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Written submission to House of Commons Business, Energy and Industrial Strategy Committee inquiry

Written evidence from Caspar Glyn QC, Anna Beale and Nathaniel Caiden

 

Authors

  1. This submission has been prepared by Leading Employment silk, Caspar Glyn QC[1], and Leading Employment Juniors Anna Beale[2] and Nathaniel Caiden[3]. Our conclusions to the questions posed follow: and then our reasons.

Conclusion Question 1

  1. Those who provide personal service under a contract should be workers – that applies equally to those who provide personal service to an end user through an agency or a personal service company. The distinction between them and an independent business is either (i) the ability to substitute the personal service freely or (ii) substantial determination of the terms on which the service is provided. The new legislation should provide as follows

A worker is a person who personally pursues economic activities for another under a contract, the terms of which are or were in practice substantially determined by:

(a)  the person for whom the economic activities are performed; and/or

(b)  the person with whom there is a contract to perform the economic activities.

Conclusion Question 2

  1. Our view is that the balance of rights is correct. The problem is not the rights that workers are given. It is the uncertainty and difficulty which they have in accessing those rights. It is submitted that the Committee’s principal task is not to improve, to gold-plate workers’ rights which then remain inside an uncertain and unaffordable paywall. The Committee’s task, we say with deference, is to make the central worker rights more universal, more certain and more accessible.
  1. In our view, the Committee should also recommend the reduction and/or abolition of tribunal fees. That way, workers will enforce their rights; workers will take cases and the moral hazard of avoidance will be reduced by the direct effect of workers enforcing their rights. No longer will the rights be locked up behind unaffordable paywalls requiring the funding of Government servants to police the rights.

Conclusion Question 3

  1. The definition of ‘worker’ set out in the Conclusion to Question 1 adequately covers and protects agency workers.

Conclusion Question 4

  1. We suggest that maternity pay should be at the same level for workers, the self-employed and employees. Sick pay is too complex for self-employment and should not be extended to the worker status. Equally, the other worker rights should also not be extended to self-employed persons. The dividing line is our inclusive test. That is the correct place to put the line – separating people running businesses from those from whom business requires the provision of personal service.

Conclusion Question 5

  1. We do consider there to be evidence of unfair treatment of agency workers. In our view, the solution to this is to ensure that such individuals are regarded as workers as against the end user, as per our definition. That will enable more efficient individual enforcement of basic rights. It should also incentivise agencies to ensure that rights are properly protected, as indemnities will be written into contracts.

 

Conclusion Question 6

  1. No. Agencies provide a central and important role in the employment market. They also, however, create moral hazard. Our proposals above address that hazard, shifting the risk on to the end user who takes the economic benefit. By shifting the risk we know that behaviour will be altered and, if it is not, then the end user will bear the economic, reputational and costs risk.

 

Conclusion Question 7

  1. Our conclusions on the points on which we feel able to offer useful evidence are:
  1. Zero hour contracts: There is no one size fits all solution to the issue of zero hour contracts, as such contracts do work to the genuine advantage of some workers and businesses, meaning that a blanket ban would disadvantage many genuine users. The legislation that has been introduced to prevent exploitation has been very little used, which may be partly because of the substantial fees required to bring a claim in the Employment Tribunal. However it is also likely to be because the legislation does not tackle the central problem of lack of employment rights for those who are employees in all but name. The courts can address that issue in part by seeing through “sham” contracts and recognising true employees, applying the principles in Autoclenz v Belcher. Where, however, there is no clear “sham”, we feel that societal pressure on large employees, as we have seen very recently with Sports Direct, is likely to make the biggest impact.
  1. Enforcement of the living wage: There is particular uncertainty in relation to the applicability of the living wage to “sleep in” periods, especially in the care sector. In our view this should be a priority for the Committee. It seems likely to us that the best solution will be to deploy some kind of minimum flat rate for overnight sleep-in duties, as payment of the living wage for the whole period is likely to be prohibitively expensive for care providers and service users, and the worker will not actively be “working” for long parts of that time. A broad consultation will be necessary to determine the most appropriate solution and/or the rates.

Question 1

Is the term 'worker' defined sufficiently clearly in law at present? If not, how should it be defined?

  1. No. We set out below:
    1. Firstly the tests are poorly defined;
    2. Secondly the Courts have further muddied the water this year;
    3. Thirdly the tests are uncertain;
    4. Fourthly the tests are expensive for business and the litigation unaffordable for most workers.

Poorly Defined

  1. There are two statutory definitions of worker. First the Employment Rights Act 1996 (‘ERA 1996’) stream at s.230(3)(b) which applies to claims in respect of the national minimum wage, working time and deductions from wages (amongst others):

an individual who has entered into or works under … 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 …

Second the Equality Act 2010 (‘EqA 2010’) definition, which applies to discrimination and victimisation:

“Employment” means ….employment under….a contract personally to do work; …

  1. Both tests require the worker to enter into a contract and to do personal work. So far so good.

Test 1 - Contract

  1. Contracts are easily divined. They can be informal.

Test 2 - Personal Service

  1. The Courts are getting to grips with personal service. Many lawyers would draft “sham” substitution clauses into contracts allowing the care assistant, the car valet, the factory worker to replace their services with another if they are on an approved list and if notice is given etc. In Autoclenz v Belcher[4], the Supreme Court took a firm stand against such clauses, holding that where (for example because of the relative bargaining power of the parties), the written contracts might not reflect the reality of the arrangement, the court must consider all the circumstances to determine the true agreement between the parties.
  1. Another example is Pimlico Plumbers Ltd v Smith[5], in which HHJ Serota QC, having surveyed the case law, concluded that “the limited power or occasional power of delegation” said potentially to be consistent with employee status in Ready Mixed Concrete may now be interpreted more generously to claimants (para. 118). In his judgment, where a power to delegate or substitute was fettered as to when, in what circumstances and/or to whom delegation might be made, worker status was not necessarily defeated. The case is soon to reach the Court of Appeal. The Respondents should lose. If they do not then this is, again, a case that should inform the fourth point we make under this heading – namely uncertainty preventing even experts such as us from predicting outcomes.

