and working practices have been the subject of criticism because of their employment models, the terms and conditions of their workers and the rights they are accorded. Bryan Simpson, a member of Unite’s Executive Council, told us that people working in the gig economy often earn less than minimum wage and have all of the disadvantages of self-employment without any of the advantages.18 Mr Simpson argued that people using the apps are working as employees and should be afforded the employment rights that come with this status.19

11.In October 2016 an employment tribunal found that two Uber drivers were “employed” as “workers” by Uber within the meanings of the Employment Rights Act, Working Time Regulations and National Minimum Wage Act.20 The tribunal took the view that Uber ran a transportation business using its drivers as employees, rather than simply operating an online platform which was used by self-employed drivers. Uber appealed this decision, but it was upheld by an Employment Appeal Tribunal in November 2017.21 It has been reported that Uber is appealing this decision.22 Bryan Simpson welcomed the employment tribunal’s judgement,23 and said that in his view the working arrangements used by Uber constituted an employer-employee relationship, and should be recognised as such.

12.Deliveroo said that they would support employment status being clarified in a way which enabled them to offer their labour force some benefits while still being able to operate using self-employed workers, which it said wasn’t possible under the current employment framework.24 Andrew Byrne, Head of Public Policy for Uber, stated that if currently self-employed drivers had to be treated as employees, the biggest financial implication would be liability for National Insurance contributions, which would increase costs by around 30%.25

13.Matthew Taylor told us he believed that these ways of working provided flexibility for people who were studying, caring or over pension age, and did not want to commit to full-time work,26 but the Taylor review also heard that this business model appeared to be incentivised by the prospect of “heavily reduced or no employer obligations” which then fell to individual workers.27 Margot James MP, then Minister for Small Business, Consumers and Corporate Responsibility, argued that new ways of working had “provided great opportunities for people who want to work informally, flexibly, in many cases as a bolt-on to more permanent traditional employment”, and that this was “highly valued by many of the workers in that particular sector of the economy”.28 The then Minister also noted that “the gig economy has revolutionised choice and opportunities for consumers in a way that I think will never be rolled back”.

Bogus self-employment

14.Although it has most recently been raised in relation to the gig economy, we have been told that bogus self-employment—employers treating their staff as self-employed when this is not appropriate—is a problem in a range of sectors, particularly the construction sector.29 Mr Taylor told us that “bogus self-employment” covered not just instances where—if a case were taken to court—a court would probably find that a person shouldn’t be classified as self-employed, but also covered cases where an employment relationship was different to what the public would understand self-employment to be.30

15.The legal tests used to determine whether someone is truly self-employed or should be treated as a worker rest on:

16.Margot James, then Minister for Small Business, Consumers and Corporate Responsibility, acknowledged that bogus self-employment happened, but said that there were also grey areas where it wasn’t always easy to define what was employment and what was self-employment.32 She accepted that changes to the ways in which businesses engaged labour had resulted in employment law being tested, particularly in terms of the definition of employment versus self-employment versus worker status, and told us that it was in response to this that the Government had commissioned the Taylor Review.33

Contractualised labour

17.Another area of particular concern is the increasing practice of workers being engaged on a self-employed basis as “contractualised labour” for work—such as in call centres and the transportation sector—which in the past would have been undertaken under a contract of employment. This means that, where previously a worker would have had a guaranteed wage, set hours and full employment rights, many workers doing effectively the same jobs are now self-employed and so are responsible for paying their own taxes and national insurance contributions and have no guarantees regarding their income or hours. Professor Mike Danson, Professor of Enterprise Policy at Heriot-Watt University, argued that this had resulted in the responsibilities of employment shifting from organisations to individuals,34 and also raised concerns that the rise in self-employment had resulted in more people working low-paid jobs and experiencing in-work poverty.35 The Government has recognised that “on average, self-employed people earn significantly less than people in work as employees”, and has stated that some self-employed people are “working long hours and earning less than the National Living Wage with little prospect of growing their earnings, trapping them in poverty and welfare dependency”.36

