A breakdown of two judgments significantly affecting gig economy businesses

Written by Brabners LLP

 

  1. Cycle couriers engaged by City Sprint still workers despite contract

In January 2017, the Employment Tribunal (“ET”) held in a previous case that a cycle courier engaged by CitySprint was a worker under the Employment Rights Act 1996. As a result of this in November 2017, CitySprint subsequently introduced new terms in their contracts of engagement to ensure that their couriers would be considered ‘self-employed’.

These new terms included substitution clauses to reduce the requirement for personal service (a component which is usually indicative of an employment relationship between the employer and the employee). It was then agreed that the couriers could send a substitute in their place, and that they would be responsible for paying the substitute.  The substitute would not have any contractual or financial relationship with CitySprint.

The cycle couriers then brought a claim to the ET and argued that these terms had no actual effect on the day to day arrangements of their engagement and therefore sought to argue that they were still workers post November 2017.

In bringing this claim they also argued that as workers they were entitled to holiday pay even though the contract contained a clause excluding this. City Sprint had adopted the practice of “rolled up holiday pay” not paying holiday pay whilst the couriers were on holiday but instead, they made additional payment during the weeks that the couriers worked, representing pay due in respect of holiday periods. CitySprint argued that the new terms of engagement defeated any claims from those engaged for holiday pay.

The cycle couriers argued that the rolled-up holiday clause was void and that holiday pay was required due to their ‘worker status’. They also highlighted that in any event, there had been no additional payments by City Sprint that were capable of being holiday pay.

The Judgment

In making their judgment, the ET considered firstly whether the cycle couriers were workers both before and after the variation of their terms of contract in November 2017 and secondly if they were considered workers, whether they could claim unpaid holiday from when they started working with CitySprint.

The ET held that the cycle couriers were still workers even after the variation of terms. Although CitySprint had amended the contract and included a clause allowing for substitution, with the intention of ensuring the couriers were self-employed, the ET held that this right was only one that was written down in the contract and not actually reflected in practice.

The contract change had not changed the need for personal service and as such, the relationship was one of worker and not self-employed contractor.  . Further it was noted that most of the couriers did not provide their services to other companies or themselves as a self- employed service. Therefore, the cycle couriers were entitled to holiday pay as workers.

The ET held that the rolled-up holiday pay clause was not transparent or comprehensive enough to fulfil the requirements for a valid practice of ‘rolled up holiday pay’.

Why is this important?

The case is significant to any business engaging people on a self-employed basis as it demonstrates that the contract is no longer king and that a Tribunal will scrutinise what is happening in practice as well as considering the contractual terms. 

What’s clear from this case is the although the contractual relationship can outline how the relationship is intended to take place and what this is classified as (worker, employee or self-employed), it is clear that it is the actual day to day workings of the relationship that determine the status and therefore the obligations on the employer and the rights of the individual that flow from this.

Practical tips

The contract can only take you so far. It is important to undertake regular reviews and audits of the services carried out by self-employed contractors to make sure that the practice matches the contract terms.  You should revisit the status of self-employed contractors and makes sure you remain satisfied that they are correctly defined and the contract reflects what is happening in practice. Doing this and rectifying any problems in the first instance will mitigate the risk of claims further down the line.

It is also important that line managers are aware of each individuals status so they can manage that person and give instructions (particularly around service, substitution and use of equipment and uniform when working).

If you would like help with auditing your workforce, reviewing your contracts or training your managers please let us know.

 

  1. “Tutor introducing businesses” and other disrupters to be subject to greater regulation

There are many businesses and entrepreneurs that have looked and continue to look at disrupting the recruitment industry. We are regularly approached by businesses either looking at circumventing the regulatory framework or just unaware of the existence of regulations which govern the sector.

The recent outcome of the Judicial Review raised by Simply Learning Tutor Agency Limited (and others) serves as a reminder of the regulations that need to be complied with and confirms the wide definition of “employment” for the purposes of the Employment Agencies Act 1973 (the EAA) providing some much needed clarity for those disruptors who are looking to use different business models to introduce work seekers to hirers.