Test 3 – No factors inconsistent with worker status

  1. The ERA 1996 definition then seems to impose a further requirement – that of NOT being someone who is in business on their own account. This involves the application of almost an A to Z of factors, such as:
    1. The extent of integration into the business.
    2. The dominant purpose of the contract.
    3. How the individual is remunerated and by reference to what. Someone paid pursuant to output or profit share rather than a regular wage is more likely to be self-employed.
    4. Financial risk, the extent to which the individual benefits from a profit or suffers a loss, provision of capital and risk associated with the enterprise.
    5. Provision of clothing, tools and equipment.
    6. Ability to work for other (rival) businesses.
    7. The parties’ own characterisation and understanding of the relationship. These labels do not bind a court, but can be decisive where the case is uncertain: Stringfellow Restaurants Ltd v Quashie (para. 52)[6].
    8. Whether the individual is remunerated directly or through a company.
    9. Terms of the contract and rights (if any) contained therein.
    10. Provisions for (paid) annual leave, sick pay, etc.
    11. Tax arrangements.
    12. Whether grievance and disciplinary processes applied.
    13. Whether the individual had a pre-existing business.
    14. Industry standards and norms.
    15. Length and duration of relationship.
  1. There is no profession or business undertaking exception in the EqA 2010 definition but it is introduced by European Law as a result of the fact that one of the streams that informs the Equality Act is European Directives. Accordingly the Supreme Court has held, first in Hashwani v Jivraj[7] (para. 27) and again in Bates van Winkelhof v Clyde & Co LLP[8] (para. 32), that discrimination protections do not apply to “independent providers of services who are not in a relationship of subordination with the person who receives the services”, following the CJEU in Allonby v Accrington and Rossendale College.[9]
  1. So there it is. The three elements required to obtain ‘worker’ status are:
    1. A contract between the parties
    2. One party undertaking to perform personally any work or service for the other.
    3. The relationship between the parties must not be that of a client/customer and a profession/business or, as it can be put, the ‘worker’ must be in a relationship of subordination with the ‘employer’.

Test 4 – Mutuality?

  1. The status above a worker, that is an employee, requires mutuality of obligation. Employment lawyers use this term in accordance with the explanation of the House of Lords in Carmichael and anor v National Power plc[10], where it was affirmed that mutuality of obligation is an essential feature of an employment contract (p. 2047). In Carmichael the claimants were not obliged to perform work when asked and there was no requirement that they be offered it; they were therefore considered casual workers and lacked sufficient mutuality of obligation to achieve employee status.
  1. It is not sufficient that one party is obliged to offer/accept work; both parties must be mutually bound. So where a business is bound to offer work, but the individual is not bound to accept it, there is no employment contract.[11] All employment lawyers knew and understood that fact.
  1. As far as worker status was concerned, however, in recent years employment lawyers had come to understand that there was no requirement for what is known as “umbrella” mutuality of obligation as is required for employment status. Workers were not required to show that once an assignment had been completed, the ‘employer’ was obliged to offer further assignments. The established position was explained by the Employment Appeal Tribunal in Windle v Secretary of State for Justice[12] in its consideration of the relevance of mutual obligations in EqA 2010 claims (para. 18):

Once a contract (which, as a matter of general law, requires mutual obligations) is established, albeit in relation to one or more assignments for the employer involving personal service, then subject to the further exception to which we shall come [the client/customer exception], the statutory definition is fulfilled. There is no need to fill the gap between assignments in order to show a contract of service nor continuity of service.

  1. In May 2016 , however the Court of Appeal[13] reversed the EAT’s decision. Underhill LJ, delivering the judgment of the Court, held

But it does not follow that the absence of mutuality of obligation outside that period [the period of each individual assignment] may not influence, or shed light on, the character of the relationship within it. It seems to me a matter of common sense and common experience that the fact that a person supplying services is only doing so on an assignment-by-assignment basis may tend to indicate a degree of independence, or lack of subordination, in the relationship while at work which is incompatible with employee status even in the extended sense. Of course it will not always do so, nor did the ET so suggest. Its relevance will depend on the particular facts of the case; but to exclude consideration of it in limine runs counter to the repeated message of the authorities that it is necessary to consider all the circumstances.

  1. Whilst Underhill LJ ostensibly directed himself in accordance with Hale SCJ in Bates van Winkelhof this judgment now expects too much of the worker. The risk of Windle is that employment lawyers will use mutuality as a further requirement to frustrate worker status. They will, as they are bound to do following Underhill LJ’s judgment, use the Trojan horse of subordination so that mutuality will leak in through the back door as a requirement for worker status or, at least its absence will be seen as a reason to dispute whether a person is a worker or not.

Uncertainty for business and uncertainty for workers

  1. The uncertainty in determining employment/worker status for both parties can be illustrated using the following examples:
    1. Quashie v Stringfellow Restaurants Ltd[14], an employment status case, in which Ms Quashie lost in Tribunal, won in the Employment Appeal Tribunal and lost in the Court of Appeal.
    2. Halawi v WDFG UK (t/a World Duty Free)[15], which is a good illustration of the type of complicated contractual relationships that proliferate today. Ms Halawi was a beauty consultant who worked at Heathrow Airport, selling Shiseido-branded products from a duty-free outlet. She set up a limited company called Nohad Ltd, which invoiced a company called Caroline South Associates for her services. CSA in turn invoiced Shiseido. The outlet was managed by the Respondent company, WDFG UK, whose approval Ms Halawi required to work, and who sponsored her airside pass. WDFG UK withdrew her airside pass in 2011, and Ms Halawi contended that this was an act of discrimination. In order to bring a claim, she needed to establish that she was an EqA 2010 ‘employee’ of WDFG UK. The ET, EAT and Court of Appeal all found that she was not, albeit that Langstaff J in the EAT so held with an “uneasy feeling [shared by the authors]… that the arrangements here were such that the Claimant could have been the victim of discrimination and yet have no right to complain to a tribunal about it”. Arden LJ in the Court of Appeal concluded that the ET had found there was no subordination, and that there needed to be subordination in the absence of any other features of Ms Halawi’s relationship with WDFG UK that suggested an employment relationship.
    3. Windle v Secretary of State for Justice[16] was a claim of race discrimination brought by interpreters who undertook assignments as court interpreters for the Ministry of Justice. The ET concluded that they were not EqA 2010 ‘employees’; the EAT allowed their appeal and remitted the case to the ET, but the Court of Appeal restored the ET’s decision. In doing so, Underhill LJ endorsed the ET’s reliance on the intermittent nature of the claimants’ assignments, and the lack of any mutuality of obligation between those assignments, as indicating “a degree of independence, or lack of subordination, in the relationship while at work which is incompatible with employee status even in the extended sense”.
  1. Whilst the existence of a contract and personal service create few problems, it is the determination of the huge number of factors to decide whether someone is in business on their own account or not which creates the large areas of uncertainty.
  1. The choice for the Committee is whether they use a finely tuned test, tuned to each and every circumstance of the employment market and sacrifice certainty for, some would say, justice or whether a more rigorous, hard line test is used. Some would say that that would be at the risk of justice but justice this uncertain cannot, it is submitted, be considered just at all.

