Guest Post: The ‘gig economy’ on trial, raising CSR concerns

Prof. Stephen Hardy, Professor of Law and Head of Coventry Law School, contributes to today’s guest post:

The term ‘gig economy refers to a free market system in which temporary positions are common and organizations contract with independent workers for short-term engagements. This trend towards a gig economy has created a growth in independent contractors with an aspiration to have 40% of the global workforce as independent contractors by 2020.

However, at the centre of this debate are a set of well-thumbed and used labels. They are: employee, self-employed and worker. To that end, s. 230 of the Employment Rights Act 1996 (hereinafter ERA) provides the statutory solution. Put simply, this provision ensures that workers have the right to certain minimum rights, including national living wage, holiday and discrimination, whilst employees have more extensive rights, including the right not to be unfairly dismissed. Essentially, under Section 230(3)(b) ERA, a ‘worker’ means “…an individual who has entered into or works under a……. contract of employment, or (b) any other contract,… whereby the individual undertakes to do or to 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…”. Consequently, ‘worker status’ remains a controversial issue in the growing gig economy.

ON TRIAL BEFORE THE UK SUPREME COURT

The Pimlico Plumbers ruling concerned the contractual relationship between Gary Smith, a plumbing and heating engineer, and Pimlico Plumbers Ltd. The case arose because, six years after starting work, Mr Smith suffered a heart attack and decided to reduce his working days from five to three. Pimlico refused his request, removed the branded van and terminated his agreement. In fact, in August 2011 Mr Smith issued proceedings against Pimlico in an Employment Tribunal (ET), asserting that he had been an “employee” of Pimlico under a contract of service within the meaning of section 230(1) of ERA 1996 and as such he complained, among other things, that Pimlico had dismissed him unfairly contrary to section 94(1) of it; and/or that he had been a “worker” for Pimlico within the meaning of section 230(3) of ERA and as such he complained that Pimlico had made an unlawful deduction from his wages contrary to section 13(1) of ERA. The tribunal held that he was not an employee, but agreed that Mr Smith had been a “worker” for Pimlico within the meaning of section 230(3) of ERA.

Consequently, Pimlico brought an appeal against the Tribunal’s decisions to the Employment Appeal Tribunal (EAT) which dismissed it. Pimlico subsequently brought an appeal against the appeal tribunal’s decision to the Court of Appeal, which agreed with both of them, dismissing the appeal. Thereafter, Pimlico appealed to the UK’s Supreme Court (UKSC). As Lord Wilson explained: “It follows that the tribunal held that, although Mr Smith was not an “employee” under a contract of service, he was an “employee” within the meaning of section 83(2)(a) of the Equality Act. It is regrettable that in this branch of the law the same word can have different meanings in different contexts. But it gets worse.

Accordingly, the Employment Appeal Tribunal in its judgment concluded that, on the one hand, Pimlico wanted to present their operatives to the public as part of its workforce but that, on the other, it wanted to render them self-employed in business on their own account; and that the contractual documents had been “carefully choreographed” to serve these inconsistent objectives. In any event, the case proceeded before the Employment Tribunal on the basis that the manual as much a part of the contract provided:

“(a) [Y]our appearance … must be clean and smart at all times … The Company logo-ed uniform must always be clean and worn at all times. (b) Normal Working Hours consist of a five day week, in which you should complete a minimum of 40 hours. (c) Adequate notice must be given to Control Room for any annual leave required, time off or period of unavailability.”

The Court of Appeal interpreted the findings to be that Mr Smith’s facility to substitute another Pimlico operative to perform his work arose not from any contractual right to do so but by informal concession on the part of Pimlico. Critical of the Employment Tribunal, the Supreme Court found that Mr Smith had the right to substitute another Pimlico operative to perform his work, the tribunal, unfortunately, saw fit to turn its attention to the terms of a revised contract between Pimlico and its operatives which was introduced following the termination of Mr Smith’s contract. However, the Supreme Court was extremely critical of such contractual arrangements and noted that Pimlico “put before the tribunal an irrelevant contract, cast in highly confusing terms, and now complains that the tribunal’s interpretation of them was highly confused.” The Supreme Court found that Pimlico, therefore, put before the Employment Tribunal an irrelevant contract. Specifically, the Supreme Court held that, irrespective of whether a wider right of substitution would have been fatal to Mr Smith’s claim, the tribunal found, and was entitled to find, that Mr Smith’s only right of substitution was of another Pimlico operative. As a matter of fact, the terms of the contract made in 2009 were clearly directed to performance by Mr Smith personally referring to his skills, a warranty that he was competent to carry out the work, and the requirements to have a high standard of conduct and appearance. Consequently, the right to substitute was regarded as so insignificant as not to be worthy of recognition in the terms deployed.

CORPORATE SOCIAL RESPONSIBILITY IMPLICATIONS 

In business, culture is important because it attracts talented and skilled individuals, increases productivity and operational efficiency, as well as preserving a business’ reputation. To that end, companies improve safety standards, pay decent wages and involve workers in their business affairs. Accordingly, corporate social responsibility (CSR) has become a standard business practice in the business environment.

