5.Entitlement to employment rights and protections is determined by employment status. Employee, worker and self-employed are the three main categories used to determine access to most rights. The different entitlements of each group are clear (see Box 1). What distinguishes one status from another is, however, often much less so.
Box 1: Employment status and entitlements
Self-employed people, those who run their own businesses, are not covered by employment law. They have very few rights at work, limited to protection for health and safety purposes, and some protection against discrimination.
Workers have some employment rights. These include the right to the National Living Wage (NLW) or National Minimum Wage (NMW), protection against unlawful deduction from wages, minimum levels of paid holiday and rest breaks, protection against discrimination, and the right not to be treated less favourably if they work part-time. They may be entitled to benefits such as Statutory Sick Pay and statutory parental pay in some circumstances.
Employees have the full complement of employment rights. This includes everything that workers have, plus Statutory Sick Pay, parental pay, minimum notice periods and pay if their employment is ending, protection against unfair dismissal, the right to request flexible working, time off for emergencies and statutory redundancy pay.
6.The existing statutory definitions of employment status are set out in s.230 of the Employment Rights Act 1996. The minimal detail in those definitions is supplemented by an extensive body of case law on which courts base their judgments. In seeking to determine whether someone is self-employed or a worker, employment tribunals take into account factors including:
a)whether there is a requirement for personal service, or whether the individual is able to appoint a substitute to carry out work on their behalf;
b)the level of control by an employer over workers in determining matters such as how, when and where work is carried out;
c)evidence or lack thereof of mutuality: an obligation for the employer to provide work (or pay if there is none), or for the worker to accept it if offered; and
d)whether the individual’s work is carried on as a business undertaking. This might include the extent to which the individual is responsible for their businesses’ success or failure, or whether they have the power to negotiate and set rates of pay.
7.The Taylor Review recommended that the tests used by courts to determine employment status be reflected in primary legislation. We heard that employment lawyers are “divided” on whether clearer statutory definitions of employment status are needed. Matthew Taylor acknowledged that redefining employment status in legislation was a “complex question” and that no single set of definitions could guarantee that “the courts are taken out of the process”.
8.The Taylor Review found, however, that there was an “overwhelming case” for introducing greater legislative clarity on employment status “sooner rather than later”. When pressed on priorities for immediate change, Matthew Taylor suggested a greater emphasis in primary legislation on control and supervision by employers as determinants of employment status, and less emphasis on the requirement to perform work personally. He explained these factors were already used frequently by HMRC for such purposes. The issue of control, he felt, was a “good starting point to focus on” for any redefinition. While Sir David Metcalf was personally “agnostic” about the question of redefinition, he felt that “the key thing is you should have clarity and right now we do not have clarity”.
9.The Taylor Review argued that clearer statutory definitions would help workers and companies alike understand the distinction between employment statuses. It would also assist workers in obtaining rights that they are due:
As a first principle, the Government must make legislation clearer. The employment statuses should also be distinct and not open to as much interpretation as currently, nor be so ambiguous that only a court can fully understand the basic principle [ … ] It should not be as difficult as it is now for ordinary people or responsible employers to seek clarity on employment status.
In the absence of an extensive knowledge of this case law it can be difficult for both individuals and companies to understand which category they and their workers fall into. The Taylor Review argued that better statutory definitions would ensure that “legislation does more of the work and the courts less” in determining status. The current lack of clarity also enables companies that want to take advantage of the lower costs associated with self-employment to easily evade the law, enabling them to exploit workers and undercut their law-abiding competitors.
10.Questions of employment status are often not clear-cut, and legislative reform would not entirely eliminate the need for the courts. But it is evident that clearer legislation on employment status could be valuable in preventing confusion and promoting fair competition between businesses. This would lessen the need to go to court, and most importantly, protects vulnerable workers. We recommend the Government legislates to introduce greater clarity on definitions of employment status. This legislation should emphasise the importance of control and supervision of workers by a company, rather than a narrow focus on substitution, in distinguishing between workers and the genuine self-employed. We have set out our proposals in Part 1 of our draft Bill.