Expensive for Business, unaffordable for the Worker

  1. Our business clients tell us that they want certainty. They do not mind if their staff are workers but just what are they? And, significantly, what will their competitors’ staff be, particularly in the low cost, high margin work of warehousing, food production and the like?
  1. Currently, there is excessive expense for business and workers in determining these rights at Tribunal –
    1. Take for example the recent Tribunal case of Aslam & Ors v Uber & Ors[17] – one reading day for the Tribunal, two days of oral evidence, one day’s break to allow submissions to be written by the two QC led teams and then two further days of deliberation for the Tribunal. A simple worker status case involving two leading QCs and large teams of lawyers with 6 days of Tribunal time.

Good work for lawyers - bad for business - unaffordable for claimants.

  1. Many workers will just want some deducted wages paid, or to enforce their right to minimum wage or holiday pay. Fees payable to the Employment Tribunal, to prosecute that claim to trial, amount to £390. We refer the Committee to the 2015 Briefing paper charting a 50% odd decline in, for instance, deductions claims; see https://www.parliament.uk/business/publications/research/key-issues-parliament-2015/work/employment-tribunal-fees/.

Question 1 – Part Two

What should be the status and rights of agency workers, casual workers, and the self-employed (including those working in the 'gig economy'), for the purposes of tax, benefits and employment law?

  1. If a business does not want those providing services to it to attract employment/ worker rights, it is able to protect itself by setting up a genuine business to business relationship with a service provider, with a full and genuine right of substitution. A business is sufficiently autonomous to control its costs base and not to need protection. The market works well. The distinction, the key distinction for the Committee, is the provision of personal service. As soon as a service user requires personal service the inequality and potential for exploitation requires protection of the worker.
  1. Personal service is the touchstone of regulation. That is what should engage the committee. Where a business benefits by requiring personal service so that the business
    1. can vet its workers;
    2. can train its workers;
    3. can exercise control over their output;
    4. can determine safety;
    5. can exercise brand control;
    6. can control reputational risk

then the person should be a worker.

  1. No-one would get into an Uber unless they knew the driver was vetted, licensed and insured. No-one would use a task related app – whatever it was – unless control over the service provider was such that one knew that the service would be provided to the right standard. That is to be contrasted with an ‘app of things’ – such as Ebay. The Committee should be interested in regulating the “App of Service”.
  1. The personal service rule gives rise to difficulty in relation to two main categories of worker:
    1. The personal service company.
    2. The common law relating to Agency Workers.

The Personal Service Company

  1. More and more use is being made of personal service companies. Some businesses require individuals providing services to do so through such a company; other service providers prefer to set up in this way for the tax benefits. From plumbers to IT contractors, the personal service company is no longer the preserve of the middle earners but reaching further down. Lawyers routinely advise that this is the simple way to defeat worker status. There is a corporate body inserted between the worker and the employer. There is, therefore, no personal service and no contract between the worker and the employer. That may be technically correct (depending on the terms of the agreement between the employer and the company) but it is a fiction as many personal service companies have supplied the same one person to the same one user for years and years.
  1. It is personal service in all but name. The difference is that the worker gets tax benefits such as dividends, avoids PAYE costs and can set off many more expenses against his work. There is something in the arrangement for the goose and the gander.
  1. We would propose that a person working under a personal service company should have the same rights as the worker and, importantly, should have the same tax obligations. The fiction of the independent company needs to be tackled by both tax and employment legislation, which we do below.

The Agency Worker

  1. Agency workers have to provide personal service to the Agency as a proxy and then to the end user. End users deploy agency workers to protect their brand, or out of administrative convenience. If the End User is put on risk for underpayment, non-payment or exploitation of agency staff then the moral hazard – the risk – is placed where it should economically be, on the End User – not the faceless agency.
  1. We propose a solution based on tried and tested UK legislation below. It solves the Agency and Personal Service Company conundrum in one swift blow. It is already on the statute books. It is simple. It is certain.

The proposed Solutions

A.  Recent developments in European and domestic common law

  1. In the recent case of Fenoll v Centre d’aide par le travail “La Jouvene”[18], the CJEU extended the definition of worker for the purposes of the Working Time Directive (‘WTD’). Mr Fenoll was a disabled person who frequented a work rehabilitation centre in France from 1996. He provided various services, was paid (albeit below the French minimum wage) and received paid annual leave. He went off sick and subsequently sought payment in regard to leave accrued before and during his period of sickness absence. The main issue was whether Mr Fenoll was a “worker” within the meaning of Art 7 WTD.
  1. The CJEU held (at para. 27) that the concept of “worker” has an autonomous meaning specific to EU law:

So, any person who pursues real, genuine activities, to the exclusion of activities on such a small scale as to be regarded as purely marginal and ancillary, must be regarded as a 'worker'. The essential feature of an employment relationship is that for a certain period of time a person performs services for and under the direction of another person in return for which he receives remuneration.

