UK Report Suggests New Definition of Worker in Age of Gig Economy

In the contentious matter of whether gig economy workers are the employees of the platforms they work from, positions are often extreme. Uber presents its drivers as independent contractors who value the flexibility of their working arrangements above all else. Worker protection advocates want them to have full employment benefits. Surely there’s a compromise lurking somewhere – and a review commissioned by the U.K. government has proposed a reasonable one, which could potentially work elsewhere, too.

The Taylor Review, led by former Labour political operator Matthew Taylor, is part of Prime Minister Theresa May’s drive to ensure fair working practices in a country that is close to full employment but is concerned with the growing precariousness of the jobs available. “While avoiding overbearing regulation, we will make sure people have the rights and protections they need,” May declared at the report’s launch.

Given the changing nature of work, this increasingly means solving the gig platform conundrum. Some 1.3 million people, or 4 percent of the employed workforce, are involved in the sharing economy, and 12 percent of the working-age adults who haven’t been involved are thinking about trying it in the next year. The availability of gigs – through Uber, delivery services such as Deliveroo or other platforms that connect workers with clients – has contributed to a rise in self-employment, which hit a record 15 percent in the U.K. last year – a higher level than in the U.S. or Germany.

In a recent report, the U.K. parliament’s Work and Pensions Committee said some of the self-employment was bogus. It argued that “flexibility is not the preserve of poorly paid, unstable contractors” and said it was “incumbent on government to close loopholes that incentivize exploitative behavior by a minority of companies, not least because bogus self-employment passes the burden of safety net support to the welfare state at the same time as reducing tax revenue.”

This is a hardline approach whose adoption is now up to individual regulators and the legal system. Uber and Deliveroo employees who work for less than minimum wage have gone to the U.K.’s Fair Work ombudsman and to the courts to demand worker protections; last year, one employment tribunal ruled in favor of the Uber drivers, describing them as employees, but that is hardly accepted practice yet. Chances are, however, that courts will lean that way. The current definitions of an employee – someone acting under a written or oral employment contract – or a worker, someone whose contract, again oral or written, is not directly with the customer, make it difficult for Uber or Deliveroo to argue that drivers and couriers are completely independent. The matter hinges on the concept of “control”: If a company determines the nature and conditions of work, people work for it, and not for the clients it sends their way. This isn’t a quirk of U.K. law alone. European Court of Justice Advocate General Maciej Szpunar used the same argument in May when he recommended that the ECJ define Uber as a transportation business rather than a middleman app.

If the matter is left to judges and ombudsmen, platform companies’ business models may become untenable. The Taylor Review argues that this would be a failure: Many workers need and want the flexibility provided by the platforms. Besides, gig workers are disproportionately young and racially diverse; cracking down on their opportunities to find any form of gainful employment would be a mistake. So the review proposes legislative changes that would preempt resolution by case law.

The idea is to recognize gig economy workers as a new category – “dependent contractors,” “properly capturing those more casual employment relationships that are on the increase today – an individual who is not an employee, but neither are they genuinely self-employed.” It’s a good idea that would lead to some middle-of-the-road arrangements.

For example, the platform companies would only be obliged to pay a minimum wage in cases where hours worked can be exactly determined. In other cases – such as with deliveries, for example – companies would be able to compensate workers based on output, such as the number of tasks performed. They would only be required to demonstrate that “an average individual, working averagely hard, successfully clears the National Minimum Wage with a 20 percent margin of error.”

Dependent contractors would also be entitled to vacation, but there would be different ways of realizing that entitlement. The Taylor Review suggests that platform companies simply add a 12.07 percent surcharge to their pay, since vacation in the U.K. is equal to 12.07 percent of hours worked. For someone receiving the national minimum wage of 7.50 pounds ($9.64) an hour, the actual pay would be 8.41 pounds an hour.

A big advantage of using independent contractors is that they are exempt from employer payments to the U.K.’s National Insurance – a scheme that includes most major government benefits such as unemployment and pensions. The employee contributions are also lower for self-employed people. While the Taylor Review stops short of suggesting the contributions be equalized immediately, it proposes gradually moving closer to parity.

In other words, the new dependent contractor status creates room for negotiation between legislators, workers and platform companies that might eventually result in clear and distinct worker protection rules for the gig economy. The Taylor proposals appear to be weighted in favor of the workers rather than the platforms – but they are still better for the companies than recognition of Deliveroo couriers as employees with full rights would be.

The Taylor proposal is a good starting point – not just for the U.K. but also for the European Union, where gig economy workers’ protection is a hot issue, and for the U.S., where a judge once complained that deciding on Uber and Lyft drivers’ employment status was akin to fitting a square peg into a round hole.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.