In this Judicial Review case the Court found that “tutor introducing companies” who introduce self-employed tutors to parents were subject to the EEA and the Conduct Regulations and as such, were unable to charge work finders for work finding services and had to ensure their compliance with the Conduct Regulations. Failure to comply would mean that the Employment Agency Standards Inspectorate could apply to the Employment Tribunal for an order prohibiting a person from carrying on or being concerned with the carrying on of an employment agency and any failure to comply with a prohibition order being a criminal offence.

Factual background

Private tutoring is a booming business; in recent years, a host of companies have been established that operate by providing “introduction services”.  In other words, they introduce tutors to parents for a fee.  Parents then usually engage with the tutors directly on a self-employed basis, although sometimes the introduction service provides further ancillary services. For example, they might provide additional ongoing administrative or payment collection services.

The Department for Enterprise, Innovation and Skills (BEIS) investigated some of these organisations and reached the conclusion these businesses fell within the scope of the EEA. This is significant because of the additional regulatory compliance that would apply to these businesses as a result.  The businesses disagreed and ultimately brought a judicial review application to ask the Courts to make a declaration as to who was correct.

The question hinged on whether the tutors, who the company introduces to parents (but who provide subsequent services under contracts of services directly with the parents) fall within the section 13 of the EAA definition of “employment”. The tutoring businesses argued that the tutors were not caught by this definition, but the Secretary of State disagreed.

The Legal Arguments

Under section 13 EAA, employment is defined as including:

employment by way of a professional engagement or otherwise under a contract for services.

The tutor introducing companies maintained that tutors could not come under this definition because they did not do anything that resulted in “employment” of the tutors. At all times the tutors were genuinely self-employed.  They argued that they did not do anything which resulted in ‘employment’ of tutors either by themselves or the end clients. They suggested it was wrong to include contracts for services (such as these) within the EAA definition of “employment”. They relied on the Supreme Court’s judgment in Pimlico Plumbers & Another v Smith [2018] UKSC 29 by asserting that the tutors neither operated under a contract of service of the tutor introducing companies, nor of the parents.

In particular, they argued that the purpose of their business was wholly different to that of an employment agency, which aims to find employment for workers.  They also pointed out that they were not acting as employment businesses, which employ workers themselves and send them to work elsewhere temporarily. They argued they were simply an introduction and fee collection business.

As such, they argued they should not fall within the scope of the EEA. In turn, this would mean the tutor introducing companies could escape regulatory oversight by the Secretary of State for Business Energy and Industrial Strategy and continue to charge fees to the tutors for workfinding services.

Unfortunately for the tutor introducing companies, these arguments did not carry any weight with the presiding Judge, Helen Mountfield QC, who “found these argument wholly unpersuasive, both as a matter of language and as a matter of purpose”.

The Judge held that the definition of “employment” under the EAA did include these sorts of arrangements as it was intended to be a wide definition that included “all arrangements through which a business supplies people personally to perform work to a third party, whether or not that s regarded as employment, professional engagement or self-employment under a contract for services as a matter of common law”.

Conclusion

The Judge’s decision means that the definition of “employment” for the purposes of the EAA is much wider than the ordinary definition in employment law which, in turn means, that a whole host of businesses who might have thought they were exempt from the regulatory and compliance requirements will not be.  If you are one of those businesses or working with one of those businesses, it’s important that the business models are reviewed urgently as the Employment Agency Standards Inspectorate is likely to be relying on this decision to ensure regulatory compliance.

Although this case recognised and confirmed that each case is fact sensitive, the confirmation that the definition of employment in the EEA is to be interpreted widely may affect other areas of the gig economy and again, if you are operating introducing workers or contractors to third parties or working with companies operating like this and not currently ensuring compliance with the regulatory framework which applies to the recruitment sector then you need review your position in light of this case.

Please contact simon.whitehead@brabners.com or any of the Recruitment Sector team at Brabners if you need help with the issues arising from this case or if you want to review whether your business model is compliant.

 

This bulletin is for general guidance purposes only and should not be used for any other purpose. Brabners is a Limited Liability Partnership

 

 

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