Managing litigation risk in the gig economy

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10 April, 2019

The Business & Human Rights Resource Centre published the findings of its research into the increase in global gig economy litigation last month in its report titled "The Future of Work: Litigating Labour Relationships in the Gig Economy". The report stresses the need for a rights based approach to legislation and company employment models to provide certainty for both workers and businesses and ensure the future protection of human rights in the workplace.

The gig economy, although constituting a small fraction of the national and global workforce, is a rapidly expanding sector. The number of individuals participating in it and the profits it generates are increasing at a staggering rate. Growth estimates vary depending upon the specific definition of "gig economy" used by those conducting the investigation. However, a JP Chase Morgan study quoted in the Report estimates that in the European Union the number of freelance workers doubled between 2000 and 2014 making that sector the fastest growing group in the EU market.

Freelance working, zero-hours contracts, and on-demand working all provide a welcome degree of flexibility for individuals who struggle to accommodate the rigidity of full time work in their lives, and technological advancements make such working patterns almost inevitable. However, the downside is the lack of security of income and the potential lack of social protections and benefits for workers such as sick pay, holiday pay, pension rights, maternity pay, and minimum wage for example. There is the perception that the use of such models is exploited by companies to avoid the need to provide workers with the rights afforded to employees to maximise profits and pass the associated risk on to workers. The problem is compounded by the fact that this type of flexible working is disproportionately utilised by sections of society already at a heightened risk of human rights abuses such as women, migrants and refugees.

Given the above concerns, it is no surprise that the exponential growth of the gig economy has been accompanied by a rise in litigation challenging worker status across the globe. The essence of the claims is that companies have misclassified workers as independent contractors when the reality of their working practices indicates that they are, in fact, employees. As a result, the individuals bringing the claims allege they have lost benefits and rights which, as employees, they are entitled to. The use of class actions is also increasing in order to heighten pressure on companies and reduce the associated legal costs for individual claimants.

This pattern has been replicated throughout many jurisdictions. Claims regarding worker status have been brought against Uber, for example, in Massachusetts, California, Pennsylvania, North Carolina, France, Ontario, Nigeria, Brazil, and the UK. In the UK (in Aslam et al. v. Uber), a claim was brought for failure to pay minimum wage and provide paid leave, with Uber being found to be in breach of the Employment Rights Act 1996, the National Minimum Wage Act 1998 and the Working Time Regulations 1998 for failing to correctly classify workers. The Employment Tribunal held that Uber drivers were workers as opposed to independent contractors as they provide skilled labour allowing the company to deliver a service and earn profits. It based its analysis on the drivers' lack of control over the relationship with the client, the terms of the agreement with the client (e.g. tip price, handling of complaints), conditions placed on performance, sanctions put in place if trips are missed, and the fact the company could amend the drivers' terms unilaterally. The decision was subsequently upheld by the Court of Appeal.

The approach taken by the courts throughout various jurisdictions appears to be a case-by-case analysis of the terms and conditions governing the 'relationship' to analyse the level of control held by the company and independence of the worker. This 'relationship' defines the nature of the work as opposed to any label put on it by the parties.

Companies have responded to the increase in litigation in a number of ways. Some are increasingly attempting to prevent class actions by including forced arbitration clauses in their contracts preventing workers from pursuing or joining class actions. This prevents courts from creating legally binding precedents protecting workers' rights. Companies are also increasingly turning to out of court settlements, with 50 Deliveroo couriers receiving a six figure pay-out in the UK without an admission of liability from the company following claims that they had been denied employment rights. Although the settlements are large enough to have a significant impact on the companies, they are not as significant as what would have been required in compensation had the claim been successful. The tactic of appealing adverse decisions is also used in an attempt to prevent a precedent from becoming binding and to deter future claimants who many not be in a position to bear the escalating legal costs.

The Report notes that employment law has failed to keep up with the reality of modern day working and technological advances. The court decisions demonstrate the need for the government to legislate to clearly define the distinction between employees and independent contractors. This should ensure that the rights of true employees are protected and companies are unable to manipulate worker status to maximise profit. The Report also suggests that the legislation should prevent the use of forced arbitration clauses which deny workers the right to participate in class actions. Whilst litigation is an important tool affording protection to workers and clarification and interpretation of legislation, it results in an unwelcome degree of uncertainty and escalating legal costs for both companies and workers.

The current burden for companies is to move with the times to incorporate flexible and innovative working practices, maximise profits, but minimise potential exposure to claims. The Business and Human Rights Resource Centre expresses the view that "It is only by placing human rights at the heart of labour negotiations and relationships that we can create a future of shared prosperity instead of increased inequality." Its research suggests that reactive changes will not be enough, and will not prevent companies being exposed to the risk of litigation. Companies must be proactive and build a rights based business practice alongside leveraging technology to enhance working opportunities and conditions. This is not necessarily a fluid move for all companies. The New York Times estimates that it would cost companies using the gig economy model an average of 20-30% more to reclassify such workers as employees. However, the number of companies relying heavily on a gig-economy worker model, although growing in number, is still low involving a very small proportion of the work force. It is advisable for any company employing workers based on such a model to take legal advice to ascertain the true nature of the relationship with those employees and assess the potential exposure to litigation. In the long term, avoiding any risk and affording the relationship a degree of certainty may be the most cost effective solution.

If you have any queries regarding worker status, or would like advice in relation to any aspect of employment law please contact our Employment and HR Team by telephone on 0333 207 1135. Alternatively, send your enquiry to us through our online contact form.

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