Introduction

The Taylor Review was ordered by Theresa May in the light of a number of recent high profile cases disputing the employment law status of individuals working in the gig economy for companies such as Uber and Deliveroo. In a number of these cases, the courts have determined that the individuals working in these businesses are not self-employed contractors, but are workers and, as such, are entitled to the statutory rights afforded to workers such as the national minimum wage and holiday pay.

The Taylor Review has a broader scope than just the gig economy and considers more generally what reform of both law and practice are needed to reflect modern working practices. Seven steps towards fair and decent work with realistic scope for development and fulfilment are proposed, including a goal of good work for all, ensuring fairness for those involved in gig economy businesses, good management and strong employment relationships.

The Review takes the basic position that the job market in the UK has a good record of job creation, that its flexibility is a strength, and that the goal should be to improve the quality of work. It considers that good employers have nothing to fear from its recommendations.

With the flurry of media interest in this Review, it is important to note that it only constitutes a set of recommendations for the Government to consider. It is unclear whether or when any of the Reviews recommendations will be introduced in practice given the Governments lack of a parliamentary majority. That said, there may be cross party support for reform, although the trade union movement would seek far more substantive improvement of workers rights than the Review proposes.

Many of the recommendations made in the Review are essentially to consolidate and clarify the law, to increase awareness of existing law and tighten up enforcement. So for example, the suggestion to call workers in the gig economy dependent contractors is merely a relabelling of the current status of worker which is coupled with a suggestion that the current tests for determining who is a worker be simplified.

If the recommendations in the Review were implemented, the most significant impact would be on gig economy type businesses which typically treat individuals in the business as self-employed service providers who offer their services to customers through a digital platform. The reclassification of those individuals as workers or dependent contractors would require the business to pay holiday pay, national insurance contributions (NICs) and the national minimum wage (NMW).

Dependent contractors

Currently there are three broad categories of status for the purposes of employment protection. Employees have the full suite of right including the right to claim unfair dismissal, to take maternity leave etc. Workers have fewer rights but are also entitled to the NMW and statutory holiday entitlements. Truly independent self-employed contractors do not have any employment rights. The application of these tests in the gig economy has proved particularly controversial and contributed to the Taylor Review being commissioned.

The Review recommends new legislation to clarify and simplify the distinction between workers and self-employed individuals which the Review identifies as the area where there is greatest risk of vulnerability and exploitation. The Review is clear that flexibility in the labour market is a good thing, welcomed by both business and workers. The aim is to update employment protections without affecting business models which allow flexibility.

The Review notes that in many of the high profile cases brought against gig economy businesses, the Employment Tribunals have found that the individuals involved are workers, not self employed contractors. The system of employment protections in the UK is therefore in its view working reasonably well already. However, the law needs to adapt to reflect emerging business models with greater clarity for individuals and business. This is considered to be important not only to protect individuals but also businesses because the current system incentivises businesses to gain a competitive advantage by adopting business models which may exploit or disadvantage workers.

The Review notes that the Employment Tribunals have established a range of factors to be applied to determine an individuals worker or employment status. To reach a conclusion currently requires, in its view, an encyclopaedic knowledge of the relevant case law. The Review suggests that the legislation should do more and the courts do less. In other words the Government should consider which of the tests identified by the Courts is key and put that into legislation and guidance. It suggests renaming workers, who do not also qualify as employees, dependent contractors with a clearer definition which better reflects the reality of modern, more casual employment relationships where an individual is not an employee, but neither are they genuinely self-employed. Of all the tests which have been put forward by the courts to determine worker status - such as mutuality of obligation, control, the individual carrying on a business or undertaking, personal service - the Review favours control as a determining factor. This is similar to the EU law definition of a worker as a person who performs services for and under the direction of another person for which he receives remuneration see Betriebsrat der Ruhrlandklinik gGmbH v Ruhrlandklinik gGmbH C-216/15 (17 November 2016).

At the moment, the requirement that the individual does the work personally can be the most important factor in determining whether the individual is a worker or truly a self-employed contractor. So an individual who has almost every aspect of their work controlled by a business, from uniform to rates of pay to disciplinary action, may nonetheless not be considered to be a worker if a genuine, rather than sham, right to substitution exists. In developing the test for the new dependent contractor status, the Review considers that control should be of greater importance, with less emphasis placed on the requirement to perform work personally.

