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Markel Tax

17 Jan 2018

The worker status “gig”

At Markel Tax, we have a particular dislike for the phrase “gig economy”. It has been pounced on by the media as some kind of label used to describe a new burgeoning industry which is exploiting vulnerable workers.

For those of us who have operated and advised in the temporary contractor market for many years, we know full well this is nothing new, nor is the employment status issues of workers.
Nonetheless, following the highly publicised “gig economy” cases involving delivery drivers, the government-sanctioned Taylor Review was completed in 2017 and provided recommendations to reform worker status for employment law purposes. 
Following the Taylor Review, recommended legislative changes have now been placed before the House of Commons Select Committee for consultation.
Before we look at these potential legislative changes, it is important to look at the current state of the law on worker status.
Worker status is often described as an “employed and self-employed hybrid” or “halfway house” between employment and self-employment. While these may be useful in conjuring up the idea of what a “worker” is; for legal purposes a worker is more akin to an employee than a self-employed subcontractor: they are afforded many employee protections (such as National Minimum Wage, Holiday Pay etc.), but they aren’t afforded all the rights of an employee.
The current legislative definition can be found in WTR 98 2 (1) b and ERA 96 230 (3) b which provides the following definition (which is often dubbed a “limb b worker”):
“any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual”
In simple terms, this statutory definition says that in order for an individual to be a “worker” three things must exists:
  1. there must be a contract
  2. the individual must provide the services personally
  3. the individual must not be providing the services as a profession/business undertaking to a customer/client
If any one of these is missing, the individual cannot be a “worker” for the purposes of the legislation.
In deciding the matter, over the years, the courts have refined and developed their interpretation of the statutory definitions. 
Taking point one above, it will almost certainly be self-evident that a contract exists (although it is noted in the Uber case an unsuccessful attempt was made to argue no contract existed between the relevant parties).
Turning to the second point, this is the same test we are all familiar with in self-employed status and IR35 cases. The tribunal will look to see if the individual had to provide their services personally or whether they had a right to utilise a substitute in their place. Whilst on the face of it, this test is fairly simple to examine, the courts are always concerned to establish whether the right to send a substitute is true and genuine (in the oft quoted words of Elias J in Kalwak “The concern to which tribunals must be alive is that armies of lawyers will place substitution clauses as a matter of form”).
Again, however, aside from concerns over written terms vs reality, this second test is fairly straight forward to determine in law (although it cannot be ignored that the courts will often look at concept of mutuality of obligations, focussing on any “obligation” to undertake the services as part of this, and the third, test).
It is the third point above which has perhaps seen the most movement and scope for interpretation by the courts. On the face of it (especially for those of us who deal with employment status and IR35 matters), one would be forgiven for thinking this third test focusses on the traditional Market Investigations test of “in business on your own account” and, for the most part, that is correct. In its purest form, the courts are seeking to establish whether the individual provided the services as an independent business operating in business on his own account.
As part of this test, however, the courts have taken to look at the area of control (which is the one traditional employment status factor missing from the legislation). There is a raft of case law on this particular area, starting with most notably the Byrne Brothers Case and James v Redcats. The courts’ view is that the imposition of control by an engager on an individual is inconsistent with a business to business relationship, and they have been concerned with just how “arms-length” the nature of the relationship is; i.e. is the individual trading at arm-length with his client, or is he dependent on the engager.
While the courts development of this test into the area of control has been met with some criticism (as it is arguable whether it was Parliament’s intention to purposefully omit the control test), control has been an establish founding principle in Employment Status for many years and it is perhaps right and proper that the issue of worker status, which at its core was intended to grant protective status to individuals and grant them employee-like protections, should include control.
It is against this backdrop that the most publicised gig economy cases have been heard. Given the media attention, the government was under pressure to be seen to be doing something (perhaps due to the U-turn on stamping out zero-hour contracts which seemed to slip under the radar), hence the Taylor Review was completed and currently the draft bill before the Select Committee states: 
The definition:
[an individual who] has entered into or works under any other contract, whether express or implied and (if it express) whether oral or in writing whereby the individual undertakes to do or perform any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.
It is immediately evident that there is a significant change here and personal service is not immediately included. This accords with the Taylor Review’s recommendations that the personal service test, as a key initial deciding factor, is outdated and unhelpful.
The draft bill continues to provide statutory provisions which the court or tribunal may have regard to in deciding working status, including (direct from the draft bill):
3A) (a) whether the contract places an obligation on the individual to perform work personally;
(b) whether the other party to the contract retains the potential to control to a substantial degree how the individual’s work will be carried out in relation factors such as: 
    (i) disciplining the individual;
    (ii) the activities to be carried out;
    (iii) the order in which activities are to be carried out;
    (iv) the equipment or products to be used in carrying out the activities;
    (v) the rate of pay for the activities;
    (vi) where the work will be carried out;
    (vii) how the activities will be carried out; and
    (viii) the hours during which the work is to be carried out.
(c) whether the individual is integrated into the other party to the contract’s business;
(d) whether the other party to the contract provides tools or equipment;
(e) the degree of financial risk undertaken by the individual; and
(f) whether the individual is prohibited from working for others during the contract.

