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Identifying bogus self-employment
[ch 2: pages 39-45]Some employers go to great lengths to create documentation that refutes the standard employment relationship, so as to avoid statutory worker rights and tax obligations, and tribunals are expected to recognise this (see some of the recent high profile examples in the box on page 42).
When interpreting contract documentation to decide on someone’s true employment status, tribunals must take into account the unequal bargaining power in the relationship and look at the whole context (including, for example, any publicity and other written material provided for marketing the services to clients), not just the written employment contract documents. The task is to ensure that the contract documents genuinely reflect what the parties intended to agree. There is no need for paperwork to be a “sham” i.e. deliberately intended to deceive. It is enough that it fails to reflect the real terms of the agreement between the parties. This was established in this landmark Supreme Court ruling:
Car valet-operator Autoclenz entered into written agreements with individuals to clean cars for their client, British Car Auctions. The agreements were drafted to look like self-employment. For example, valeters were paid on a piecework basis and were responsible for their own tax and national insurance. In theory they were obliged to provide their own equipment. In reality the company supplied all the cleaning materials and group insurance, deducting the costs from their pay. Branded uniforms were provided.
The valeters claimed the national minimum wage and holiday pay, but Autoclenz argued that they were self-employed. The Supreme Court said that establishing someone’s employment status involves looking at the whole context, not just the written contract terms, taking into account, in particular, the relative bargaining power of the parties.
Whatever the documentation might have suggested, it was clear that these valeters were not self-employed business people operating on their own account. They had no control over how they did their work or their working hours, they had no economic interest in the way work was organised, they were not free to source materials for themselves, they worked under the direction and control of Autoclenz who prepared their invoices and decided their rates of pay, and even though the contract documentation allowed valeters to work for other businesses or to send substitutes to do their work, in practice this very rarely happened.
The Supreme Court concluded that the men were employees working under contracts of employment and their claims for the national minimum wage and statutory holiday pay were successful.
Autoclenz v Belcher [2011] UKSC 41
Although tribunals must take the inequality of the parties into account, they are only allowed to work out what the parties must have intended to agree when the contract was entered into. They are not allowed to rewrite the terms of the agreement, no matter how unequal the parties’ relationship (Smith v Carillion (JM) Limited [2015] EWCA Civ 209).
The genuinely self-employed are not workers or employees. Instead they are businesses operating on their own account, doing business at arms-length with other businesses and with their own customers. They can employ their own staff and sub-contract work to others.
The genuinely self-employed do not qualify for statutory employment rights. In particular, they are not entitled to the national minimum wage, sick pay or holiday pay. They must supply their own tools and equipment and are responsible for their own tax and national insurance contributions (NICs).
The self-employed are left out of pension auto-enrolment (see Chapter 4), which UCATT says has created another incentive for false self-employment. They must make their own provision for retirement. They are entitled only to the state pension, which they receive as long as they have paid enough years of NICs.
From 1 October 2015, the health and safety protection of the self-employed was downgraded, in a change to the law described by the TUC as one of the most dangerous pieces of health and safety deregulation ever enacted (Section 1, Deregulation Act 2015). The new law says that self-employed workers whose activities pose no risk to the health and safety of others are not covered by health and safety law, unless their activities are specifically listed in a schedule to the new regulations — the Health and Safety at Work Act 1974 (General Duties of Self-Employed Persons) (Prescribed Undertakings) Regulations 2015. The listed activities are agriculture, asbestos, construction, gas, genetically modified organisms and railways.
To be genuinely self-employed, you should be doing business on your own account, and providing services freely to your own clients and customers, as opposed to being integrated into another organisation and providing services to their customers on their behalf.
You can still be a “worker” (with worker rights, such as holiday pay) in relation to the services you provide on behalf of an organisation to its customers, while at the same time being “self-employed” in relation to other services you offer to your own customers freely on the open market (Hospital Medical Group Limited v Westwood [2012] EWCA Civ 1005).
In another landmark case, in February 2017, the Court of Appeal confirmed that “self-employed” plumbing operatives at plumbing business Pimlico Plumbers (PPL) are “workers”:
After working for PPL for six years, plumbing operative Mr Smith had suffered a heart attack and when he asked to cut his hours, PPL ended the relationship. Smith argued that he was an employee and claimed unfair/wrongful dismissal, medical suspension pay, holiday pay and pay arrears, as well as compensation for disability discrimination and failure to make reasonable adjustments. PPL asserted that he was self-employed and had no employment rights.
PPL's business model required operatives to assume all the financial risk of each transaction, only getting paid when the customer paid PPL. Non-payment within one month led to a 50% cut in the operative’s “percentage”. Bills left unpaid after six months were “written off”, with no payment to the operative at all.
Operatives were required to take contractual responsibility for work quality and to insure against the risk of claims, to fund the purchase of equipment and materials, including personal protective equipment, to be VAT and Construction Industry Scheme (CIS) registered, to pay their own tax and national insurance and had to indemnify PPL against any claim. There was no flexibility on the cost of materials, or the price to be charged.
