The gig economy – what does the future hold?

Posted by Nerys Cobner-Vale on
According to many reports, the gig economy is booming but by its very nature, gig economy activity is difficult to measure. New research published by the CIPD provides an analysis of the scale of the gig economy and the people involved.

First of all what do we mean by the gig economy? There are various definitions:

  • It is a labour market characterised by the prevalence of short-term contracts or freelance work, as opposed to permanent jobs.
  • It is a way of working that is based on people having temporary jobs or doing separate pieces of work (a gig) each paid separately, rather than working for an employer.
  • It is the freelance economy, in which workers support themselves with a variety of part-time jobs that do not provide traditional benefits such as paid holiday.

In reality the gig economy is not new. Taxi drivers, trades people and couriers for example, have  worked on a self-employed basis for years and been paid for each fare, job or delivery. However, a combination of technological developments, online platforms and new business models together with recent high profile litigation about employment status have made the gig economy headline news.

It has been estimated that 15% of the UK labour market, nearly 5 million people, are self-employed and the number in part-time, self-employment has been growing faster in recent years. A report last summer by the Recruitment and Employment Confederation predicted that gig work would add £45 billion to the UK economy and create work for 766,000 people. However, in March 2017, the CIPD Survey "To gig or not to gig? Stories from the modern economy" reiterated that the gig economy is hard to define and to measure and that there are “wildly different” claims about its size and rate of expansion. According to the Survey:

  • 4% of UK working adults between 18 and 70 are working in the gig economy which means around 1.3 million people.
  • Only 14% of respondents are working in the gig economy because they could not find a job.
  • A high proportion of gig economy workers (58%) are permanent employees engaging in the gig economy in addition to their usual employment.
  • Gig economy workers typically earn a relatively small proportion of their total income from their gig work.

As for the individuals involved in the gig economy:

  • 21% of respondents to the Survey have been involved in the same gig economy activity for between 12 months and 2 years.
  • Only 15% of respondents have been involved in the same gig activity for 3 years or more.
  • Nearly 40% of respondents are aged between 18 and 29 and 30% are aged 40 or above.
  • 25% of respondents are working in the gig economy as a short-term solution for a specific goal such as saving for a car or holiday.

Many people work in the gig economy because of the flexibility and independence it provides in relation to how, where and when they work. There are concerns however that earnings are low for gig economy workers. According to the Survey, the median hourly rate is £6 for those using their own vehicles to provide transport or deliver food or goods. This increases to £7 an hour for those performing short-term jobs online and £7.70 an hour for work via an online platform. It is important to remember however that many gig economy workers are highly skilled and their earnings are much higher. 

A major concern about the gig economy is that many people are losing out on basic employment rights because their employment status is actually that of a worker rather than a self-employed contractor. Uncertainty about employment status is probably one of the most contentious aspects of the gig economy and a number of recent high profile cases involving Pimlico Plumbers, Uber and CitySprint for example dealt with this specific issue.

Establishing an individual's employment status, that is, whether they are an employee, worker or self-employed contractor is important because it determines what employment rights the individual has (as well as having tax implications).

For example, employees benefit from the right to claim unfair dismissal, the right to a statutory redundancy payment, to statutory minimum notice and to receive written reasons for dismissal. Employees also have an entitlement to paid annual leave, the national minimum wage, limits on working hours and family friendly rights such as maternity leave. 

Workers have fewer rights than employees but are still entitled to the national minimum wage, paid annual leave and limits on working hours. Like employees, they have the right not to be discriminated against.

Self-employed contractors (or freelancers or consultants) work under contracts for services and service contracts. Typically they are in business on their own account and engaged on specific projects. They do not have any of the rights of employees or workers although in certain cases they may benefit from protection under discrimination legislation.

The test for deciding an individual's employment status is complex and the February 2017 Court of Appeal decision in Pimlico Plumbers Ltd v Smith illustrates the assessment that needs to be carried out.

Mr Smith was engaged as an independent contractor by PP between August 2005 and April 2011 and signed two agreements to that effect. He was registered for VAT and filed tax returns on the basis that he was self-employed. He wore the company uniform with a logo, drove a PP van and had to give notice about taking annual leave. He was expected to work a minimum of 40 hours a week. There were detailed requirements in relation to timesheets, purchasing procedures and invoicing. Following a heart attack in January 2011, Mr Smith wanted to reduce his working days. PP ended the agreement in May 2011 and Mr Smith then brought Employment Tribunal proceedings.