3B) (b) whether the worker was engaged in marketing their business before the contract came into existence; and
(c) whether any substitution clause is capable of being freely exercised by the individual in practice (but the fact an individual has a contractual right to appoint a substitute under the contract shall not of itself prevent that individual from being a worker).

For the most part, the draft bill follows established case law and it would seem initially that this may not fundamentally change or amend established law on worker status. If we look closer, however, we can see that in order to be a worker the new tests would be:
  1. there must be a contract
  2. the individual must perform services
  3. the individual must not be providing the services as profession/business undertaking to a customer/client
In the normal course of events, points one and two will be met automatically by virtue of an individual providing services; the personal service test is brought within the third test, as opposed to its own independent test. This may seem like semantics but the courts have been clear that each test under the current law must be considered separately; i.e. in previous decisions, if it was evident there was a lack of personal service, the courts did not need to consider the third test.
By effectively “lumping” personal service into the third test this seems to be a purposeful effort to place personal service as one factor among many to be considered, it is also notable that the bill specifically provides that a substitution clause will not, of itself, prevent an individual being a worker.
It is no surprise that control features as part of the new proposed test; however, what is interesting (and of concern) is that the considerations place the "what", "when", "where" and "how" on an equal footing. This does not follow established case law principles closely, which have almost always focussed more heavily on the "how"; i.e. the manner in which the services are provided. 

This is not the end of the recommended changes, the draft bill interestingly also includes the following:
3C) In this Act an individual is “an independent contractor” if he is neither an employee nor worker.
3D) For the purpose of subsection 3C a tribunal or court may have regard to the following factors, for example:
    (a) whether the individual assumes responsibility for the success or failure of his business;
    (b) whether the individual can hire others at their own expense;
    (c) whether the individual has the ability to determine the manner in which the services are carried out;
    (d) whether the individual actively markets their services;
    (e) whether the individual can negotiate and set the price for their services; or
    (f) whether the individual is responsible for their own indemnity cover or public liability insurance”.

This addition somewhat confusingly grants “independent contractor status” as almost a default “non-worker status” position. It directs the courts to consider a number of in business factors, a lack of control over the manner, but not a lack of personal service.
This is not where the recommendations end, the bill also includes a requirement that engagers provide written particulars to the individual within seven days, confirming the status of the individual (whether he is employed or a worker), and provides the following automatic protection:
“1ZB Worker status by default unless evidence of self-employment
Where in any complaint made to an employment tribunal any question arises as to whether an individual is a worker, it shall be presumed that the individual is a worker unless the contrary is established”.

This effectively does exactly what it says – it grants worker status to an individual as a default position unless it can be demonstrated otherwise.
When one considers that following the recommendation for the Taylor Review, the purpose of this draft bill, is to clarify the law on worker status and provide a simpler, more readily understandable, definition of what a worker is; I cannot help but wonder whether, in drafting this bill, so much effort was put into the minutiae of definitions and recommendations that no one stopped to consider the recommendations as a whole and in line with established employment status case law or the wider practical and litigious problems.
This is currently in draft format and will be subject to further consultations. One can only hope that, as part of the upcoming processes, a wider view of worker status will be taken to expose the fundamental flaws in the application of this legislation and the numerous litigious problems this legislation will create (including the burdens it will place on an already strained tribunal system).
The only certainty is that changes to worker status will be coming, and coming sooner than many will expect. While these changes are fundamentally based in employment law, it cannot be ignore that if there are a greater number of “workers” there will be an increase in tax and NI that must be paid at source on those “workers”. We will, of course, continue to provide updates on these important developments as and when they arise. 
Tagged Status Employment taxes and share scheme
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12 Jan 2018

Last day to pay tax bill by personal credit card

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