Clarifying employment status

18.We have heard that some employers are falsely treating their workers as self-employed, but the lack of clarity in the current system can also cause businesses legitimate difficulties in determining someone’s employment status. Matthew Taylor told us that the “lack of clarity” around employment status—and the rights which were linked to this—was one of the main issues his review sought to address.37 He stated that it provided “scope for exploitation”, and that it was clear to him there was gaming going on within the system, with businesses “portraying people as self-employed when arguably it would be more rational to employ them as workers or more realistic to classify them as workers”.38 The Taylor Review concluded that there was an “overwhelming case” to tackle the lack of clarity around employment status, and recommended that “the Government produce a clearer outline of the tests for employment status, setting out the key principles in primary legislation.” Mr Taylor said he did not “underestimate the complexity” of defining employment status more clearly, but said that he felt there “was a case ultimately for trying to better define in law the basis for employment status”.39

19.The Taylor Review recommended that the three-tier employment system—with employees, workers and self-employed people—be retained, but that workers be renamed “independent contractors”, and a new test be introduced to determine whether someone is self-employed or an independent contractor. The review recommended that this test make “control” of particular importance, and suggested that this would result in “more people being protected by employment law”.

20.Providing greater clarity around employment status received wide support in our evidence. The Association of Independent Professionals and the Self-Employed has stated that a statutory definition of self-employment would “provide much-needed clarity around employment status and help tackle the false classification of individuals as self-employed”.40 Bryan Simpson told us that “the best way legislatively to tackle this is to absolutely tighten up the definition of worker” and said that “it cannot be allowed to fly that workers who are absolutely, clearly employees of a company are allowed to be regarded as self-employed.”41 Responding to the recommendations made by the Taylor Review, however, Unite stated that the review “does nothing to address the rampaging growth in forced self-employment”.42

21.The Business, Energy and Industrial Strategy and Work and Pensions Committees also concluded that clearer legislation on employment status could be valuable, and recommended that the Government legislate to introduce greater clarity on definitions of employment status. Those Committees argued that legislation should emphasise the importance of control and supervision by a company in distinguishing between workers and the genuinely self-employed.43

22.Reflecting the evidence we received that workers often didn’t know their employment status or what type of contract they were working under,44 the Taylor review also recommended that the Government extend to all workers the right to a written statement of their terms and conditions.45 At present only employees are entitled to such a statement. Mr Taylor told us that “the simple recommendation that every employee, every worker […] gets a simple statement of terms and conditions on day one, any deductions they are going to suffer, would have an enormous impact”.46 He stated that this change would “require employers to specify at the outset what people’s employment status was, which would require them to think about that and try to make sure they had it right”.47 He also argued that the change should “make it easier for workers to understand their situation”.48 In its response to the Taylor review, the Government accepted this recommendation and stated that it would “extend the right to written particulars to all workers”.

23.The Government’s response to the Taylor review stated that it should be easier for individuals and businesses to determine whether someone is an employee, a worker, or self-employed, and stated that it was “committed to improving clarity and certainty in this area”.49 The response stated that the Government would “consult to explore the best way to improve clarity for those on the boundary between employment and self-employment, including options for legislative reform”, with a view to helping to ensure that fewer workers find themselves fighting for protections that they should already have. The Government’s consultation acknowledges that increasing clarity in the employment status framework is one of the major challenges for public policy, and states that the current lack of clarity can “lead to some people and businesses wasting time and energy trying to understand the rules” and also “allows unscrupulous employers and individuals to game the system in order to save on employment costs and taxes”.50 The Government is currently consulting on whether codification of the current case law would bring greater clarity and certainty, or whether alternative approaches—such as an improved test for determining employment status—would better achieve this. This consultation will close in June 2018.

24.The Taylor review also recommended that, when someone’s employment status was challenged in an employment tribunal, the burden of proof should be reversed so that the employer has to prove that the individual is not entitled to the relevant employment rights. The Businesses, Energy and Industrial Strategy and Work and Pensions Committees agreed, suggesting that there be a model of “worker status by default”, where the onus would be on the firm to prove self-employed status, when disputed, rather than on the worker to do so through the courts.51 The Government’s response to the Taylor review stated that it did not propose to “reverse the burden of proof at this time”, but that it would return to this recommendation when it has reached decisions on possible changes to employment legislation, and created an online tool to help workers determine their employment status.52

25.New employment practices and business models have challenged traditional understandings of employment status and made it increasingly difficult for workers and employers to be confident in their judgments of when a particular employment status applies. While the majority of employers treat their workers properly, it is clear that some inappropriately treat their workers as self-employed to reduce their own obligations. Definitions that were set out in law decades ago have been tested to breaking point by new relationships between companies and their labour force, and there is a clear need to review how employment status is defined, to ensure employees and workers are guaranteed the appropriate rights and protections. We welcome the Government’s recognition of the problems resulting from the current lack of clarity, and its consultation on how best to achieve greater clarity in this area, including legislative change. We also welcome the Government’s acceptance of the Taylor review’s recommendation that the right to a written statement of terms and conditions be extended to all workers.