Upholding the decisions of the Employment Tribunal and EAT, the Court of Appeal held that Mr Smith was not an employee under section 230 Employment Rights Act 1996:

  • There was no obligation on PP to provide work and Mr Smith signed a second agreement which confirmed this.
  • There were specific circumstances when PP had no obligation to pay Mr Smith for the work done for example, when a customer's invoice had been outstanding more than six months.
  • There was insufficient obligation to provide work or pay for this relationship to be one of employer and employee.
  • The parties themselves thought that Mr Smith was self-employed rather than an employee and Mr Smith employed an accountant to make full use of the tax advantages of being self-employed.
  • Mr Smith was VAT registered and this was inconsistent with an employment contract.
  • There was some financial risk borne by Mr Smith such as paying for materials in advance, the risk that he might have to work without payment, for example, where invoices were outstanding as well as the risk of the work taking longer than estimated and consequently,  being less lucrative than expected.

Mr Smith was however a worker: 

  • He had to provide his services personally to PP and there was no right of "substitution" in the contractual documentation.
  • He had to work a minimum number of hours.
  • Restrictive covenants applied to Mr Smith following termination of the agreement. 
  • Rather than PP being a client of Mr Smith's business, he was in fact an integral part of PP's operations and subordinate to PP. 

As a result, Mr Smith had the right to the national minimum wage and paid holiday.

In the Dewhurst v CitySprint UK Limited case, couriers were presented with a “confirmation of tender to supply courier services” which stated that couriers were self-employed and could provide a substitute. Electronically acknowledged key terms made it clear that there was no obligation to provide services and CitySprint were under no obligation to provide work. In January 2017, the Employment Tribunal held that Mr Dewhurst was a worker and not self-employed.

The Employment Tribunal came to the same decision in the high profile Aslam v Uber B.V. case in October 2016. It held that Uber drivers were workers and not self-employed. Uber have been given permission to appeal and the two-day hearing starts at the EAT on 27 September 2017. Interestingly, according to Uber, 76% of the drivers said that being self-employed with the flexibility to choose their own hours was preferable to being employed.  

But it's not just a concern about employment status. The gig economy also raises concerns about lost revenue to the Treasury and the potential unfairness in the tax system. According to the Office for Budget Responsibility, in 2020-21 the gig economy will cost the Treasury £3.5 billion. The Chancellor Phillip Hammond is looking for more effective ways to tax workers in the UK’s shifting labour environment and in the March Budget announced an increase in the national insurance rates for the self-employed. The move was controversial however and quickly dropped.

With ongoing litigation about employment status and the continuing growth of the gig economy it is a topic that will continue to dominate the headlines especially as it is also one of six specific themes addressed by the Taylor Review. The 6 months Taylor Review of Employment Practices in the Modern Economy was launched on 30 November 2016. Matthew Taylor is leading the Review to consider how employment practices need to change to keep pace with modern business models. He is expected to report to the government in June 2017. What happens after that will now depend on the result of the general election. A separate inquiry has also been carried out by the Work and Pensions Committee (Self-employment and the gig economy). In its report published on 1 May 2017, the Committee recommended that the government should stop "bogus" self-employment practices where workers may lose out on certain employment rights and where there could also be "substantial tax losses to the public purse". Interestingly, the Committee recommended that there should be an assumption of the employment status of "worker" by default rather than "self-employed". The Committee will not carry out any further work until after the general election.

In its Survey, the CIPD also made various recommendations about the gig economy. For instance, that the government should launch a consultation to consider whether there should be a clearer demarcation between “employee”, “worker” and “self-employed” and a high profile “know your rights campaign” with ACAS and CABs being involved. Finally, it is worth noting that in February 2017, ACAS published new guidance to help understand the gig economy and employment status rights and this takes account of the recent case law developments mentioned above.

About the Author

Nerys is a Solicitor in our Employment team, based in Oxford. She advises on both contentious and non-contentious employment matters.

Nerys Cobner-Vale
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01865 254 293

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