  1. The tasks Mr Fenoll carried out were not created for his sole benefit; they had an economic value to the centre too. It would be for the national court to ascertain whether the services actually performed could be regarded as forming part of the normal labour market.
  1. This case potentially opens the door for individuals who fall outside the ERA 1996 definition of worker to bring claims for working time rights derived from EU law.
  1. In our view, it also informs the appropriate statutory definition of “worker” in the UK. A worker could be simply a person who performs real genuine activities or services for and under the direction of another person, in return for which he receives remuneration and which are not wholly ancillary.
  1. Further assistance can be derived from the principles set out in Cox v Ministry of Justice[19], the Supreme Court’s recent dramatic decision that, in a personal injury case, a prison could be vicariously liable for a prisoner working in a prison kitchen, even though the prisoner was not an employee. Following its previous decision in Various Claimants v Catholic Child Welfare Society[20], the SC further extended the doctrine of vicarious liability on policy grounds:

…a relationship other than one of employment is in principle capable of giving rise to vicarious liability where harm is wrongfully done by an individual who carries on activities as an integral part of the business activities carried on by a defendant and for its benefit (rather than his activities being entirely attributable to the conduct of a recognisably independent business of his own or of a third party), and where the commission of the wrongful act is a risk created by the defendant by assigning those activities to the individual in question.

  1. Lord Reed JSC, with unanimous agreement, found that the test was met:

The prison service carries on activities in furtherance of its aims. … Prisoners working in the prison kitchens, such as Mr Inder, are integrated into the operation of the prison, so that the activities assigned to them by the prison service form an integral part of the activities which it carries on in the furtherance of its aims: in particular, the activity of providing meals for prisoners. They are placed by the prison service in a position where there is a risk that they may commit a variety of negligent acts within the field of activities assigned to them. That is recognised by the health and safety training which they receive. Furthermore, they work under the direction of prison staff. Mrs Cox was injured as a result of negligence by Mr Inder in carrying on the activities assigned to him.

B. Existing Statutory Definition

  1. These European and common law authorities focus – as we would – on the question of personal service. They avoid the problematic issue of whether an individual is in business on his/her own account. We feel that this provides the best starting point for an all-purpose definition of “worker”.
  1. We feel that a better ‘control mechanism’ to eliminate those who are genuinely running their own business, and who do not, therefore, require “worker” protection, is whether the terms of business on which the personal service is provided are set by the service provider (which would indicate that they are an autonomous business) or by the person to whom the work is provided, or an intermediary.
  1. As is explained further in response to Question 3 below, this is in fact the solution adopted to determine who is entitled to protection against whistleblowing detriment. Such protection is extended, under s.43K ERA 1996, to someone who:
    1. (a) works or worked for a person in circumstances in which—
    2. (i) he is or was introduced or supplied to do that work by a third person, and
    3. (ii) the terms on which he is or was engaged to do the work are or were in practice substantially determined not by him but by the person for whom he works or worked, by the third person or by both of them
  1. This ensures that not only those who would fall within the s. 230 ERA definition of “worker”, but also agency workers and those who provide their services through a personal service company are protected.
  1. Drawing on this definition and on the European and common law authorities, we would proposed the following test:

A worker is a person who personally pursues economic activities for another under a contract, the terms of which are or were in practice substantially determined by:

(a) the person for whom the economic activities are performed; and/or

(b) the person with whom there is a contract to perform the economic activities.C. The “simple” solution

  1. Given the difficulty experienced by the courts in applying statutory tests, we considered whether we should abandon the qualitative exercise altogether, and go for a quantitative solution. Should we simply legislate to the effect that, if an individual carries out more than a particular number of hours of work for one entity – say 10 per month – then he/she is classified as a worker for that business.
  1. In the authors’ view, this solution is not desirable. A ‘cut-off’ point for hours is relatively simple to operate (although there would always be further queries around what constitutes ‘work’ and what constitutes an ‘entity’), but it is a blunt instrument. It is likely to exclude deserving cases that could be included by a more nuanced test.

Question 1 Conclusion

  1. Those who provide personal service under a contract should be workers – that applies equally to those who provide personal service to an end user through an agency or a personal service company. The distinction between them and an independent business is either (i) the ability to substitute the personal service freely or (ii) substantial determination of the terms on which the service is provided. The new legislation should provide as follows

A worker is a person who personally pursues economic activities for another under a contract, the terms of which are or were in practice substantially determined by:

(a) the person for whom the economic activities are performed; and/or

(b) the person with whom there is a contract to perform the economic activities. and

Question 2

For those casual and agency workers working in the 'gig economy', is the balance of benefits between worker and employer appropriate?

  1. As a ‘worker’ one is entitled to the following statutory rights:
  1. Various rights under the Working Time Regulations 1998 (including the right to paid annual leave, rest breaks, limited working hours).
  2. Protection under the Equality Act 2010 (including equal pay rights and protection from direct and indirect discrimination, victimisation and harassment).
  3. Protection from less favourable treatment on grounds of working part-time (Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000).
  4. Protection from unauthorised deductions from wages (s. 13 Employment Rights Act 1996).
  5. National Minimum Wage or the “National Living Wage” (s. 54(3) National Minimum Wage Act 1998).
  6. Whistleblowing protection (ss. 43A-L Employment Rights Act 1996; a broader definition of worker is set out in s. 43K to include, for example, agency workers).
  7. A pension.
  1. It should be noted that workers can be dismissed for no reason or any reason save for a retaliatory or discriminatory one. It is not secure employment. It requires basic rights because workers are not likely to be able to look after themselves in any wage / work bargain. That has driven our employment market to be the 5th most competitive in the world – World Economic Forum – The Global Competitiveness Report - 2016-17.
  1. The rights are not extensive – they provide that people should be able to rest, not be paid exploitative wages, have a paid holiday, not be discriminated against, have a pension and not be treated badly because they are part-time. These are basic rights that are important for any civilised society.
  1. An ‘employee’ gets all the above, but in addition.
  1. Right to claim for unfair dismissal (s. 94 Employment Rights Act 1996).
  2. Protection from less favourable treatment for those of fixed-term status (Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002).
  3. Right to request flexible working (s. 80F Employment Rights Act 1996).
  4. Maternity/paternity/shared parental/adoption leave and pay (s. 71 Employment Rights Act 1996).
  5. Sick pay (Social Security Contributions and Benefits Act 1992).
  6. Redundancy pay (s. 135 Employment Rights Act 1996).
  7. Minimum notice upon dismissal (s. 86 ERA 1996)
  8. Various other protections under the Employment Rights Act 1996 (e.g. time off for ante-natal care (s. 55), adoption appointments (s. 57ZJ), or dependent-related matters (s. 57A)).
  1. We do not argue that more rights should be extended to workers, but that more people should have clear, certain access to the status of ‘worker’, as set out in our definition provided in response to Question 1. Furthermore, also as explained in response to Question 1, workers should not have to pay tribunal fees of at least £390 and often more to enforce their rights. Fees should be abolished to ensure fair access to tribunals and proper individual enforcement of rights.