11.In a number of recent tribunal cases, workers have successfully challenged companies that argued they were not workers or employees. This process has enabled the workers to gain important employment rights. The judgments only apply, however, to the specific workers and organisations under consideration; there are no automatic consequences for other organisations with similar business models. This is a piecemeal approach—and one that places the burden of responsibility for preventing abuse of employment status on workers themselves. Conversely, where there are financial advantages to both individuals and companies in opting for bogus self-employment there is little to stop them from doing so. This state of affairs therefore potentially places considerable costs on both individuals and the public purse.
12.The Work and Pensions Committee proposed moving to a model of “worker [status] by default” to address these problems. The Committee concluded it is too easy for companies to deny workers their rights by designating them self-employed: all they need to do is to devise contracts that offer none of the benefits of employment. The workers themselves are required to challenge legally a designation of self-employment that is not an accurate reflection of their work. Accordingly, the Committee recommended:
An assumption of the employment status of “worker” by default, rather than “self-employed” by default, would protect both those workers and the public purse and would put the onus on companies to provide basic safety net standards of rights and benefits to their workers [ … ] Companies wishing to deviate from this model would need to present the case for doing so, in effect placing the burden of proof of employment status on the company.
13.Matthew Taylor had some reservations about how worker by default might work in practice. He was concerned that sole traders and those who use their services might “find themselves liable to the full panoply of employment law”. He felt the model could work, however, if targeted at companies that employ substantial proportions of self-employed labour, rather than at sole traders. He explained:
I think the way to address this potentially is through some kind of threshold for a company when it employs a certain number of self-employed people beyond a certain level who have the same basic contracts. At that point you may say, “Look, let’s adopt a default position and work up.”
14.Implementing worker by default would require a clear statutory definition of self-employment, to protect individuals who are legitimately self-employed and running their own business, and ensure they can continue to do so. Such a definition would also provide greater clarity to organisations on the conditions that must be met for a worker to be designated self-employed.
15.Relying on individual tribunals as a corrective to companies’ systematic use of questionable self-employment models places an unacceptable burden on workers to address poor practice, while the companies themselves operate with relative impunity. We recommend the Government legislate to implement a worker by default model, as set out in Part 2 of our draft Bill. This would apply to companies who have a self-employed workforce above a certain size defined in secondary legislation.
16.A flexible workforce should enable businesses to be responsive to demand and workers to undertake periods of work suitable for them. Office for National Statistics data shows 3.3 million people in the UK are underemployed and want to work more hours, while a very similar number are overemployed and want to work fewer hours with consequential lower pay. Almost 900,000 people are on zero-hour contracts, though in the survey week fewer than one in five worked no hours and, on average, 21 hours were worked. In a survey by CIPD, 65% of those on zero-hour contracts reported being satisfied with their job, slightly higher than employees as a whole, provided they are able to work a suitable number of hours.
17.The Taylor Review described a problem of the flexibility expected of workers not being reciprocated by the businesses they work for. Workers have been required to be available at short notice, without knowing if work will actually be available. We heard from three anonymous workers in the gig economy, put forward and supported by GMB union, on their experiences. This included evidence of Amazon warehouse workers sent home after two hours (earning less than their travel costs) and of contracted workers having an extra 10-hour shift imposed on top of a 40 hour working week. We also heard evidence from workers, put forward by the companies they worked for, who welcomed the flexibility their work provided.
18.The Taylor Review recognised this was not an easy problem to solve, noting “potential adverse consequences to most interventions”. The Review argued that simplistic solutions, such as banning zero hour contracts, could harm workers who rely on flexibility without benefiting workers employed for a small number of guaranteed hours. The Review recommended the Government should “ask the Low Pay Commission to consider the design and impacts of the introduction of a higher NMW/NLW rate for hours that are not guaranteed as part of the contract”. Matthew Taylor told us this approach was “more nudge than shove”. The Review has been criticised for not being bolder, but this recommendation has the potential for a significant impact. As the Resolution Foundation set out in their response to the Review, a premium would nudge employers to either rebalance away from non-guaranteed hours or pay for the privilege. It would benefit the lowest paid, who are most likely to be working overtime, and trigger a debate on overtime as a wider public policy tool.
19.Sir David Metcalf, Director of Labour Market Enforcement and a former member of the Low Pay Commission, expressed concern that the proposal could further fragment the NMW/NLW, which already have several rates. He agreed, however, that it could be implemented by “making it equivalent to an overtime rate”.
