Written evidence from The Law Society (WOW0065)

Preface

The Law Society (‘the Society’) is the professional body for solicitors in England and Wales, representing over 170,000 registered legal practitioners. The Society represents the profession to parliament, government and regulatory bodies and has a public interest in the reform of the law.

The Society welcomes the opportunity to provide evidence to the Business, Energy and Industrial Strategy (BEIS) Committee inquiry on employment rights within a rapidly changing work environment. We hope that our evidence will be of use to the Committee and to the forthcoming BEIS independent review of employment practices in the modern economy.

Introduction

1. The growth in non-standard working arrangements has been in part driven by a new and market-disruptive business model adopted by businesses which see themselves as a platform for service delivery. Such platforms seek to foster a relationship between the provider and consumer in which they have responsibilities directly to each other, with as little interference as possible from the platform owner.  Often such businesses do not view themselves as employers, and have no wish to owe employment duties to those with whom they contract to provide a service.

2. Tom Goodwin, an Executive at Havas Media, summarised the growth of this model:

‘Uber, the world's largest taxi company, owns no vehicles. Facebook, the world's most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory and Airbnb, the world's largest accommodation provider, owns no real estate.’[1]

3. It could be said that this model gives both sides of the wage/work bargain flexibility. For the individual, work can be managed around other aspects of their life, while for the business, it pays the individual only as and when a service is needed. On the other hand, such arrangements have been criticised for depressing wages and creating financial uncertainty for people who will be unsure whether they will gain work and are not guaranteed a steady income. The Law Society does not take a view as to whether this new model of work is a positive or negative development. Our interest is in exploring how employment law can best work in the modern economy.

4. A principle that many people will agree on – and believe to be the reality - is that certain minimum employment protections should be applicable to all workers. The reality is much more complex. The Office of Tax Simplification in its report into employment status (2015), said:

‘Employment status is a complex and wide-ranging subject that many have said has no real solution - and that if we did manage to solve it, we should immediately move onto world peace as we'd clearly be on a roll.’[2]

5. There is evidence to suggest that a significant minority of employers are circumventing employment protection legislation. For example, research from Citizens Advice in 2015 suggests that one in ten people (or 460,000) are bogusly self-employed - meaning that they are losing holiday pay, sick pay, and the right to be paid the national minimum wage (NMW). [3] As the Committee commented in its recent inquiry into Sports Direct:

‘...contractual terms and working conditions which fall way below acceptable standards. There is a risk that this model - which has proved successful for Mr Ashley - will become the norm.[4]

6. Such practices do not only harm those on a low-income, many of whom are in a vulnerable position and feel unable to challenge their treatment. Responsible businesses which follow the law are put at a competitive disadvantage if unscrupulous employers cannot be brought to account for undercutting employee rights.

Employment law in the modern economy

7. Employment status is not sufficiently defined in law at present. There should be a re-appraisal as to whether the current legal definitions are fit for purpose. This question cannot be adequately addressed by considering it in isolation from its broader place in the employment law context, therefore it is useful to consider the current group of statuses and how they arose.

8. UK law, unlike some other international jurisdictions, does not provide for a default status. If an individual cannot show that they are in one of two categories[5], then they have no employment law protection.

Definitions of employee and worker

9. The term ‘employee' is defined in various pieces of legislation, although none of these definitions are completely determinative. For example s.230(1) Employment Rights Act 1996 defines ‘employee' as:

‘an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment'.

10. Section 230(2) provides that a ‘contract of employment' means:

‘a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing'.

11. The term 'worker' originated in the trade union statutes, now the Trade Union and Labour Relations (Consolidation) Act 1992. It was adopted by the Wages Act 1986, later consolidated into the Employment Rights Act 1996[6].

12. Section 230(3) Employment Rights Act 1996 defines a ‘worker' as

‘an individual who has entered into or works under (or, where the employment has ceased, worked under) –

(a) a contract of employment, or

(b) 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'.

13. Workers receive some basic employment rights - such as the right not to suffer deductions from wages, to receive the NMW, and to be paid annual leave – even if not working under a contract of employment. Since the turn of the century the term 'worker' has been used more prolifically in legislation[7], which is why it has come to greater prominence.

14. Section 230(3) (a) Employment Rights Act 1996 makes clear that all employees are workers. The second limb of the definition is of much wider scope and includes some people who are nominally self-employed for tax purposes. What this distinction means is that within the workplace employees have the most ‘employment’ rights, workers have some but not as many rights, and those in neither category - the self-employed - have none.