26.We welcome and endorse the recommendations the Taylor review made for clarifying employment status in primary legislation, as well as those of the Business, Energy and Industrial Strategy and Work and Pensions Committees, and call on the UK Government to bring forward legislation to clarify the employment status of workers. We also see the merit in shifting the burden of proof for demonstrating employment status—where this is challenged—to employers, so that it is easier for individuals to access employment rights. We note that the Government has said it will return to this recommendation when it has reached decisions on possible changes to employment legislation, and created an online tool to help workers determine their employment status, and recommend that the Government revisit this recommendation once it has completed these processes.

Zero hours contracts

27.Zero hours contracts are contracts of employment which do not guarantee workers a minimum number of hours, and mean that whether work is offered in any particular work-period is at the discretion of the employer. There are over 70,000 people in Scotland on zero hours contracts,53 an increase of 20,000 since 2015, although the number fell between 2016 and 2017.54

Zero hours contracts in Scotland, 2015–2017

Number of people in employment on a zero hours contract

Percentage of people in employment on a zero hours contract

April–June 2015

51,000

1.9%

April–June 2016

78,000

3.0%

April–June 2017

71,000

2.7%

Source: ONS, Labour Force Survey: Zero-hours contracts

Zero hours contracts are most prevalent in industries such as accommodation, food and retail, education and health and social work.55

28.We have heard that, while these contracts can provide a flexibility which benefits workers and businesses,56 the relationship between employers and workers on these contracts is often unbalanced, leaving the employer with all of the flexibility and few costs and the worker in fear of dismissal and denied access to basic rights of employment.57 Citizens Advice Scotland told us that many of the examples of the poorest employment practices relate to workers on zero hours contracts,58 and stated that they were concerned that these contracts can be used as a disciplinary tool to deny workers shifts without going through any sort of formal employment process.59 Matthew Taylor argued that while “flexibility is broadly a good thing”,60 and that about two-thirds to three-quarters of people on zero hours contracts say that is the way they choose to work, he believed there was a serious issue about people being kept on zero-hours work “for a lengthy period of time in environments where the only reason they are being asked to do zero-hours work or very low hours of work […] is so that the enterprise or organisation can transfer risk on to the shoulders of that worker, rather than the organisation itself”.61

29.All of our witnesses agreed that zero hours contracts should not be used in a way which was exploitative, but few recommended that they should be completely banned. We were told that if zero hours contracts were banned they would likely be replaced with contracts which guaranteed an arbitrarily small number of hours,62 meaning that banning them would probably have little effect.63 Although Bryan Simpson, from Unite, argued that zero hours contracts should be banned, and said that contracts should guarantee a minimum number of hours, he suggested that employees should be able to opt-out of this if they chose,64 which would mean that workers could still work under a contract which did not guarantee any hours.

30.The Taylor review recognised that providing the option for employers and workers to have flexible arrangements, while not allowing these arrangements to be open to exploitation, was “a complex issue” and that there were “potential adverse consequences to most interventions”. However, the review stated that the Government “must take steps to ensure that flexibility does not benefit the employer, at the unreasonable expense of the worker, and that flexibility is genuinely a mutually beneficial arrangement”. To achieve this, the Taylor review recommended that:

Mr Taylor told us he had “argued for a higher minimum wage for variable hours, to try to incentivise employers to guarantee more hours”,66 and stated that payment of a higher minimum wage for variable hours was one of the recommendations closest to his heart,67 saying that:

if the Government does not do that, although there are other measures in my review that would make a difference, it would then look as though the Government did not really get the fact that there is a genuine issue about zero hours and low-hours contracts being inappropriately used.