 

Question 2 Conclusion

  1. Our view is that the balance of rights is correct. The problem is not the rights that workers are given. It is the uncertainty and difficulty which they have in accessing those rights and in particular the uncertainty as to which service providers are covered by the protections. It is submitted that the Committee’s principal task is not to improve, to gold plate workers’ rights, which then remain inside an uncertain and unaffordable paywall. The Committee’s task, we say with deference, is to make the central worker rights more universal, more certain and more accessible.
  1. In our view, the Committee should also recommend the reduction and/or abolition of tribunal fees. That way, workers will enforce their rights; workers will take cases and the moral hazard of avoidance will be reduced by the direct effect of workers enforcing their rights. No longer will the rights be locked up behind unaffordable paywalls requiring the funding of Government servants to police the rights.

Question 3

What specific provision should there be for the protection and support of agency workers and those who are not employees? Who should be responsible for such provision – the Government, the beneficiary of the work, a mutual, the individual themselves?

  1. Particular difficulties arise in relation to the status of two different, but not dissimilar groups: agency workers, and those who provide services through a personal service company. On the present state of the law, these individuals will often not be regarded as “workers” for the entity that ultimately benefits from their work.
  1. In our view, the solution to the agency worker issue and the personal service company issues is simple. The problem stems from the law and its insistence on formal bi-party contractual niceties and not seeing the labour market and the agency worker / personal company contractor for what they truly are.
  1. In respect of end users, the leading authority remains James v Greenwich LBC.[21] The examination is twofold. First, what express contracts exist and are they genuine? Second, is it necessary to imply a contract between the worker and end user in order to give business reality to the parties’ relationship?
  1. As to whether it is necessary to imply a contract between worker and end user, certain factors as set out by the EAT in James[22] and approved by the CA bear consideration: (a) the end user pays for a service from the agency and does not pay just wages; frequently they will not know how much the worker is remunerated (para. 56); (b) the end user cannot insist on a particular worker (para. 57); (c) to imply a contract it must be shown that the mutual obligations between the worker and end user are incompatible with the agency arrangements (para. 58); (d) passage of time is not determinative (para. 59). Of note, however, is that direct remuneration is not necessarily a feature of the relationship between worker and end user; see Edwin Jesudason v Alder Hey Children's NHS Foundation Trust. [23]
  1. In Smith v Carillion (JM) Ltd[24] the CA only reinforced these high hurdles in respect of workers as well as employees. In one of the many construction blacklisting cases, the claimant alleged he had suffered detriment contrary to s.146 of the Trade Union and Labour Relations (Consolidation) Act 1992 and s.44 Employment Rights Act 1996.
  1. Despite needing to demonstrate that he was an employee for the purposes of his s.146 claim, the claimant sought only to demonstrate in the first place that he was a worker. The definition of employment and worker was materially the same as that in the ERA 1996.
  1. There was no express contract between the claimant and the end user, and he further had no luck demonstrating the necessity of implying a contract. Being integrated into the end user’s business, being personally selected for the role by the end user, and the significant duration of service did not require a contract to be implied.

The Agency Worker Solution and Personal Company Solution

  1. Given the rough ride that agency workers enjoy under the common law tests, specific statutory protections have been introduced. See, for example, reg. 36 Working Time Regulations 1998, which states that the regulations apply to anyone who:
    1. (a) is supplied by a person (“the agent”) to do work for another (“the principal”) under a contract or other arrangements made between the agent and the principal; but
    2. (b) is not, as respects that work, a worker, because of the absence of a worker's contract between the individual and the agent or the principal; and
    3. (c) is not a party to a contract under which he undertakes to do the work for another party to the contract whose status is, by virtue of the contract, that of a client or customer of any profession or business undertaking carried on by the individual.
  1. The obligations under the regulations apply to whoever is responsible for paying the worker or, absent responsibility, actually pays the worker.
  1. Whistleblowing protections are also, under s.43K ERA 1996, extended to someone who:
    1. (a) works or worked for a person in circumstances in which—
    2. (i) he is or was introduced or supplied to do that work by a third person, and
    3. (ii) the terms on which he is or was engaged to do the work are or were in practice substantially determined not by him but by the person for whom he works or worked, by the third person or by both of them
    4. Discrimination protections also apply to agency workers. For example, a principal may not discriminate against a “contract worker” under s. 41 Equality Act 2010. A “principal” is an individual who makes work available for an individual who is:
    5. (a) employed by another person and;
    6. (b) supplied by that person in furtherance of a contract to which the principal is a party (whether or not that other person is a party to it).[25]
  1. The solution is already available. The extended definition in s.43K ERA 1996 is the best in our view. It is the best as it is the most inclusive – by using law on the statute books it solves both the Agency and the Personal Service Company problem in one fell swoop.
  1. Further, it places the responsibility for the provision of the benefits on the person who benefits from the service of the worker. That is both economically rational but also socially just.

Question 3 Conclusion

  1. The definition of ‘worker’ set out in the Conclusion to Question 1 adequately covers and protects agency workers.

Question 4

What differences should there be between levels of Government support for the self-employed and for employees, for example over statutory sick pay, holiday pay, employee pensions, maternity pay?

  • How should those rights be changed, to ensure fair protection for workers at work?
  • What help should be offered in preparing those people who become self-employed (with, for example, financial, educational and legal advice), and who should be offering such help?
  1. This is not our primary area of expertise, but we wish to make the following short points in response to the questions about differences between levels of government support for the self-employed and employees, and whether those rights should be changed.

