Taylor Review of Modern Working Practices recommends introduction of ‘dependent contractor’ status

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The highly anticipated Taylor Review of Modern Working Practices has now been published. Launched at the end of 2016, the Review aimed to obtain a fuller understanding of how labour market practices vary across different sectors and industries, assess what impact technological developments and the growth of the so called ‘gig economy’ are having on working practices and consider how these developments sit within the UK’s existing framework of employment regulation. The Review makes a number of recommendations as to how the law on employment status could be clarified and employment protections improved. Below, we consider some of the Review’s key proposals.

Employee, ‘dependent contractor’ or self-employed

A person’s employment rights depend to a substantial degree on their employment status. Some very substantial rights only apply to employees, such as the right to claim unfair dismissal, the right to a redundancy payment, and rights to maternity and other family leave. Workers have fewer rights than employees, but still benefit from important protection such as the right not to be discriminated against, the right to paid holiday, and the right to be paid the National Minimum Wage (all of which also apply to employees). The fact that this range of rights is not available to the self-employed has led to high-profile employment tribunal claims by individuals, particularly those working in the gig-economy, that they have been wrongly classified by their employers as ‘self-employed’ and so deprived of certain employment protection rights.

The Review acknowledges that the current statutory definitions of ‘employee’ and ‘worker’ are ambiguous and notes that it is ‘almost impossible’ for individuals to understand how the principles developed in the case law to determine employment status – primarily personal service, control, mutual obligation and whether the individual is carrying on a business – apply to their own situation. The Review therefore recommends that these ‘high level’ criteria/principles be set out in primary legislation, with further detail to be included in supporting regulations and guidance that can be updated as required to reflect changing conditions in the UK labour market.

Under current definitions, all employees are workers, but not all workers are employees. In order to remove the potential confusion this causes, the Review recommends that a new term ‘dependent contractor’ should be introduced to refer to those who have ‘worker’ status but are not ‘employees’. With regard to how ‘workers’ (and therefore ‘dependent contractors’) should be defined, the Review recommends that the requirement to perform work personally – currently a strong indicator of worker status – should not be determinative. In other words, the fact that an individual’s contract includes a clause allowing them to not perform the work personally but instead send a substitute to work in their place should not preclude them from being a ‘worker’. Instead, the Review considers that placing greater weight on the principle of employer ‘control’ will result in more people being able to benefit from the protections that worker status entails.

No fees for claims to determine employment status

With regard to the enforcement of employment rights in the tribunals, the Review recognises that tribunal fees can be a particular source of unfairness for individuals who pay their issue fee and their hearing fee, but lose their case because the tribunal determines that they do not have the required employment status to claim the right in issue. The Review therefore recommends that individuals should be able to have their employment status determined by a tribunal without having to pay a fee and that, where employment status is in dispute, the burden should be on the employer to prove that the claimant is not entitled to the employment rights claimed.

Aligning employment statuses for tax purposes

Currently, while employment law recognises three distinct employment statuses (employee, worker and self-employed), there are only two employment statuses in tax law (employee and self-employed). As noted above, the Review favours retaining three distinct statuses for employment law purposes. However, it does suggest that employment and tax law should be aligned so that being self-employed for tax purposes means that a person is self-employed for the purpose of determining their employment rights as well. Accordingly, a person who is an employee for tax purposes would be either an employee or a worker (i.e. dependent contractor) for the purposes of employment law. 

On this issue, the Review also encourages the Government to consider how tax tribunal and employment tribunal rulings could be applied across jurisdictions – for example by providing that, in the shorter term and until the systems are aligned, where a tribunal determines that an individual is an ‘employee’ for tax purposes, that decision is also binding for employment law purposes.

Protecting those on zero-hours contracts

The Review recognises that a flexible workforce is of vital importance to the British economy. However, it cautions against employers using flexible working models simply to reduce costs and makes several recommendations to provide increased protection for those working under these models, e.g. on zero-hours contracts. These recommendations include:

  • Asking the Low Pay Commission to advise on the impact of introducing a higher rate of the National Minimum Wage for hours which are not guaranteed in a contract. This would be set at a level which incentivises employers to schedule guaranteed hours as far as reasonable within their business.
  • Extending the reference period over which holiday pay for workers with irregular hours is calculated from 12 to 52 weeks, to take greater account of the seasonal nature of much casual and zero-hours work and ensure that these workers receive proper paid annual leave.
  • Giving zero-hours workers who have been in post for 12 months the right to request a guaranteed hours contract, starting from the assumption that the contractual hours of work should be the average weekly hours worked over the 12 month period.

What is the Review’s likely impact? 

While much of the Review’s focus is on the development of the so-called ‘gig economy’ and whether the law needs to be adapted to accommodate this, it is clear that the recommended changes to the law on employment status and increased protections for casual and zero-hours workers would, if implemented, have a wider impact on the UK labour market, including manufacturers. 

Although the Prime Minister’s speech at the publication of the Review indicated the Government’s support for the principles espoused by the Review, the Government has at this stage made no firm commitment to implement any of its recommendations.  Accordingly, there is no need for employers to take any immediate action as a result of the Review. 

We will be monitoring the situation for further developments and will provide an update at our next Member Briefings in September. For further information, and to book a place, click here.

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Senior Legal Adviser

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