Bike courier challenge could start chain of more employment status claims

The concept of the ‘gig economy’ has now entered the mainstream, as an ever-increasing number of workers take on both short- and long-term freelance work rather than spending all their time working for one business.

The arrangement can bring dividends for both parties: the worker has the flexibility to deal with personal commitments while the business gets a skilled worker without the cost of a permanent employee. But there can also be risks, particularly if the contract or legal label the parties use does not reflect the working arrangements accurately. There can also be tax consequences.

These risks were highlighted recently when it was reported that four bicycle couriers are taking their employers to a tribunal in a bid to prove they have been wrongly categorised as self-employed. As short-term contracts and flexible working become increasingly popular options, it has never been more important for businesses to ensure that a ‘worker’ is correctly categorised as any mistakes are likely to be viewed dimly by a tribunal. HR should review contracts regularly and seek advice if there is any uncertainty, as this can be a complex area.

When considering engaging someone to carry out occasional work, businesses need to give careful thought to what form of contract is appropriate. There are three basic options. The business can treat the recruit as an employee, a worker, or as a self-employed contractor.

Employees have the most extensive legal protection, including against unfair dismissal. Businesses should use this option if they want the individual to have to accept work if it is offered to them. In some cases, this may be in the form of a zero-hours employment contract which imposes no obligation on the business to offer work (‘exclusivity clauses’ barring zero-hours employees from working for other employers are no longer enforceable). However, these contracts have become increasingly controversial over the last few years, so there are reputational issues to consider when using them.

Workers are obliged to carry out work personally and have some key employment rights, such as the minimum wage, paid holiday and whistleblowing and discrimination protection. They also need to be paid via PAYE. Many casual workers and freelances fall into this category.

Self-employed contractors’ rights are mainly determined by their contract (although in some cases they have discrimination protection).

The key distinction between a worker and an employee is that a worker is not obliged to accept work offered. So a worker’s contract should specify that the business is not required to offer the worker any work (or any particular shift or project) and that the worker may work for other organisations when not carrying out work under the agreement. There should be an agreed mechanism for offering and accepting work, and the contract should include an explanation of the worker’s status (for example, that they are a casual worker and not an employee) and confirm that the employer’s grievance and disciplinary procedures do not apply to them.

Holiday entitlement and pay for occasional workers can be tricky. Workers accrue holiday at the rate of 12.07 per cent of the hours worked. The business may not want workers to take holiday during a short-term project, so an alternative is to pay workers in lieu of the accrued holiday when the contract terminates. The contract should include a holiday request approval process for longer assignments.

Self-employed contractors’ contracts should specify that they are not employees or workers, and are in business on their own account, providing services to clients/customers. Having services provided through an individual’s own company may protect the business against tax liability. If employers use this structure, they may need a separate agreement with the individual setting out confidentiality, IP assignment and restrictive covenant terms.

The contract should specify the required level of service and a timeframe and any key milestones for the project. Employers should consider including a substitution clause allowing them to sub-contract the work (including a right of veto over a proposed substitute, if appropriate). There should also be an indemnity from the consultant against any tax liability, any employment or worker status-related claims, and any breaches of the agreement by them. Employers should consider requiring contractors to hold their own general commercial insurance, third party or professional indemnity insurance, depending on the type of services involved. It’s preferable for the consultant to be responsible for their own equipment and expenses.


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