Maternity

  1. Self-employed women are entitled to maternity allowance, which is equivalent to the ‘lower level’ of statutory maternity pay, for 9 months (£139.58, or 90% of their pre-maternity earnings if lower, per week). The right of self-employed women to a minimum level of maternity allowance is enshrined in EU law (Directive 2010/41). Aside from this, self-employed individuals are not entitled to statutory sick pay[26] or holiday pay, although they may be entitled to a state pension.
  1. Quite apart from the policy issues arising from offering ‘worker’ rights to self-employed individuals, pragmatically, it would be extremely difficult and costly for the state to administer, say, statutory sick pay for self-employed workers. There would need to be proof of the individual’s self-employed status, proof of earnings, proof of unfitness to work and the cost would be very significant. It is worth noting that, in contrast to statutory maternity pay, where employers can reclaim at least 92%, and small employers may be able to reclaim up to 103%, of the cost from the government,[27] employers cannot reclaim any of the cost of statutory sick pay. Successive governments have taken a clear (and legally consistent) decision to treat pregnancy and maternity benefits differently from other kinds of ‘employment’ related benefit.
  1. We consider the decision to make a special case in relation to maternity allowance to be defensible and pragmatically sensible.
  1. However, in our view the current state provision of maternity allowance does not go far enough. There is no clear reason why statutory maternity allowance is not set at the same level as statutory maternity pay for the first six weeks as well as for the remainder of the nine month period. Why should the self-employed or worker mother not also be entitled to six weeks at 90% of her full pay, without the statutory cap?
  1. This adjustment should not impose too significant an administrative burden, given that those claiming maternity allowance already have to provide details of their earnings over a period prior to making the claim.

Sickness

  1. The issue with sick pay is the cost of ensuring the benefit is not misused. We would not propose extending this benefit into the worker or the self-employed area. Costs and enforcement would be too great.

Pensions and Holiday Pay and other worker rights

  1. All of these, of course, would be granted to workers by their ‘employer’, but if an individual does not qualify for such protection under the test we propose in response to Question 1, we do not consider that equivalent benefits should be provided by the state. Using our test, the excluded individuals would in truth be running an autonomous business on their own account, and thus should not require worker-style protections.

Assisting the Self-employed

  1. With the tests that we propose no longer would the young be exploited, no longer the ingénue be left to the exploitative end-user with the long terms and conditions. If the test is simply that the person has to work personally, on terms primarily determined by another, then those falling outside that test should not be dependent. We do not see it as a function of the labour market to provide assistance to such individuals.
  1. The question of what assistance should be provided by government or the state to individuals wishing to embark on self-employment is outwith our expertise.

Conclusion Question 4

  1. We suggest that maternity pay should be at the same level for workers, the self-employed and employees. Sick pay is too complex for self-employment and should not be extended to the worker status. Equally, the other worker rights should also not be extended to self-employed persons. The dividing line is our inclusive test. That is the correct place to put the line – separating people running businesses from those from whom business requires the provision of personal service.

Question 5

Is there evidence that businesses are treating agency workers unfairly, compared with employees?

  1. As employment barristers, we do not consider ourselves best placed to answer this question. However, we are aware of research done by Citizens Advice during the course of 2016 which evidences unfair treatment of agency workers by businesses:

http://cita.maps.arcgis.com/apps/Cascade/index.html?appid=bcff8f49a433423d88396b9c0cf13b98

  1. Citizens Advice also report that the hourly rate of pay for agency workers is 15% lower than for other workers, although no source is provided for this information.

https://medium.com/citizens-advice/many-agency-workers-face-unfair-treatment-5-ways-government-could-make-a-difference-a0a0fed8a63f#.uw1gq0m2v

  1. Our own anecdotal experience bears out this research. For instance, we have seen agencies charge clients 12.07% for holiday pay, but only pay their staff 10.77%, thereby making themselves an extra 1.3% of the payroll. This practice may be lawful for staff who do not take holiday in their shifts (we are happy to explain this further but it would take too long in this evidence) but it is deeply exploitative – not only of the end user but also of the worker. Amoral profit which adds no value.

Conclusion Question 5

  1. We do consider there to be evidence of unfair treatment of agency workers. In our view, the solution to this is to ensure that such individuals are regarded as workers as against the end user, as per our definition. That will enable more efficient individual enforcement of basic rights. It should also incentivise agencies to ensure that rights are properly protected, as indemnities will be written into contracts.

Question 6

Should there be steps taken to constrain the use by businesses of agency workers?

  1. Business agencies perform a vital role in the labour economy. They provide the administrative support, the recruitment expertise and the ability to provide flexible labour quickly and to business when it needs it the most. Constraint will distort the market. Businesses need agencies – workers need agencies.
  1. It is not the use of agencies that should be constrained. It is the ability of end-users to avoid the moral hazard and/or the risk of using agency staff for their business. Our proposals set out above tackle the moral hazard and solve the abuse issues by fairly and squarely placing the role of the policeman not on the constrained state and its taxpayer resources but upon the business who benefits from the use of such staff.

Conclusion Question 6

  1. No. Agencies provide a central and important role in the employment market. They also allow for moral hazard. Our proposals above address that hazard, shifting the risk on to the end user who takes the economic benefit. By shifting the risk we know that behaviour will be altered and, if it is not, then the end user will bear the economic, reputational and costs risk.

Question 7

What are the issues surrounding terms and conditions of employees, including the use of zero-hour contracts, definitions of flexible contracts, the role of the Low Pay Commission, and minimum wage enforcement?

  1. This is an extremely broad question, and our response would be even more lengthy if we considered each of these points in detail. We focus below on what we consider to be the most pressing current issues falling within the question.