20.When we took evidence from Matthew Taylor, his thinking had developed, based on international examples, to a proposal of a pilot with the Low Pay Commission to test the impact on employment. A successful pilot could deal with some of the existing abuses seen, such as that “large companies in this country now put people on four or five-hour-a-week contracts when they customarily expect them to work 30 or 35 hours a week”. It might also nudge other businesses into scheduling work to the benefit of their workforces. The Low Pay Commission can also draw on international examples such as legislation passed in New York and Oregon that penalise “surprise scheduling”.
21.Companies benefiting from a flexible workforce must ensure that this flexibility is not one-sided, either by guaranteeing hours that reflect the periods worked each week, or by compensating workers for uncertainty. We recommend that the Government work with the Low Pay Commission to pilot, for workers who work non-contracted hours, a pay premium on the National Minimum Wage and National Living Wage. The Low Pay Commission should be responsible for identifying suitable companies to be included in this pilot, based on workforce size and turnover. Proposed legislation to enable this is set out in Part 3 of our draft Bill.
22.Clarity on employment status will make it easier for individuals to know the rights to which they are entitled. A range of rights are only open to those who are employees and who have completed a minimum level of continuous service. These include entitlement to one week’s notice of dismissal (at one month) or the right to claim for unfair dismissal (at two years). Under the Employment Rights Act 1996, continuous service is broken by any one week in which a worker is not governed by a contract of employment. Workers who work infrequently or casually may never manage to attain rights despite working for companies for long periods of time, because any week where they do not have a contract results in the counter returning to zero.
23.The Taylor Review considered this as part of its investigation into one-sided flexibility. It recognised that the law does not discriminate between those workers who choose not to work and those who simply are not offered work by their employer in a specific period. The Review considered creating new measures of employment, through accrued hours and the setting of thresholds for rights. It concluded, however, that these would impose an additional burden on business and could make it more difficult for workers to know when they have attained rights. Instead, Taylor recommended the extension of the time before service is broken from one week to one month.
24.Extending the time limit would ensure workers who undertake irregular but frequent work for a company do not face an impossible task to secure rights. A worker would only reach the qualifying period once they had accrued the appropriate time actually worked; rather than having the clock reset at the end of each week it should merely be paused.
25.Companies who benefit from a flexible but committed workforce should still guarantee rights when workers reach the necessary qualifying period, even when there has been a gap in service. We recommend that the Government extend the time allowance for a break in service while still accruing employment rights for continuous service from one week to one month. We have set out proposals in Part 5 in our draft Bill.
26.As we noted earlier in this chapter, employment rights are often enforced through workers taking their employer to a tribunal following unsuccessful attempts at conciliation, rather than by state agencies. Recent high profile tribunals have assigned worker status to people in the gig economy who worked for companies that maintained they were not workers but self-employed. Tribunals are also used to enforce most other legislation, such as the National Minimum Wage Act 1998 and the Working Time Regulations 1998.
27.Hugo Martin, Director of Legal and Public Affairs at Hermes Parcelnet, told us that the low take-up of employment tribunals suggested that couriers were “in the vast majority of cases [ … ] very happy being self-employed”. By contrast, the Taylor Review noted that, while tribunals are intended to be less legalistic than traditional courts and enable self-representation, the reality is that “the odds are often stacked against the worker”. We do not accept that workers not bringing cases means that they are satisfied with their status or treatment in the workplace. This is evidenced by the significant drop in the number of cases brought before tribunals following the imposition of fees, before the Supreme Court judgment on 26 July 2017 saw them removed again. The legal costs, complexity and risks of appeal act as disincentives to bringing a tribunal case. Workers may also fear victimisation, including the risk of their work being withdrawn, if they bring a case. Even if they win their case, there is no guarantee that workers will receive any payment that they are due. Just half of all successful claimants received full or part payment without taking further legal action in 2013.
28.Relying on tribunals to enforce rights for entire workforces places a burden on both the judicial system and those seeking access to justice. Partial compliance by poor employers denies good employers a “level playing field” and risks them either failing or adopting models that do not provide ‘good work’. Matthew Taylor described businesses taking the unhealthy attitude that:
As long as there are ways to get around it, we will get around it and wait until we are taken to the courts.
We heard this position first hand from Hermes Parcelnet, who said:
It will be for the individual courier to assert their right through the tribunal. We would wait to see the take-up of that.