15. In order to determine whether a particular relationship is one of employment or self-employment it is often necessary to refer to the case law[8], as it can be unclear from legislation[9] what a person’s status is, in the absence of a contract of employment.

16. It would be helpful if plain language guidance could be produced that would help people to better judge when they should be considered an employee, a worker or self-employed.

Uncertainty of status equals uncertainty of rights and obligations

17. The evolutionary nature of how to define in law who is an employee, worker or self-employed person has resulted in uncertainty for many as to what rights and status they enjoy. Currently, the only way to resolve this uncertainty is to take disputes to the employment tribunal. It is possible for two tribunals to come to contradictory views on the status of an employee or a worker, without either committing an appealable error of law. This possibility undermines the utility of case law.

18. The very existence of a separate category of ‘worker’ creates uncertainty. As a result many people have no clear idea of their true legal status. This can encourage a business to try to impose a particular status, which is more closely related to what they wish the relationship to be rather than what the relationship is in reality.
     
19. An example of this arose in the recent Uber decision where the company’s contracts were drafted in a way that clearly stated that each Uber driver controlled their own fate and Uber was merely their client, while imposing restrictions and work practices that reflected a different relationship. The Employment Tribunal judgment stated that:

‘We are satisfied that the supposed driver/passenger contract is a pure fiction which bears no relation to the real dealings and relationships between the parties.’

‘It is not real to regard Uber as working ‘for’ the drivers ... the only sensible interpretation is that the relationship is the other way around.’

Should there be a legal default position for employment status?

20. There is no legal default position for employment status. This means that a claimant who cannot gain agreement from their employer that they are an employee or worker is remediless, unless they pursue the matter through the legal system. The extent of the fight which is sometimes necessary can be seen in the case of Autoclenz Ltd v Belcher[10], where a group of car valeters who wanted to know if they were entitled to the NMW and paid holidays. They were a vulnerable group with few resources, yet they had to go to the highest court in the land to get an answer to what ought to be an easy question. The valeters were able to gain legal certainty of their status only because they were supported by a trade union, as were the Uber drivers.

21. The Committee might wish to consider whether it would be beneficial to bring in a default position, such as exists in other jurisdictions.[11] In such a system, if there were a disagreement as to the status of a worker it would be the responsibility of the employer to bring the matter to the court, rather than the worker’s.

It is difficult to define what a ‘casual worker’ is in the Gig Economy

22. ‘Casual worker’ is not a recognised legal term. It could cover genuinely self-employed individuals, ‘limb (b) workers’, and even in certain circumstances ‘employees’ - where the employment relationship is such that the employee is never really employed for long enough to acquire employment protection rights.
     
23. In theory an agency worker, for the purposes of the Agency Workers Regulation 2010 SI 2010/93, does have a formal definition[12]. Within that formal definition an agency worker could potentially be treated as

• self-employed,
• a limb (b) worker, or
• an employed individual.

24. Each of those definitions embodies a different balance of rights between the worker and employer. Further, it is also possible to have situations where a worker has employee status but never acquires employment protection rights due to breaks in continuity. Another important factor to consider is that the definitions of employee and worker inevitably turn on findings of primary fact by the employment tribunal.

Zero-hours contracts in the Gig Economy

25. In law there is no such thing as a zero-hours contract. The term is a colloquial one. In general zero hours describes an employment relationship where the employer is not obliged to provide the worker with any minimum working hours, and the worker is not obliged to accept any of the hours offered. Within this understanding there are many different types of working arrangements that have been described as being zero hours. The attraction of zero-hours contracts to some employers is that they give maximum flexibility at minimal cost, by remunerating workers only for work which is deemed to be productive. 

26. Modern technology offers new opportunities for home based flexible working - but also opportunities for unscrupulous employers to exploit workers by limiting paid hours or by introducing fees to accessing technology platforms and such like. Whilst the ‘worker’ definition is of assistance in addressing any imbalance, in itself it will not be enough to assist workers faced with technology driven changes such as home working[13].

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

27. The Society is not in a position to comment on whether steps should be taken to constrain the use by businesses of agency workers. However, in order for this question to be properly considered, it might be helpful to the Committee to have a summary of the legal background and rights of agency workers (Annex A).

Uncertainty around the current protections offered to agency workers

28. There are two main uncertainties around the protections offered to agency workers:

(a)              There is the uncertainty of employment protection rights, not definitively answered by the Agency Workers Regulations, because of the problems outlined above and because the interpretation of those Regulations has been far from straightforward[14].
 