More recently in December 2018, in Uber, the Court of Appeal, by a majority (the Master of the Rolls and Lord Justice Bean), upheld the decisions of the ET and the EAT. That is, that the Claimant Uber drivers are workers. Essentially the majority reasoning of the Appellate Court was that since Uber has a smartphone app, by which passengers can book rides from drivers who also have the app, whilst the drivers own their own cars and are free to choose when they make themselves available to accept bookings, they were workers rather than self-employed.

At the time of the original hearing in 2016, there were about 30,000 Uber drivers operating in the London area, and 40,000 in the UK as a whole. Accordingly, the drivers were workers, employed by Uber London Ltd; and that they were to be regarded as working during any period when they were within their territory, had the Uber app switched on and were ready and willing to accept trips. The Employment Appeal Tribunal upheld that decision. The essential question as regards worker status was whether, as the drivers argued, Uber contracts with the passengers to provide driving services, which the drivers perform for it; or whether, as Uber argued, it acts only as an intermediary, providing booking and payment services, and the drivers drive the passengers as independent contractors. The written contractual terms say the latter, but the majority hold that they do not reflect the practical reality of the relationships. In conclusion, in terms of CSR, the latter is of grave concern.

In conclusion, where the working arrangements are deemed to be inconsistent with the actual service provided and/or the contractual relationship bears no relation to the actual reality, such means that CSR is being undermined. Both the recent Pimlico ruling by the UKSC and the on-going Uber litigation affirms that CSR is threatened by the rise of the gig economy and its ‘anti-employee’ policies. Plainly both recent legal decisions emphasize the need for more corporate responsible behaviour in terms of drafting, negotiating and implementing, as well as maintaining, terms of employment and working conditions.

3 thoughts on “Guest Post: The ‘gig economy’ on trial, raising CSR concerns

  1. Absolutely – in the cases cited here the firms have been found to be legally in the wrong however for the gig economy to work for all, it has to be underpinned by both the legal system and corporate values. Currently in many gig economy examples the platforms e.g. Uber have few if any competitors making them in effect a monopoly and driving down pay and working conditions. The gig economy could be great – currently its often exploitative.

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  2. Innovation always outpaces regulation (Ilya Shapiro & David McDonald). As a result, there’s an urgent need to amend the current legislation to factor in the current innovations. Whereas it can be argued that the gig economy has existed for a number of years, it’s popularity has risen over the past couple of few years. Gig economy workers straddle the line between employee and independent contractor and do not currently receive the benefits and protections that are tied to employment(Marina Lao). While the gig economy has unleased great economic efficiencies, the gains to the workers remains uncertain in certain scenarios. For example, whereas Uber greatly benefitted customers, it can not be argued that drivers greatly benefited in regard to their employment status and benefits.

    In most jurisdictions, a wide range of social benefits and legal protection are tied only to employees, and not independent contractors or gig economy which is a hybrid. To the extent that workers under the gig economy are not employees within the meaning of the law, they are left out of the benefits which include inter alia; the right to collective bargaining through recognised unions. This is a CSR concern to the extent that workers in the gig economy are faced with similar circumstances as employees and yet have no platform to air these grievances.

    The challenge now is to find a way for gig economy workers to enjoy a fairer share of the benefits created by the sharing economy without undermining the business model. However, others concerned with the precarious circumstances of gig economy have suggested different solutions to wit; legislative redefining of the term ’employment’, very broadly to encompass gig economy workers(Brishen Rogers), create a separate classification for ‘independent workers’ who would be given certain employee rights (Seth Harris & Alan Krueger).

    The first solution poses a threat to the on-line model of business that relied heavily on non-traditional work relationships. Compliance with some employee mandates could render the gig economy infeasible in regard to flexibility. Albeit, the second solution is appealing, the enforceability is questionable.

    While the benefits of the gig economy are widely acknowledged, the business model remains a threat to CSR in as far as the protection and treatment accorded to the workers is concerned and there’s therefore need to regulate the gig economy.

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  3. Hello Prof Hardy,

    Your post has alerted me to grave concerns regarding the current state of affairs in the employment market. I also agree with your view that the current upward trend towards a gig economy poses risks to workers’ rights.

    The Pimlico decision has shown us that even the Court has difficulty in identifying the proper status of a person in relation with the company that uses his/her services. But even if the differences among workers, employees and self-employed are clarified definitively, the problem will remain. Let me explain.

    The problem will persist because the big corporations will always find a way to draft contracts that will favour their own interests. In fact, clarification of the definitions under the law as to the status of the employee/worker will make it easier for the companies to draft the appropriate legal provisions to escape liability. As mentioned by the other comments, there is a big gap in bargaining position between the companies such as Uber and the individual. In essence, the individual is constrained to sign a Contract of Adhesion and agree to whatever terms the company puts forward. Additionally, not all individuals will be familiar with the legal terms of the contract and they would just accept the explanation of the HR department. This puts the individual in a losing position to begin with.

    On the other hand, I do acknowledge that in case of subsequent litigation, the Court still has to power to interpret the provisions in accordance with fairness and justice and norms that will uphold worker/employee rights. While there is hope, nothing is ever assured.

    This issue, coupled with the rising trend towards a gig economy, means that workers’ rights will continue to be abused. Perhaps strict regulations governing gig arrangements must be put in place to address these concerns.

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