Use of zero-hour contracts

  1. Zero-hour” contracts are not in any sense novel. However, they have garnered a great deal of attention in recent years, due perhaps to their increased use and abuse. Estimates of the number of people who work under such a contract vary enormously, from 700,000 to over 5 million. The issue of the rights of zero-hour contract workers was a centrepiece of the general election last year and shows no sign of abating.
  1. The breadth of the estimate of the number of zero-hour contract workers reflects, in part, the fact that there is no definitive ‘zero-hour contract’. Many such contracts are those for ‘casual work’, the hallmark of which is the lack of continuing mutuality of obligations. Some contracts have one-sided obligations, such that the worker is obliged to accept work but has no guarantee as to it being offered.
  1. At one end of the ‘use’ scale of such contracts are employers with a regular workforce who need occasional extra labour. An example might be a hotel that needs to recruit extra waiting staff for large events a couple of times a year.
  1. At the other end of scale are those businesses that operate static, stable operations but that rely very heavily on a workforce, members of which have no guarantee as to work but who are obliged (or at least expected) to accept it. This has been the practice of some high profile retailers. It is this type of situation that allows the greatest potential for abuse: individuals who cannot find stable employment are forced into accepting a job which provides them with few or no rights and little security.
  1. Establishing worker status under a zero-hour contract of course depends greatly on the exact nature of the work and the contract in question. In most cases, however, even the current unsatisfactory definition (discussed in response to Question 1 above) is likely to be fulfilled. Use of our proposed definition as set out in response to Question 1 is likely to ensure that almost all those on zero hour contracts would be classified as workers.
  1. Employment status is more challenging. Even if the individual contracts directly with the end user and is not an agency worker (which gives rise to the problems already discussed in response to Question 3 above), a claim to be an employee will often founder on the rock of mutuality of obligation.
  1. In extreme cases, it may be possible to use the principles set out in Autoclenz Ltd v Belcher[28] to show that the apparent zero hour or casual nature of the relationship between the parties is a sham. See, for example, Pulse Healthcare Ltd v Carewatch Care Services Ltd[29], where carers who had signed a “Zero Hours Contract Agreement” were still held to be employees. Although they were rostered on a weekly basis, in reality there was an agreement that they were entitled to work every week and that they should perform that work.
  1. In less clear cases, the difficulty with a one size fits all solution (such as banning these contracts altogether) is that some workers want and benefit from the flexibility offered by a genuine zero hour contract – for example, those with unpredictable health issues or caring responsibilities. Abolition of this type of contract would disadvantage those workers. Others, however, are forced into working under this type of arrangement when in truth they want, and are performing, regular hours on a long-term basis – but have no guarantee of those hours, and possibly have no protection against unfair dismissal. This makes arranging work around other commitments, such as childcare, and financial planning extremely difficult.
  1. Statute has introduced some limited protections for zero-hour contracts. Different statutory terms define zero-hour contracts slightly differently from each other. The most important provision is s.27A ERA 1996, which was inserted into the legislation by the Small Business, Enterprise and Employment Act 2015 as of 26 May 2015. That provision defines a zero-hour contract as:

a contract of employment or other worker's contract under which—

(a) the undertaking to do or perform work or services is an undertaking to do so conditionally on the employer making work or services available to the worker, and

(b) there is no certainty that any such work or services will be made available to the worker.

  1. Under s. 27A, the specific protection for such a worker is that any provision of the contract that prohibits the worker from doing work or performing services under another contract or arrangement is unenforceable. If a worker is allowed to work elsewhere, but only with the employer’s consent, such a term is also unenforceable.
  1. Of course, such protections were unlikely to have any direct benefit for workers. Rarely could or would an employer seek to enforce an injunction against a zero-hour worker from working elsewhere. To the limited extent they actually cared, they could much more easily dismiss the worker. The government duly consulted on how these protections might be better enforced.
  1. Enter the Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015, effective from 11 January 2016. Under reg. 2, any worker who works under a zero-hour contract has the right not to be subjected to any detriment by, or as a result of, any act or deliberate failure to act of an employer that is done because a worker has breached a (purported) restrictive covenant. Any employees dismissed for such a reason are treated as being automatically unfairly dismissed under reg. 2(1).
  1. To our knowledge and informal canvassing of the 600 employment lawyers that we have lectured to on this subject we have yet to find one use of section 27A Employment Rights Act. Although they are more recent, we are also unaware of any use of the 2015 Regulations. No doubt one deterrent for these almost universally low-paid workers would be the requirement to pay a substantial fee in order to bring any such claim to the Employment Tribunal.
  1. In any event, these protections only go so far. They do not prevent the more pressing social issue of some employers using such contracts on a long term basis to avoid the expenses associated with granting someone an employment contract. Nor do they grant such workers any rights above and beyond those associated with unenforceable restrictive covenants. There is, for example, no expansion of the right to claim unfair dismissal.
  1. It is difficult to address this issue through the use of legislation because, as is explained above, zero hour contracts do have benefits for some workers as well as (genuine, legitimate) benefits for businesses. The government has issued guidance to employers, dated October 2015, discouraging the use of zero-hour contract for long-term and core business operations, and instead encouraging the use of other flexible employment relationships, such as fixed-term or part-time work or offering annualised hours contracts. In reality, we have found that public pressure for customer facing firms such as Weatherspoon’s, McDonalds and Sports Direct has moved the debate on and had more effect than any legislation.