(b)              A further level of ambiguity in agency-type arrangements is introduced by the provision of section 41 of the Equality Act, 2010. This provision gives potential protection from discrimination to certain workers from the acts of end-users, although if there is no contractual relationship between the worker and an agency or the end-user, then the individual will be left without any remedy at all. In Alderson v Meridian Business Support Ltd and East Lancashire Hospitals NHS Trust [2010] EqLR 113 a cleaner whose engagement ended when she told the agency and end-user that she was pregnant was found to be in a position where there was no jurisdiction to hear her complaint on the basis of the absence of a contractual link. Against this, a different view was taken in London Borough of Camden v Pegg UKEAT/0590/11.

National minimum wage and the Low Pay Commission

29. The Low Pay Commission is a statutory body set up under the National Minimum Wage Act 1998. The scope of the Commission’s remit is to recommend to the government levels for the minimum wage rates that will help as many low-paid workers as possible without any significant adverse impact on employment or the economy. It does not have any responsibility for monitoring compliance or directing enforcement.

30. There have been long running concerns about the enforcement of the NMW.  For example, following a recent review of Adult Social Care, the National Audit Office found that up to 220,000 care workers in England were paid below the NMW[15].   Her Majesty’s Revenue and Customs (HMRC) reviewed NMW compliance in the care sector and found that 50% cent of providers paid less than the NMW[16].  Despite this evidence, since then only six care providers have been identified and back pay provided to only 202 workers.

31. The government currently does not investigate non-compliance until employees have contacted HMRC’s Pay and Rights Helpline. This is problematic as these individuals are often on zero hours contracts and may justifiably be fearful about losing their job.
     
32. Although individuals can bring claims to an Employment Tribunal, the costs of bringing a claim (£160), the hearing cost (£230) and legal costs are prohibitive to those on low-pay. If an employee is also unfairly dismissed, the lodging and hearing fees increase to £1200. Since the introduction of fees in July 2013 there has been a drop in the amount of claims by over 70%.

Improving the law around terms and conditions

33. Under Section 1 of the Employment Rights Act 1996 an employer is required to provide to the employee a written statement, which does not necessarily have to be a contract, setting out the particulars relating to the main terms and conditions for:

• pay,
• hours of work,
• holiday entitlement,
• incapacity for work due to sickness or injury - including any provisions for sick pay, and
• pensions[17].

34. Failure to provide the statement gives rise to a claim under S38 of the Employment Act 2002. Employment tribunals have the power to award employees two or four week’s pay where the employer has failed to provide a written statement of terms. However the difficulty is that this is not a free standing claim and the section is only effective when an employee has succeeded in a substantive claim before the tribunal under Schedule 5 of the Employment Act 2002. If an employee is unable to fulfil these criteria the only recourse is to request a declaration. It is unlikely that a new employee would want to take their employer to the employment tribunal as this could damage their career prospects. These hurdles create an opportunity for unscrupulous employers to abuse their position by failing to provide terms and conditions and working practices that meets the minimum standards in UK law.

35. S1 of the Act was intended to underpin the basic standards and protection for employees, but the lack of an effective sanction of a breach is a concern.

36. The effectiveness of minimum terms and conditions to protect statutory rights is hampered by a lack of transparency. Businesses which are challenged to show that they are respecting employment law should be obliged to do so, as they would be for health and safety regulations. This could discourage employers from circumventing the law by default, thus defeating the purpose of minimum terms and conditions of employment. 

Continuity of employment status

37. Another source of uncertainty in status is how continuity of employment is defined.  Gaps, unless capable of being breached by Section 212 of the ERA 1996 as a temporary cessation of work[18], will remove continuity, and those employment protections associated with length of service. So it is currently possible to remove employment protection rights by using intermittent employment models, which break continuity. This is a matter that the Committee might wish to consider further.

It is difficult to prosecute abuses of flexible working

38. The issues around the working practices employed by Sports Direct were not addressed as a result of an employment law case, but as a consequence of a decision made by the Office of Fair Trading (OFT) to refer the completed acquisition by Sports Direct International plc (Sports Direct) of 31 stores from JJB Sports plc (JJB) to the Competition Commission under the Enterprise Act 2002. The investigation into this commercial transaction led to the exposure of poor working practices.

39. It must be a concern that such employment abuses are rarely exposed through the employment law process, and are often only highlighted as secondary matters in other investigations, if at all.

