What the Uber Judgment Means for Your Small Business
Last week’s long-awaited Supreme Court ruling in the Uber case has far-reaching ramifications for any small business that employs self-employed people in all sectors.
Self-employed drivers hired by Uber claimed they were in fact not self-employed; Instead, they stated that they were “employees” and were therefore entitled to a statutory remuneration that corresponds to the national minimum wage (NMW) for all “working hours”. The entitlement included claims to statutory benefits such as paid public holidays.
And the court ruled in favor of drivers, potentially costing Uber up to £ 20,000 per driver.
Uber’s defense was that the agreement with the drivers was typical of the private rental or gig economy industry.
However, the effects of the judgment may extend to anyone who currently employs self-employed consultants or independent contractors.
> See also: What are the advantages of working agile? – a guide for small businesses
The crux of the problem
Many would imagine that someone who is classified as a “worker” in this case is classified as an employee rather than a self-employed person. However, the confusion about these categorizations lies at the heart of the whole problem.
A worker is not the same as an employee. Status can best be described as “house halfway” between employment and self-employment. “Employees” are entitled to statutory pay and benefits, but not to full employment rights.
So an employee has no right to claim dismissal, but may be entitled to unpaid wages, retroactive vacation pay, and unlawful discrimination.
To add further complications, there are differences in provision in tax law and labor law, which can be very confusing for entrepreneurs.
Tax law is binary and only recognizes categories of employees or self-employed, while labor law has this middle category of employee status. So it could be determined that someone is self-employed for tax purposes but an employee for labor rights. In short, all employees are employees, but not all employees are employees.
The dangers of being influenced by non-experts
Even many of those responsible for these issues – legislators, business leaders, etc. – find the definition of the complex of self-employed, employees and employees confusing.
And for small business owners, the situation is not improved by the fact that advice is usually sought from accountants or through the HMRC’s online CEST checker. Neither of these channels is likely to offer an option for “employee” status as, as noted, the status is not tax-recognized.
Despite this misunderstanding, the status of an employee is not new: it is defined as “any person who undertakes to perform or personally perform a work or service for another party, whether under an employment contract or another contract”. The definition continues: “It does not matter whether the contract is express or tacit, oral or written, provided that the individual undertakes to personally perform the work or services for an end-user who is not a customer or customer.”
“Sole proprietorships who are self-employed can actually be employees.”
Sound familiar? This is because many sole proprietorships who operate on a self-employed basis can actually be employees, although the individual himself and his employee do not know this. Legal challenges are only raised when disputes arise.
> See also: How to let your employees know that they are working fewer hours
The three tests of self-employment status
Three main tests are used in labor courts that determine the actual status of a self-employed person:
- There are No permanent reciprocity of obligation – The employer is not required to do work, and the individual is not required to continuously accept
- The only one does not work under control of the company – the more a self-employed person works under the control and direction of the employer or is integrated into the company, the more he moves towards employee or employee status
- The individual has one unrestricted right to provide a suitable replacement to provide the service to be rendered and the employer cannot refuse or determine who the replacement may or may not be
There is no specific weighting for these, and in disputed cases judgments are based on the bigger picture. Basically, someone who is self-employed should run their own business, do marketing and provide service to the world. This is the “service” he provides, not his personal service or skills. Once the above tests are no longer met, the gray areas of potential disputes come into play.
Crucial factors in the Uber case
With Uber drivers, a key factor in their claim was that Uber had a greater degree of control and influence over how the drivers did their job and how much they could be charged, provided that they were found to be working under a high level Subordination and dependence.
However, they were not found to be employees as there was no mutual commitment. They could choose when to work.
An important decision of the Supreme Court in this case is that the legal determination that it is an employee exceeds the terms of contract agreed and signed between the parties. While it is important to set out the contractual arrangements, the words on paper may be invalid if one or more of the tests outlined above are passed.
What the Uber Judgment Means for Your Small Business
What Does the Uber Judgment Mean for Your Small Business? Some examples can help.
A typical self-employed person can be a freelancer who provides his or her personal skills and services and does not “run a company”. They can refuse to do the job so there is no reciprocity, which means they cannot be an employee. However, they will probably not have the right to send a replacement either, so they cannot really be self-employed either.
Often these freelancers are of their own choosing and work independently in many industries – for example, sports trainers, golf professionals, tutors, physiotherapists, designers, architects, and rental chairs in hairdressing salons. These people may well fall into the category of employees as they cannot send replacements to perform the job.
Then there are numerous business models where individuals have no choice but to become self-employed, where they are effectively forced to accept self-employed terms, and where this can lead to the exploitation of normally poorly paid, vulnerable people.
Self-employment is increasingly used here as a means of price competition in order to minimize costs in areas such as cleaning and care. Here it is often – not always – unlikely that individuals would run their own businesses and, as noted in the Uber case, not receive a statutory salary for all hours of work and benefits such as vacation pay.
As I mentioned earlier, regardless of written agreements and party choice, the reality of the situation matters. This is why it is so important, especially in view of the decision made last week, to seek professional advice on personnel and labor law.
The CIPD / IES report, Reforming Employment Status, which I was involved in on behalf of Human Resources to outline the problems of small businesses, called on the government to take a fundamental approach to employment status and to abolish worker status.
The government set out to review this as part of its 2018 Good Work Plan. Now is the time for a thorough review as this is a complex area of law with many hidden risks that many business owners are unaware of.
Jill Bottomley is a director at The HR Dept.
This change in vacation schedule could result in more costly layoffs