Contract documents were non-negotiable. It was a matter of “take it or leave it”. PPL “choreographed” the contract documentation carefully to make it look as if its workforce was self-employed.
However, at the same time, PPL operatives were tightly regulated. Hours were closely monitored with GPS tracking, notice had to be given of any holiday or time off – only full days allowed – and during a shift, operatives had to be available for on-call work. There were rules about smart appearance and a mandatory uniform with logo. Only branded vehicles and company mobile phones were allowed, all charged for as deductions from “wages”. Operatives were banned from giving out their mobile number or working privately for prospective PPL customers. The sanction was instant “dismissal” for anyone caught breaking rules, especially the ban on private work. All customer contact had to be via the control room and there were detailed procedures for invoicing, estimates and extra labour charges.
There was an “unwritten rule” that anyone refusing work would be “parked up”, meaning that no work would be allocated for a period of time. Operatives were not allowed to send a substitute who was not a PPL plumber. There was a three month non-compete obligation on termination.
Smith conceded that he had always thought of himself as self-employed, and had taken advantage of the tax benefits of self-employment.
In a preliminary hearing, the employment tribunal ruled that Smith was a worker, legally obliged to provide his services personally, fully integrated into PPL’s organisation and subordinate to it, providing services to its customers. He was not in business on his own account. Although he was a worker, he was not an employee because the relationship “simply [did] not look anything like a contract of employment”, in particular since he took advantage of the tax advantages of “self-employment” and took the whole financial risk of non-payment. Both the EAT and the Court of Appeal upheld this ruling.
Pimlico Plumbers Limited & Charlie Mullins v Smith [2017] EWCA Civ 51
Like the Uber ruling (see box on page 42) this ruling may act as a deterrent to organisations that market their business to the public so as to give the impression of a directly employed workforce, on hand and ready to provide services when called on, while at the same time requiring their workforce to sign up to paperwork intended to paint a picture of “self-employment”.
These rulings also show that employers who engage in high levels of monitoring and control (such as use of GPS tracking) are especially likely to struggle to show that their workforce is genuinely self-employed.
Employment status – Important union tribunal victories
2016 was a year of key strategic union victories in the employment tribunal, combating the spread of insecure working in the growing “gig economy”. Probably the most significant ruling was made against $62.5 billion transport service provider Uber, supported by the GMB general union.
Uber
A group of Uber drivers brought claims for the national minimum wage (NMW), holiday pay and detrimental treatment due to whistle-blowing. To succeed, they had to qualify as “workers”. In other words, they had to be legally obliged to work personally for Uber and not in business on their own account (i.e. not genuinely self-employed).
The Uber model uses an App. Uber argued that it was simply making its App available as a “platform” for use by self-employed drivers.
The tribunal heard evidence that Uber drivers are tightly regulated. For example, to be allowed to work, drivers must sign up to rules about behaviour and accept at least 80% of trip requests made via the App. Declining three trips results in the sanction of being forcibly logged off the App (denied access to the ability to earn) for ten minutes. Drivers' movements are tracked closely by the App. Once a passenger requests a journey, the nearest driver is located and has a ten second window in which to accept the fare before it is passed automatically to a second driver.
The driver gets no access to the passenger’s phone number, has no knowledge of the destination before pick up and no involvement in pricing or payment, and is “strongly discouraged” from departing from the GPS route provided by the App. Drivers must accept constant monitoring and agree to Uber retaining their data.
Passengers must “rate” drivers out of a score of five at the end of each trip. Ratings are monitored and drivers whose scores fall below 4.4 must undergo a series of “quality interventions”. Anyone who fails to make the grade has their account “deactivated”. They forfeit the ability to work for Uber.
Drivers do not wear a uniform, they provide their own vehicle, must meet all the running costs and treat themselves as “self-employed” for tax purposes. They cannot provide a substitute.
Uber’s contract documentation with each driver was carefully crafted to negate any suggestion that the relationship created employment rights. Drivers have no choice but to accept the documentation if they want to drive for Uber. Many do not speak English as a first language.
The employment tribunal ruled that the Uber drivers who brought the claim were workers entitled to statutory worker rights. They were not self-employed. The tribunal condemned Uber’s use of “fictions, twisted language and even brand new terminology”, concluding that it was unreal to deny that Uber was in business as a supplier of transportation services and “faintly ridiculous to view Uber in London as a ‘mosaic of 30,000 small businesses linked by a common ‘platform’”. The drivers did not and could not negotiate as equals with Uber. This unequal bargaining relationship was a key concern for the tribunal.