The identity of the employer

40. Most of the discussion on the scope of employment rights, both in policy and case law terms, has focused on the rights attached to employee and worker status. It is also necessary to understand how the employing entity is defined by the law, as it is the employer who bears responsibility for compliance with, and liability for breach of, employment legislation. For this reason it is important to understand which entity, or entities, should be considered to be the employer.

41. The common law has traditionally adopted a ‘unitary’ approach which treats the employer as the relevant contracting person. Only in specific contexts will the law look behind that strict identification of the employer. An example is where in relation to relevant transfers falling within the scope of the Transfer of Undertakings (Protection of Employment) Regulations 2006 an employee may be deemed employed by the transferor in the relevant undertaking, and therefore within scope to transfer, even if the individual is employed by an entity other than the transferor[19].

42. The traditional approach of identifying the employer can limit the effectiveness of employment protection legislation if the consequence is that the legislation does not engage in realtion to those persons with the ability to ensure compliance. For example, private equity portfolio companies and end user clients of employment agencies may in effect control workers' activities and compliance with employment law standards but not be legally responsible for compliance on the basis of not being the individuals' employer either in contractual or statutory terms. Also, in group company situations the actual/contractual employer might not take the decisions which employment law seeks to regulate, for example decisions concerning redundancies[20].

43. If the Committee wishes to consider whether there is a better way to identify the employer, we would recommend considering the approach applied in the USA under the Fair Labor Standards Act and, in relation to trade union matters, by the National Labor Relations Board. Under the ‘joint employer’ approach various factors can be taken into account in determining whether a worker is jointly employed both by the ‘contractual’ employer and some other person or persons. These include the authority to hire and fire employees, authority to set conditions of employment, day-to-day supervisors and other relevant factors. By adopting this approach the ambit of employment protection could be widened to circumstances where an entity other than the contractual employer is able to control and determine employment law compliance[21].

Remedies to consider

44. We hope that the Committee will be able to consider two possible remedies.

Place a responsibility on employers to report compliance

45. The current employment legislative framework puts the onus on the individual to assert that they are being exploited. If the individual feels sufficiently confident to challenge bad treatment, it is their responsibility to pursue what could be a complex and time-consuming claim, with the risk of reprisals from an unscrupulous employer. It is not surprising, therefore, that so few NMW and unpaid wages actions have been brought. Lack of enforcement emboldens unscrupulous businesses who judge that they can ‘get away with it’.

46. We believe it worth considering if certain groups of employers – perhaps above a certain size of business - should report that they comply with employment legislation, either in the course of making annual business-related reports, or on request. Thought needs to be given as to how to introduce such requirements in a proportionate way.
     
47. Organisations which do not operate acceptable employment practices risk corporate failure[22]. Boards and shareholders should be interested in employment practices and concerned if the organisation which they oversee does not welcome such scrutiny and confirm compliance through corporate reporting.

48. An example of where such a requirement exists is Section 54 of the Modern Slavery Act, which requires any commercial organisation which supplies goods or services, carries on a business or part of a business in the UK, and whose annual turnover is £36m or above, to produce a compliance statement for each financial year . The statement must describe the steps taken during the year to ensure that slavery and human trafficking is not taking place in any of its supply chains, and in any part of its own business. It is possible to conceive of a similar requirement being made in respect of compliance with employment legislation.

49. The government has the power to make regulations, under s.12 of the National Minimum Wage Act 1998, to require employers to provide a statement to show compliance with the NMW.  We would welcome such a move as it would put the responsibility on the employer to prove that they are paying the NMW when asked, rather than low-paid individuals having to incur legal expenses to enforce their rights.

Reform Employment Tribunal (ET) fees so they no longer hamper access to justice

50. Since the introduction of ET fees in July 2013 many people have not been able to enforce their employment rights. Ministry of Justice statistics show that there has been a decrease in claims to the tribunal by around 70% in the last three years. Our members have told us that claimants with strong cases see the fee as a significant deterrent to pursuing a complaint. We have heard of examples where respondents have refused to consider engaging in early conciliation or settling the matter before it reaches the tribunal because they wanted to ‘call the claimant’s bluff[23] on whether the employee would pay the fee. 

51. It is important that the goverment publishes soon its review into the impact of Employment Tribunal fees on access to justice, and we agree with the Justice Committee that the delay in reporting on this matter is a matter of concern[24].

19 December 2016

Annex A

A summary of the legal background and rights of agency workers in the UK

Who are agency workers?