Enforcement of the Minimum/Living Wage

  1. The living wage enforcement and the funding of HMRC has provoked real concern on the part of some clients. That is a good thing. Those consumer facing clients are concerned that they are not named and shamed. Enforcement is real – businesses are beginning to understand that.
  1. Our particular expertise, and our particular concern, lies in the area of individual enforcement of the living wage. In our collective experience, this is one of the most complicated areas of employment law, when it should really be one of the simplest.
  1. In recent years, the principal complexity has arisen around the treatment of hours spent by workers (often, but not exclusively, in the care sector) at work or at a place near their work when they are not performing physical tasks, but are expected to respond to particular events as required. Such workers are often able to relax or even sleep during these periods, but are also required to remain at their employer’s disposal – so they are generally not permitted to leave the premises.
  1. At present, it is no exaggeration to say that confusion reigns on this issue. In essence, the problem is as follows:
    1. under the National Minimum Wage Regulations 2015, the hours of work for which a worker should be paid are determined in different ways according to the type of work being performed: salaried hours work (broadly work under a contract providing for an annual salary for a set number of hours); time work (usually work paid for by reference to the time actually worked); output work (work paid by reference to a measure of output) and unmeasured work (a residual category);
    2. in respect of each of these types of work, the worker should be paid for time spent actually working;
    3. in respect of salaried hours and time work, when the worker is not actually working, but is available and required to be available at or near a place of work, he/she will be deemed to be working and eligible for the living wage (see regulations 27 and 32);
    4. however, this is subject to two exceptions:
      1. the worker will not be deemed to be working if he/she is required to be available for work but is at home;
      2. the worker will not be deemed to be working unless he/she is awake for the purposes of working (so he/she will not be working during times when he/she is, with the employer’s permission, sleeping at the workplace).
  1. The courts have struggled to draw a clear line in ‘sleep-in’ cases between cases where the worker should be regarded as working throughout the sleep-in period, and cases where they are merely available for work, and therefore have to rely on regulations 27 and 32 to try to obtain the living wage for any part of the sleep-in period.
  1. In general, the courts have first considered whether the worker was actually working throughout the sleep-in period, and it is only if they decide that he/she is not that they move on to consider regulations 27 and 32. However, no clear-cut test has been found to determine this issue. The courts have generally taken into account factors such as whether the worker is on the premises pursuant to a regulatory or statutory requirement on the employer and whether the worker is permitted to leave the premises (and whether he/she will be subjected to disciplinary action if he/she does).[30] Other cases have raised questions about whether the answer should differ depending on whether the sleep-in period forms part of the ‘core duties’ of the worker.[31]
  1. Further, in another recent case,[32] the EAT apparently did not consider at all the question of whether the claimant was actually working during the sleep-in period, and instead moved straight to the question of whether he could rely on the deeming provisions because he was ‘available’ for work. As he was ‘available’ at his home (a self-contained flat in the residential care home where he worked), the claimant could not rely on the deeming provision, and his claim failed. This decision goes against much of the authority cited above, given that the claimant was presumably on the premises in order to comply with his employer’s statutory obligations, and illustrates the extreme uncertainty present in this area of law.
  1. In our view, this inconsistency arises because there is a tension between the rights and needs of care workers on the one hand, and organisations providing care (and those who use them) on the other. That tension can only really be resolved with some kind of legislative compromise. Care workers should be paid fairly for the time they spend potentially at the beck and call of those for whom they care. However, if they are paid at the full living wage rate for every hour spent on sleep-in duty, the cost for care providers, which will be passed on to the taxpayer and those individuals who pay privately for their own or relatives’ care, is likely to be prohibitive.
  1. It seems likely to us that the best solution would be some kind of minimum flat rate for different levels of overnight sleep-in duty. We do not, however, feel that we are in a position to put forward any firm solution. We think that an extensive consultation with employers, workers and service users is likely to be necessary in order to inform the best legislative compromise on this issue.

Conclusion Question 7

  1. Our conclusions on the points on which we feel able to offer useful evidence are:
    1. Zero-hour contracts: There is no one size fits all solution to the issue of zero hour contracts, as such contracts do work to the genuine advantage of (some) workers and businesses, meaning that a blanket ban would disadvantage many genuine users. The legislation that has been introduced to prevent exploitation has been very little used, which may be partly because of the substantial fees required to bring a claim in the Employment Tribunal. However it is also likely to be because the legislation does not tackle the central problem of lack of employment rights for those who are employees in all but name. The courts can address that issue in part by seeing through “sham” contracts and recognising true employees, applying the principles in Autoclenz v Belcher. Where, however, there is no clear “sham”, we feel that societal pressure on large employees, as we have seen very recently with Sports Direct, is likely to make the biggest impact.
  1. Enforcement of the living wage: There is particular uncertainty in relation to the applicability of the living wage to “sleep in” periods, especially in the care sector. In our view this should be a priority for the Committee. It seems likely to us that the best solution will be to deploy some kind of minimum flat rate for overnight sleep-in duties, as payment of the living wage for the whole period is likely to be prohibitively expensive for care providers and service users, and the worker will not actively be “working” for long parts of that time. A broad consultation will be necessary to determine the most appropriate solution and/or the rates.

Question 8

What is the role of trade unions in representing the self-employed and those not working in traditional employee roles?

  1. Others are better placed to answer this question than us. Our evidence is directed to the structure and law set out above.

Dated: 15 December 2016

 


[1] http://www.cloisters.com/barristers/caspar-glyn-qc

[2] http://www.cloisters.com/barristers/anna-beale

[3] http://www.cloisters.com/barristers/nathaniel-caiden

[4] [2011] UKSC 41

[5] [2014] UKEAT/0495/12/DM

[6] [2013] IRLR 99, CA

[7] [2011] UKSC 40; [2011] 1 WLR 1872

[8] [2014] UKSC 32; [2014] 1 WLR 2047

[9] [2004] ICR 1328 (Case C-256/01)

[10] [1999] ICR 1226, HL

[11] See for example, Thomson v Fife Council [2005] EATS/0064/04

[12] [2015] ICR 156, EAT

[13] [2016] EWCA Civ 459

[14] [2013] IRLR 99, CA

[15] [2014] EWCA Civ 1387

[16] [2016] EWCA Civ 459

[17] 2202550/2015

[18] C-316/13 [2016] IRLR 67

[19] [2016] 2 WLR 806, SC

[20] [2013] 2 AC 1

[21] [2008] EWCA Civ 35

[22] [2007] ICR 577, EAT

[23] [2012] EWHC 4265 (QB)

[24] [2015] IRLR 467, CA

[25] This section may not provide complete protection to agency workers, as it only applies where the individual is “employed” (in the looser, Equality Act meaning of the word) by the agency. Some cases have gone so far as accepting that because there was no obligation to give/accept work when not on assignment, the victim of discrimination was absent a remedy (eg Alderson v Meridian Business Support Ltd and East Lancashire Hospitals NHS Trust [2010] EqLR 113; a cleaner had no remedy under discrimination law against either the agency or end-user when her engagement was terminated after she advised she was pregnant). Particularly following Windle, some agency workers may find it difficult to establish even Equality Act employment status as against the agency.

[26] Although of course those who are eligible would be able to claim Employment Support Allowance.

[27] https://www.gov.uk/recover-statutory-payments/reclaiming

[28] [2011] ICR 1157, SC

[29] [2012] UKEAT/0123/12/BA

[30] See for example the EAT cases of Whittlestone v BJP Home Support Limited [2014] ICR 275; Wray v JW Lees & Co (Brewers) Ltd [2012] ICR 43; and Governing Body of Binfield Church of England Primary School v Roll [2016] IRLR 670.

[31] South Manchester Abbeyfield Society Ltd v Hopkins [2011] ICR 670, EAT.

[32] Shannon v Rampersad & Rampersad t/a Clifton House Residential Home [2015] IRLR 982.

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