The tribunal also highlighted the stark contrast between the choreographed contract documentation suggesting “self-employment” and the story told by Uber to its customer base about “our drivers” , as well as publicity material boasting of generating “tens of thousands of jobs in the UK”. Uber’s business model relied on being able to draw on a pool of available drivers to be able to get drivers to customers as quickly as possible. Being available, with the App turned on, was an essential part of the service provided by the drivers to Uber. While the App was turned on and drivers waited for their next fare, they were “working” and were entitled to the NMW. For more information on the NMW, see Chapter 4.
Uber has appealed against the ruling, and the appeal is expected to be heard during 2017. Whatever the outcome of the appeal, the employment tribunal findings in this case will have had a lasting impact, not only for 40,000 Uber drivers, but for all workers in conditions of false self-employment.
Building on its successful claim against Uber, in March 2017 the GMB filed tribunal claims for the NMW and holiday pay against national logistics company UK Express, on behalf of workers at online retail giant Amazon. The union has also filed claims on behalf of courier drivers for delivery firms DX and Hermes.
Aslam & Others v Uber London Limited & Another Case Nos. 2202550/2015 & Others, London Central Employment Tribunal
https://www.judiciary.gov.uk/wp-content/uploads/2016/10/aslam-and-farrar-v-uber-reasons-20161028.pdf
CitySprint
A second important employment tribunal claim was brought against cycle couriers CitySprint, supported by the Independent Workers of Great Britain Union (IWGB). The claim was for two days of holiday pay, but the ruling opened the way to claims by another 3,200 CitySprint couriers, as well as others working in the “gig economy”, and to claims for a wider range of rights, in particular the national minimum wage. The claimant, Ms Dewhurst, worked for CitySprint each day from the moment she reported as ready for work to the point when she signed off for the day.
Factors that encouraged the tribunal to rule in her favour included: the two-day recruitment process; the provision of training, uniform and other equipment; and the fact that couriers were paid weekly without presenting an invoice. In practice, they were expected to work personally, and not provide a substitute.
As with the Uber model, CitySprint couriers were required to sign standard contract documentation – “Confirmation of Tender to supply Courier Services to CitySprint (UK) Limited”, which asserted that the couriers were “self-employed contractors”. The Employment Judge said the very title of the contract aroused suspicion, and that it did not reflect the reality of the working relationship in several key ways.
The CitySprint ruling is the first of four similar legal challenges against courier companies, which include Addison Lee, Excel and E-Courier.
Deliveroo
In this case, the IWGB are using the statutory recognition procedure to test employment status, with an application to the Central Arbitration Committee (CAC) for statutory recognition against app-based takeaway delivery firm Deliveroo. The statutory recognition procedure is available only to “workers”, so to decide the application, the CAC must first determine the drivers’ employment status (see Chapter 5).
Workers engaged in false self-employment miss out on rights such as:
• Paid sick leave;
• Holiday pay;
• Overtime rates;
• Redundancy pay;
• Travel allowances;
• Pension contributions; and
• Employment protections such as the right to claim unfair dismissal and protection from discrimination at work.
Checklist: Are you really self-employed?
HMRC emphasises that employment status is not a matter of choice. It is a matter of law. Every situation depends on its own facts, but here are some of the factors that can be important when working out whether someone is genuinely self-employed. Bear in mind that some employers deliberately manipulate these factors, to try to avoid employment rights.
A genuinely self-employed person normally:
• provides their own equipment;
• is not required to wear a branded uniform or drive a branded vehicle;
• is free to work for other organisations if they want to;
• is free to engage other people of their choosing to work alongside them, such as apprentices or sub-contractors;
• is responsible for their own expenses;
• takes on the financial risks of business failure and profits from business success; and
• has control over pricing. A self-employed person normally negotiates a price for services to be provided, and freely invoices their client for those services (as opposed to having the “price” set by the organisation that receives the services and/or having their “invoices” generated by that organisation);
• is not paid “wages or salary”, and is not entitled to the national minimum wage;
• is not subject to a formal “performance appraisal” process by the organisation to which they provide services, either directly or via customer review or feedback;
• is not tightly controlled as regards the way tasks are performed;
• sets their own hours and is not closely monitored (for example through vehicle tracking or other software);
• takes holidays when business demands allow, saving up income to cover the cost of holidays because there is no “holiday pay”;
• does not get sick pay;
• is not subject to a disciplinary procedure; and
• cannot be “sacked” or dismissed. Instead, termination of an arrangement of genuine self-employment will be on the basis of the commercial contract terms negotiated between the business and the service provider at the start of the transaction.
HMRC has devised a new online Employment Status Indicator Tool to help work out whether someone is genuinely self-employed or employed (HMRC does not recognise “worker” status – see page 32). Here is the link: https://www.tax.service.gov.uk/check-employment-status-for-tax.
Another body that plays a key role combating false self-employment is the Gangmasters and Labour Abuse Authority (GLLA), established following the Morecombe Bay cockle-picking tragedy in which 23 Chinese workers lost their lives. For more information, see page 75 of Chapter 3 and visit the GLA website at www.gla.gov.uk.