The Changing Gig Economy

Efrat Gordon, Associate, Employment

The “gig economy” is the term used to describe situations where individuals perform services on a short term or freelance basis. Individuals are paid for the “gigs” that they do, for instance delivering items or undertaking a car journey.

The gig economy can be beneficial for both individuals and companies. Individuals can work flexible hours and they can fit work around their lives. Companies only pay individuals when work is available and undertaken, minimising overheads and increasing profitability.

Traditionally, individuals working within the gig economy were hired as self-employed contractors, meaning that they had very limited employment rights, and they were only paid for when they did a job. Therefore, if individuals spent a lot of time waiting around for a job to come up; they would not have been paid for the waiting time.

However, the employment status of these individuals has been a recent hot topic following the Employment Tribunal decision against Uber last year. In the Uber case, individuals were found to be classed as “workers” rather than “self-employed contractors”. Similar decisions were reached in cases involving Pimlico Plumbers and City Sprint. Proceedings are ongoing against Deliveroo.

Workers have more employment rights than self-employed contractors, most notably the right to be paid the national minimum wage, annual leave and sick pay. Therefore, companies will need to pay these workers the national minimum wage for their whole working time, rather than just for the time they are undertaking a job. Some individuals may take advantage of their new found worker status by making less of an effort to undertake their duties efficiently and in a timely matter, as they will be paid in any event.

Individuals have still been found to be workers, even if the their agreement with the company states that they are a “self-employed contractor”, as the Tribunals look through the written agreement at the practical reality of the arrangement. This can no doubt seem unfair, as these individuals knew the basis on which they were being contracted, and they were happy to do so at the outset. So, why should they now be able to claim more money and employment rights? Unfortunately for such companies, the law prevails and has been proven to be followed rigorously in these cases.

These Tribunal decisions have shaken the gig economy, and arrangements which previously maximised profits for companies are becoming less economical and companies are finding themselves fighting expensive litigation without success.

The future of the gig economy is unsteady and uncertain; it is the subject of public interest and continual scrutiny. Late last year, the Prime Minister commissioned a report led by Matthew Taylor to review how employment practices need to change to keep up with modern business models. The Taylor Review concluded that flexibility at work is important, and individuals should be allowed to continue to work flexibly so long as they are granted fairness at work. The Taylor Review suggested a new employment status for individuals who work for platform-based companies called “dependent contractors”, which would be distinct from those who are “self-employed”. Only time will tell whether any suggestions detailed in the Taylor Review will be implemented.

In any event, legal technicalities mean that the gig economy is changing and may become a far less profitable arrangement for many corporations trying to set up and/or run their business in England and Wales. These companies should review arrangements with their self-employed contractors in light of recent case law, in order to minimise the risk of costly protracted litigation. Individuals pushing for more rights may have the effect of eventually driving these companies away from England and Wales, and making new corporations reluctant to translate their business model in this jurisdiction. On the other hand, self-employed contractors may benefit from changes in the law, including increased rights and security at work.