29.The Employment Tribunal Procedure Rules enable multiple individuals to bring a claim when their cases are based on the same set of facts, providing for a form of group action (see Box 2). The Taylor Review considered and ruled out applying single tribunal judgments to entire workforces or all those on similar contracts. The Review noted, however, that it is “neither just nor efficient for the system to operate so that every single person in an organisation has to bring a case to be recognised as a worker”. Instead of this approach, the Review proposed to increase penalties for companies who repeatedly lose employment status cases. We would welcome increased penalties as a means of deterrence, and consider this in detail in Chapter 4 of this report.
Box 2: Class actions
In legal terms, “class action” means that if one person brings a claim successfully, the result is applied to everyone in the class. Class actions are only permitted in consumer protection cases in England and Wales.
A system of bringing group claims has developed in other areas, such as equal pay. The difference in these cases is that each individual has to bring a claim. The tribunal or court then selects lead claimants and decides their cases. To get the benefit of the court judgment, each individual must follow the full legal process, including paying fees and providing individual documents.
For example, in the case, thirteen drivers brought claims, and the tribunal judges select two test claimants. The final outcome of the process will only apply to the thirteen drivers who brought claims. Although the same result might well be reached by any other driver who brought a case, there is no obligation for Uber to apply automatically the result to all drivers. Under a class action, all Uber drivers would automatically become workers, regardless of whether they had brought a claim or not.
30.We asked Matthew Taylor whether greater use of class action claims might enable more comprehensive enforcement of rights. He told us this was “an important idea”, although it would not work in all cases. This might apply not just to employment status disputes, but to other issues such as underpayment of the NLW/NMW. We are, however, concerned that this approach still relies on individual workers bearing the risk of litigation, in a tribunal system that is not currently providing effective access to justice for all. Sir David Metcalf told us fear of victimisation prevents individuals pursuing their rights via the tribunal system. He explained there are “many vulnerable workers” who are either unaware of their rights or who are “rather frightened of complaining”.
31.Workers frequently rely on the employment tribunal system to establish their rights. But restrictions on class actions and the absence of penalties for widespread abuses may incentivise employers to “wait and see” whether individuals are willing to risk pursuing their rights. We recommend that the Government creates an obligation on employment tribunals to consider the increased use of higher, punitive fines and costs orders if an employer has already lost a similar case. We further recommend that the Government takes steps to enable greater use of class actions in disputes over wages, status and working time. Our proposals are set out in Part 4 of our draft Bill.
32.The growth of the gig economy and increased use of intermediary digital platforms to connect workers and consumers has changed the way people work. Matthew Taylor told us these changes had enabled greater flexibility for both consumers and workers. These business models can also be very lucrative for the companies involved. Uber’s Head of Public Policy, Andrew Byrne, said that his company faced the challenge of “having enough drivers to service the level of demand” from consumers who valued its accessible and flexible service. For some workers, such as an Uber driver who spoke to us, the flexibility to choose when to work was very important. Deliveroo’s Managing Director, Dan Warne, said their platform allowed riders to “build their work around their life, rather than vice versa”. The Taylor Review sought to retain the benefits of flexibility in the labour market, but in the form of “genuine two-sided flexibility”, where workers as well as companies benefit. The Review promoted the need for portable benefit platforms and transferrable ratings, which could support workers to have genuine flexibility within the gig economy. It argued that “employers must not use flexible working models simply to reduce costs”.
33.The Review encountered problems, however, with the interaction of minimum wage legislation and gig economy workers on digital platforms. It found that such workers have “greater freedom over when to work, and what jobs to accept or decline, than [in] most other business models”. They can log on to an app at any time. Matthew Taylor explained to us how this might lead to unintended consequences:
A situation where people are guaranteed the Minimum Wage but they can work whenever they want to could lead to a situation in which thousands of people log on in the middle of the night when there isn’t much work but are guaranteed the Minimum Wage.
Matthew Taylor acknowledged that he thinks businesses “slightly exaggerate” the extent of this potential problem. However, he nevertheless argued that enforcing the NMW/NLW for platform workers could result in companies choosing to adopt a shift system which would deprive workers of flexibility. A platform worker could log onto an app during a period of low demand, not be able to find any work, and still be entitled to the NMW/NLW. Instead, the Taylor Review recommended that existing piece rates legislation be adapted to calculate pay for platform workers (Box 3). It claimed that this would “avoid undermining the National Minimum Wage”.