1. The Agency Workers Regulations 2010 (‘the Regulations’) implement the Temporary Agency Workers Directive 2008/104/EC and provide rights for agency workers - regardless of their employment status. Prior to the Regulations being introduced in the UK the agency work sector had been subject to relatively few requirements.

2. In order to be protected by the Regulations an individual must be an ‘agency worker’. This is an individual who has either a contract of employment with the agency or, more usually, a contract with the agency to perform work and services personally for the hirer/end-user under the hirer's supervision. The Regulations take a wide interpretation as to who is an agency worker.

3. It is not always clear if agency workers are employees and, if so, who the employer is. Tribunals presented with such cases have to decide whether a contract for service exists in the context of a tripartite relationship between the agency worker, the employment business/agency and the end-user. Agency workers are not necessarily working on short-term arrangements and in some instances arrangements can last for several years, exceeding the qualifying service required for bringing an unfair dismissal claim.

Number of agency workers in the UK

4. The research paper The effects of Agency Workers Regulations on agency and employer practice by Professor Chris Forde and Dr Gary Slater for the Advisory, Conciliation and Arbitration Service (ACAS), highlights from the results of its Labour Force Survey (‘LFS’) that:

5. ‘From a peak of 275,700 agency workers in 2001, numbers fell back slightly before a modest recovery in 2005. Reflecting their vulnerability, agency jobs fell sharply as the 2008 recession intensified, reaching a trough of 245,000 in 2009. In contrast to the 1990s recover, agency work grew more quickly as output showed recovered, albeit haltingly, through 2010 and 2011. There were 270,000 agency workers, according to LFS figures, in Spring 2011’.

Rights of agency workers

6. The Regulations set out various rights conferred on all agency workers from the first day they start their assignment with the end-user. These 'day one' rights include:

• the right to be treated no less favourably than a comparable employee in the end-user's establishment in terms of their access to collective facilities (such as staff canteens, childcare and transport) and
• an agency worker must be given the same opportunity to be informed about any job vacancies with the end-user as is given to the end-user's permanent employees.
• Agency workers are entitled to the same rights as other workers in respect of health and safety including the right to rest breaks.

7. Further, agency workers have the right to the same basic working conditions as equivalent staff of the end-user after a 12 week qualifying period. This includes pay (including any fee, bonus, commission or holiday pay relating to the assignment) but does not include redundancy pay, contractual sick pay and maternity, paternity or adoption or shared parental pay. An agency worker must have continuous employment with the same end-user for 12 weeks before the right to comparable basic terms and conditions applies. For the purposes of bringing a claim under the Regulations, a comparator is an actual employee, doing a similar job and having a similar level of experience, who has been directly hired by the end-user.

Why businesses use agency workers

8. Ordinarily agency workers are engaged for short-term assignments and end-users will utilise agency workers for a specific piece of work or for a fixed-period. Agency workers can however be engaged on an open-ended basis depending on business need.

9. By engaging an individual as an agency worker through an agency rather than directly as an employee, businesses avoid having to recruit and have someone on their payroll[25].  The use of agency workers by businesses can be helpful to cover staff absences and to cover busy periods, for example, seasonal demand.

Why individuals want to become agency workers

10. Many individuals enjoy the flexibility of being an agency worker as it allows them to undertake a series of short-term assignments as and when they are available to do so. Being an agency worker gives individuals an opportunity to work for a number of end-users and build up a breadth of experience. Agency workers benefit from the agency organising their assignments, which can help to alleviate some of the recruitment process pressures.

Pay between assignments model

11. For completeness it is important to touch on pay between assignments, which is often known as the ‘Swedish derogation’ principle. As stated above, the Regulations entitle agency workers to get the same basic pay and conditions as comparable employees of the end-user after a 12-week qualifying period. The Swedish derogation[26] provides an exemption from this as far as pay is concerned; it does not affect agency workers' entitlements to other provisions under the Regulations such as annual leave after 12 weeks, 'day-one' rights and rest breaks.

12. The Swedish derogation model is where the temporary work agency offers an agency worker a permanent contract of employment and pays the worker between assignments. It has to be made clear to the worker that entering into the contract means giving up the entitlement to equal pay with the end-user's employees. A 'zero hours' contract does not count as a derogation contract.

Statistical evidence regarding agency workers claims in the Employment Tribunal

13. Unfortunately there are no statistics published regarding the number of Employment Tribunal claims bought by agency workers. It is our feeling that the number of claims lodged by agency workers in respect of breaches of the Regulations since they came into effect has been low.