With legislation changes in the offing and test cases going through the courts, don’t leave yourself open to costly claims, says Michael Ryley
The rise of the gig economy has led to intense media and political focus on the rights of flexible workers. Industries with atypical business patterns – for example, where customer demand will fluctuate according to the time of day or the season – are clearly less well-suited to orthodox employment arrangements. As a result, zero-hours contracts or the engagement of casual staff on a self-employed basis have become popular ways for hospitality businesses to tap into a more flexible labour force.
However, the rise of the “gig-economy” and subsequent high-profile legal challenges brought against businesses like Uber and Deliveroo have led to new scrutiny being placed on the rights of flexible workers.
With political pressure to crack down on cases of abuse, the government has commissioned the Taylor Review to investigate and make recommendations for reform. In this context, any discrepancies between employment agreements and the reality of the duties personnel are carrying out could leave businesses with serious problems.
Any workforce can be broadly split into three categories – self-employed independent contractors, workers and employees. The lines between the three are becoming increasingly blurred due to pressure to extend the scope of workers’ rights and case law is changing the way in which the law is understood. Where an individual sits somewhere on the border of two of those categories, there is often room for legal challenge.
The core issue at present is whether flexible staff fit within the legal definition of ‘workers’ – and are therefore entitled to rights such as holiday pay and the minimum wage.
As we’ve seen in high-profile rulings against Uber and CitySprint, employment tribunals have declined to accept the labels applied by the employers. People who were being categorised as self-employed were held to be ‘workers’, in terms of their duties and relationship with the business, and by ruling in their favour the tribunals gave them key rights, such as paid holiday and minimum wage protection.
The rules around zero-hours contracts are also likely to change further. Reports suggest the Taylor Review will recommend that workers on zero-hours contracts have the right to request guaranteed hours from their employers. In response to this, employers will need to be able to justify why zero-hours contracts are appropriate.
While the Taylor Review will not have an immediate impact, it is inevitable that changes in the law will follow. Hospitality businesses need to review their HR profiles now in order to protect themselves.
Incorrectly classifying workers carries a risk in terms of running up a large financial liability in respect of rights such as accrued holiday pay, arrears of pay where the minimum wage has not been paid, and the risk of unfair dismissal claims on termination.
Businesses would be well-advised to carry out an audit of their staff to establish whether flexible personnel are classed correctly as employees, workers or self-employed and, crucially, whether those classifications make sense in the context of their roles.
When it comes to those on zero-hours contracts, employers will be required to establish an honest justification for why these staff are not on full-time contracts, such as the unpredictability of their staffing requirements.
If there is uncertainty about any of the above, then you are likely to be carrying risk. Where both parties are content to work on a flexible basis, tension is unlikely. Experience suggests that the risks are greatest where employers attempt to use flexible contracts to deny rights to their workers.
Now is a good time to make operational adjustments to ensure personnel are being used correctly, removing ambiguity around their status and, where appropriate, establishing new contracts in order to introduce greater clarification.
At the heart of the gig economy debate is the need to protect access to legitimate flexibility, which can benefit both businesses and employees, while clamping down on unscrupulous employment practices. The latest proposals are, therefore, a welcome sign that the Taylor Review is taking a balanced approach. By placing the onus on the worker to trigger a review of their hours, the proposals would allow employees that are happy to work without agreed hours to continue the arrangement unchallenged. This is a much more flexible way to address the problems that can be caused by zero-hours contracts than an outright ban.
- Audit employment contracts to ensure staff are correctly classified.
- Make operational changes to reflect those classifications.
- Introduce new employment contracts where required.
It is incumbent on employers to justify their employment arrangements. Rather than waiting for a change in the legislation to force their hands, employers should pre-empt reform and ensure they are in active dialogue with staff about the terms on which they are engaged, thus avoiding surprises and historic claims in the future.
Michael Ryley is an employment partner
at national law firm Weightmans LLP