Introduction

At the end of last month, Labour announced proposals to extend a number of key employment rights and protections, such as statutory sick pay, national minimum wage entitlement, holiday pay, paid parental leave and protection from unfair dismissal to all but the genuinely self-employed.

This would be achieved by combining the existing employment categories into a single status of “worker” and removing the various qualifying periods for these rights.

Introducing the proposals, Andy McDonald, Labour’s shadow employment secretary, described them as a “new deal for working people” and that the party would “ensure that all work balances the flexibility that workers want with the security they deserve”.

Much of Labour’s focus here is on correcting what it sees as insecure employment, particularly in the gig economy, where it believes that the lack of employment protection creates poverty, and follows a series of cases, culminating in the Supreme Court’s ruling against Uber earlier this year, which have examined the rights afforded to these individuals in considerable detail.

Labour estimates that its proposals would benefit an extra 6.1 million people, a considerable proportion of the UK workforce; what impact, however, would they have on employers?

Current Position

At the moment, section 230 of the Employment Rights 1996 defines an employee as:

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

The section goes on to confirm that the broader “worker” category includes those individuals who are employees but also those who work, or have worked, 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”.

The last part of this definition is meant to exclude those individuals who are genuinely self-employed and in business on their account. This section is meant to create three distinct categories of employment status: employee, worker and self-employed, with different levels of protection granted to each.

Employees have protection from unfair dismissal, a right to a statutory redundancy payment, statutory sick pay and parental pay, which workers generally do not receive. Workers have much more limited rights which include an entitlement to holiday pay, the right to the national minimum wage and auto-enrolment pension contributions, while the self-employed must rely on any contractual rights they have and some protection from unlawful discrimination.

The recent cases involving individuals working in the gig economy arose because, although they had been engaged on a self-employed basis, they argued that the reality of their working relationship with Uber, Addison Lee and others meant they were at least workers, if not also employees.

Throughout these cases the courts have scrutinised how gig economy workers have been engaged and have frequently reached the conclusion that the individuals are not genuinely self-employed and should have protection as workers. Matthew Taylor, in his 2018 Good Work Plan report, which reviewed modern working practices, expressly recommended new legislation to clarify the question of employment status and make it easier for both employers and employees to understand the position, without the need for constant guidance from the courts.

Although the Good Work Plan recommended keeping the current three categories of employment status, it also called for the alignment of the employment status framework with the tax status framework, which in some senses Labour’s proposals come close to doing.

There is no separate “worker” category for tax purposes, so these changes would bring employment status more in line with tax status, with two distinct categories of engagement in each. Allied to this, it would certainly help all parties if “self-employed” could mean the same for both employment rights and tax purposes, as Matthew Taylor supports.

Conclusion

Labour’s plans for employment status were broadly expected, given that merging the worker and employee categories has been demanded for some by time by a range of trade unions and are also reflective of the concerns highlighted in recent cases regarding the insecurity of individuals working in the gig economy.

Mirroring the tax system, with effectively just two categories of either employed or self-employed, could bring welcome clarity into an area that has been particularly confusing in recent years, which is typified by the Uber case having to be decided by the Supreme Court.

However, by removing the middle category between employed and self-employed, these proposals risk intensifying the debate in this area given that there will be added protections (such as in relation to unfair dismissal) and therefore higher stakes, if employees are deemed not to be self-employed.

It will therefore be crucial for any changes in this area to be accompanied by specific legislation which clearly defines the distinction between employment and self-employment, something which the Good Work Plan called for, but which becomes even more important under Labour’s proposals.

It will also be necessary to examine the fine detail of what Labour envisages; the announcement appeared to suggest that the extended protection given to individuals from the first day of their employment would include not only the right to parental pay and flexible working but protection from unfair dismissal too.

While employers may be more willing to tolerate the removal of worker status if the current flexibility provided by employees not receiving protection from unfair dismissal until they have been employed for two years remained, making this a “day one right” is likely to be vigorously opposed by business leaders and would be a more radical change than those implemented by the last Labour government.

Overall, Labour’s proposal are an interesting development in the on-going discussion on employment status but one suspects that they would be considerably refined before they ever became law.