Dependent contractors would be entitled to all the rights which workers currently enjoy such as the right to holiday pay and the national minimum wage). True employees who have a personal contract of employment would continue to enjoy the greater range of employee rights such as maternity leave and the right not to be unfairly dismissed.

Encouraging two-sided flexibility

The Review considers that flexibility should not be one-sided and used by employers to cut costs, transfer risk to individuals, and exert unfair control over them. Flexible working relationships need to be rebalanced so that the flexibility is two-sided i.e. benefits both parties. A number of proposals are suggested to achieve this.

Encouraging businesses to plan whilst maintaining flexibility

The Review considers that the gig economy and other sectors and business models could plan better and are perhaps relying too much on zero hours contracts, agency workers and short hours contracts. The reality is that some people on zero hours contracts are actually working 40 hours every week; and some temporary or agency workers are doing the same job for years. The Review sets out a range of recommendations to rebalance this:

Worker engagement

The Review believes that the tone for fair and decent work is set at the top of an organisation and that engaging properly with workers is part and parcel of good business practice. The Review therefore suggests a renewed focus on employee engagement, especially in low paying sectors, and the Information and Consultation of Employees (ICE) Regulations which, broadly speaking, require businesses to set up long term information and consultation arrangements with employees. Currently very few businesses (14% in 2011) have such arrangements. The Review recommends that the scope of the ICE regulations should be extended. The suggestion is to extend the regulations to include both employees and workers, and to reduce the threshold for implementation from 10% to 2% of the workforce making a request. In addition, in order to encourage transparency and conscious decision making about employment models, businesses should be required to report on their employment model and use of agency workers.

Better enforcement of worker rights

The Review acknowledges that there needs to be a fair system of enforcement of existing and any new employment or worker rights and notes the impact of Employment Tribunal fees on access to justice, particularly for the lowest paid. It suggests that individuals who are seeking to establish their employment status should be able to obtain a determination from an Employment Tribunal, at an expedited preliminary hearing, without having to pay a fee.

There are a number of additional measures suggested to improve enforcement, including reversing the burden of proof in Employment Tribunals where an individuals legal status as a worker or otherwise is in dispute. This would mean that there would be a presumption of worker or employee status, and it will be for the employer to prove that the individual is not entitled to the rights claimed. Currently the individual must to prove their status before they can take their claim further. There are also a number of proposals to strengthen the enforcement of Employment Tribunal awards.

The Review recommends that HMRC should be given enforcement powers in respect of sick pay and holiday pay as well as NMW.

The Review also proposes the abolition of the so called Swedish Derogation which currently allows agency workers to contract out of their right to be paid the same as a permanent member of staff doing the same job after a 12 week qualifying period.

Tax

The Review does note the different tax treatment of employed and self-employed people, in that self-employed pay lower NICs and there is no equivalent of employer contributions for the self-employed. The rationale for this lower tax rate is that the self employed may be taking greater financial risks, and may create employment opportunities for others. The Review concludes that this this not the reality for many self-employed people. However, the Reviews only recommendation is that Government should consider bringing the levels of NICs paid by employed and self-employed people closer, along the lines of the proposals in the spring 2017 budget, which were dropped by the Government and now seem unlikely to be revived.

The Review approves of HMRCs move towards a digital real time tax system, and associated technology for cashless payments, which the Review believes will increase tax revenues. It is hoped that online systems will increase tax revenues from the so-called hidden economy where payments are made cash in hand. The online systems should also ensure more accurate recording of payments and charging to tax for self-employed people (similar to the way that the PAYE system works for employees).

Training and apprenticeships

The Review looks at ways of developing training and apprenticeships to improve the quality of jobs. Notably it states that unpaid internships are an abuse of power by employers and extremely damaging to social mobility. The Review recommends that Government should stamp out unpaid internships by clarifying the existing law and encouraging HMRC to take enforcement action.

Protecting and developing good quality flexible work

In light of the stated benefits of flexibility, the Review considers reviewing and developing rights around flexible working. It recommends a review and consolidation of the protections around pregnancy and maternity on the grounds that legislation is too complicated and not working.

The Review also makes recommendations to improve health outcomes linked to work. Notably this includes a proposal to make entitlement to SSP a basic employment right comparable to the NMW to which all workers are entitled regardless of income from day one.

Conclusion

As the Review constitutes only recommendations, no doubt this debate will continue employers should continue to watch this space.

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Good Work, The Taylor Review of Modern Working Practices - JD Supra (press release)