He stated that resolving this was “necessary to demonstrate a recognition that we have a problem about the overuse of non-guaranteed hours”. The Report by the Business, Energy and Industrial Strategy and Work and Pensions Committees also recommended that the Government work with the Low Pay Commission to pilot, for workers who work non-contracted hours, a higher National Minimum Wage and National Living Wage.68

31.The then Minister for Small Business, Consumers and Corporate Responsibility told us that she accepted that zero hours contracts “can expose workers to unfair practices and at times exploitative practices”, but that this did not always follow and that “the research that we have seen finds that quite a large number of people on zero-hour contracts welcome the flexibility.”69 The Minister noted that Matthew Taylor found that in too many cases risk had been transferred, virtually in its entirety, to the employee, and that she thought this was “where the abuse really steps in”.70 The Government’s response to the Taylor review accepted the recommendation that people on zero hours contracts be given the right to request a contract which better reflects actual hours worked, and stated that it would “create a right for all workers [ … ] to request a more predictable contract where appropriate”, and would consult on how best to effectively implement this right to request. The Government’s response also accepted the review’s recommendation to ask the Low Pay Commission (LPC) to explore the impacts of introducing a higher minimum wage for hours that are not guaranteed as part of the contract, and stated that it would also investigate alternative means of tackling the issue, and ask the LPC to do the same and provide advice on the impacts of alternative options.71

32.Contracts which support flexible working can provide benefits for both workers and employers, but it is important that these arrangements are mutually beneficial and do not provide the employer with all of the benefits, with workers carrying all of the risks. While many people on zero hours contracts are content with them there are clearly issues with employers who use them exploitatively. These issues need to be addressed without undermining the flexibility these contacts can offer, which many employers and employees find valuable. We endorse the recommendations made by the Taylor review that workers who have been on zero hours contracts for 12 months be able to request a contract which reflects actual hours worked, and that the Government should commission the Low Pay Commission to consider a higher minimum wage for hours which are not guaranteed. We welcome the Government’s acceptance of these recommendations, and urge the Government to implement them as soon as is practicable. These measures will ensure that workers cannot be kept on a zero hours contract indefinitely, where it does not reflect the reality of employment, and will also create an incentive for employers to ensure that they only use these contracts where there is a real need for them.


7 Gov.uk, Employment status, accessed December 2017

8 Gov.uk, Employment contracts, accessed January 2018

9 Q10

10 Q268

11 Q53

12 Fair Work Convention (SES0013)

13 Q594 [Andrew Byrne]

14 Q593

15 Q604 [Dan Warne], Q607, Q608

16 Q633

17 Q604 [Andrew Byrne]

18 Q282

19 Q737

23 Q301

24 Q607

25 Q615

26 Q945

27 Department for Business, Energy and Industrial Strategy, Good work: the Taylor review of modern working practices, 11 July 2017

28 Q979

29 Q281

30 Q943

31 House of Commons Library, Employment status, Commons Briefing papers CBP-8045, November 2017

32 Q980

33 Q979

34 Jimmy Reid Foundation (SES0008)

35 Heriot-Watt University, In-work Poverty and Enterprise, 2016

36 Work and Pensions Committee, Second Special Report of Session 2017–19, Self-employment and the gig economy: Government Response to the Committee’s Thirteenth Report of Session 2016–17, HC 644

37 Q939

38 Q939

39 Q942

40 IPSE (SES0030)

41 Q737

43 Work and Pensions and Business, Energy and Industrial Strategy Committees, Second Report of the Work and Pensions Committee and First Report of the Business, Energy and Industrial Strategy Committee of Session 2017–19, A framework for modern employment, HC 352, para 10

44 Qq46, 48

45 Department for Business, Energy & Industrial Strategy, Good work: the Taylor review of modern working practices, 11 July 2017

46 Q941

47 Q941

48 Q941

50 Department for Business, Energy and Industrial Strategy, HM Treasury, HM Revenue and Customs, Employment Status Consultation, February 2018

51 Work and Pensions and Business, Energy and Industrial Strategy Committees, Second Report of the Work and Pensions Committee and First Report of the Business, Energy and Industrial Strategy Committee of Session 2017–19, A framework for modern employment, HC 352, para 15

56 Q777 [Colin Borland]

57 Q281 [Bryan Simpson]

58 Citizens Advice Scotland (SES0015), Citizens Advice Scotland, Exposed: the dismal state of workers’ rights in Scotland, February 2015

59 Q820

60 Q932

61 Q945

62 Q276

63 Q789

64 Q759

65 Department for Business, Energy & Industrial Strategy, Good work: the Taylor review of modern working practices, 11 July 2017

66 Q932

67 Q958

68 Work and Pensions and Business, Energy and Industrial Strategy Committees, A framework for modern employment, Second Report of the Work and Pensions Committee and First Report of the Business, Energy and Industrial Strategy Committee of Session 2017–19, HC 352, November 2017

69 Q965

70 Q965




2 March 2018