Box 3: Piece rates
Piece rates legislation aims to ensure that workers whose working time is not tracked, and are therefore paid based on output (such as envelope stuffers), can earn a fair rate of pay. A sample of workers is surveyed to establish the average output of an individual in an hour. Each worker is then paid for their output at a rate that would reflect an hourly rate of at least 120% of the NMW/NLW, based on the output of that average worker. In cases of workers who work significantly more slowly than the average, they may receive pay at a rate below the NMW/NLW.
34.In evidence to us, Matthew Taylor said that, under his proposal, the employer would need to meet three conditions for a platform worker to earn less than the NMW/NLW and not be entitled to bring a minimum wage claim against them. First, the employer would need to prove that the average worker working averagely hard could earn 120% of the NMW/NLW. Second, they would need to prove that the worker could genuinely choose when to work and when not to. Finally, they would need to provide accurate, up-to-date information to workers on how much they could expect to earn at a given time.
35.Matthew Taylor acknowledged that this recommendation is “in danger of being too clever by half” and that it is “not one that is easy for people to fully get their head around”. We are concerned that the proposal is overly complex and risks undermining the NMW/NLW by inviting workers to choose to work for a lower rate of pay. Workers should receive at least the minimum for which Parliament has legislated.
36.A flexible labour force can provide benefits to workers, consumers and businesses. What we do not accept is that the gig economy should burden workers with all the risks of this flexibility. They should not be faced with a choice between not working and working for below the minimum wage. We recommend the Government rules out introducing any legislation that would undermine the National Minimum Wage/National Living Wage.
14 “Workers” are more accurately described as “limb (b)” workers, distinguishing them from employees, who also have worker rights.
15 Pyper, D. , House of Commons Library briefing note no. CBP8045, July 2017
16 , p34
17 [David Metcalf], Q219 [Matthew Taylor]
18 [Matthew Taylor]
19 , p35
20 [Matthew Taylor]
21 [David Metcalf]
22 , p34
23 Law Society, , June 2017, p7
24 , p32
25 See, for example, ; ; .
26 [David Metcalf], [Matthew Taylor]
27 See, for example, ; ; . In some cases, companies have moved to reclassify their workforces before being taken to tribunal. For example, The Gym Group PLC recently wrote to all self-employed personal trainers offering the option of applying for employee roles, rather than self-employment. See .
28 , para.15
29 , para.20–21
30 [Matthew Taylor]
31 [Matthew Taylor]
32 Office for National Statistics, , 16 August 2017
33 Office for National Statistics, , 16 August 2017
34 Office for National Statistics, , 16 August 2017
35 CIPD Policy Report, , December 2015, p6
36 , p43
37 [Amazon Worker, Mick Rix]
38 Work and Pensions Committee,
39 , p44
40 , p44. Only workers aged 25+ are eligible for the NLW, so for the premium to cover all workers, it would need to apply to the NMW as well.
41 [Matthew Taylor]
42 , TUC Press Notice, 11 July 2017
43 , Resolution Foundation Press Release, 11 July 2017
44 [David Metcalf]. Currently the NLW is £7.50 for the 25 and over. NMW wage rates are £7.05 for 21–24 year olds, £5.60 for 18–20 year olds, £4.05 for under 18s and £3.50 for apprentices.
45 [David Metcalf]
46 [Matthew Taylor]
47 [Matthew Taylor]
48 [Matthew Taylor]
49 Sheffield Political Economy Research Institute, , September 2017, p5
50 Employment Rights Act 1996,
51 , p45
52 , p45
53 For example, ; ;
54 [Hugo Martin]
55 , p60
56 , p57
57 Ministry of Justice, , 20 June 2017
59 [Matthew Taylor]
60 [Matthew Taylor]
61 [Hugo Martin]
62 Ministry of Justice, , February 2015, p9
63 , p63
64 , p63
65 [David Metcalf]
66 [Matthew Taylor]
67 [Andrew Byrne]
68 For example, [Uber Worker]
69 [Dan Warne]
70 , p36
71 , p37
72 , p48
73 , p37
74 [Matthew Taylor[
75 [Matthew Taylor]
76 , p37
77 , p37
78 The National Minimum Wage Regulations 2015 ()
79 [Matthew Taylor]
80 [Matthew Taylor]
17 November 2017