UK: Supreme Court landmark ruling that contractual terms are not the starting point for determining worker status - instead, a purposive approach to the legislation should be taken

On Friday the Supreme Court upheld the Employment Tribunal's 2016 ruling in favour of two test claimants that, as Uber drivers, they were 'limb (b)' workers entitled to statutory holiday and minimum wage rights for their working time (including all the time spent in the agreed territory, logged into the app and ready and willing to accept rides), as well as other 'worker' protections (eg, from whistleblowing detriment).

The most significant impact of the ruling is clearly on the gig economy (see further below).  However, the ruling also affects any business seeking to show that individuals they engage are not 'workers' or, potentially, 'employees'.  The ruling clarifies earlier caselaw in establishing that the contractual terms do not have greater or primary significance over other factual circumstances when determining worker status.

Relevance of the contract

The Supreme Court made clear that any agreed contractual terms are only one part of the factual matrix to be considered: there is no need to find that the contractual terms are either a 'sham' (ie the parties had a common intention to include terms which did not reflect the true agreement between them) or inconsistent with how the relationship worked in reality before the court can disregard written contractual terms.  (The Supreme Court therefore disagreed with the approach taken by Underhill LJ's minority judgment in the Court of Appeal, that written contractual terms could only be disregarded if inconsistent with how the parties worked in practice).

The Supreme Court considered that the determination of worker status is a question of statutory interpretation, which should take into account the purpose of the relevant legislation.  This is to protect vulnerable individuals in a subordinate and/or dependent position; the "touchstone" of subordination and dependence is the degree of control exercised over the individual.  It would therefore be wrong to take the contract as the starting point, particularly given the unequal bargaining positions of business and individual enabling the business to dictate contract terms.

Claimants will no doubt argue that the same approach should be taken when considering employee status, as employees are in an equally (or more) subordinate and dependent position as workers and therefore the purpose of legislation giving employees rights is the same.  Further caselaw will be needed to establish whether a distinction can or should be made on the basis that the concept of the contract of employment existed prior to the introduction of statutory employment rights (whereas 'worker' is purely a statutory concept).

Terms aimed at preventing rights

The ruling also emphasises the futility of attempting to negate or disguise a 'worker' relationship through drafting.

It is already well established that simply including a contractual term setting out the parties' agreement that the relationship is not one of employment or worker status is ineffective; the label given by the parties does not determine the status.

There are also prohibitions in the relevant statutes prohibiting contracting out of the relevant statutory rights.

The Supreme Court ruling makes clear that contractual terms that attempt to deprive the individual of worker rights indirectly -  for example by specifying the parties' agreement that certain contractual relationships exist or do not exist or that the relationship does not have certain qualities such as control or a personal service requirement - will also be caught by the prohibition on contracting out and rendered void.  This applies to all provisions "which can be seen to have as their object" precluding the individual from claiming workers' rights: "any terms which purport to classify the parties' legal relationship or to exclude or limit statutory protections by preventing the contract from being interpreted as a contract of employment or other worker's contract are of no effect and must be disregarded".

Gig economy

The facts are case-specific, but the Supreme Court's analysis of factors tipping the balance in favour of worker status will be relevant to other gig economy businesses considering the status of their individual contractors.  The Supreme Court held that the following factors relevant to the arrangements with the claimants as at 2016 justified the tribunal's finding of worker status in this case:

• drivers did not determine the fares (only being able to charge less than the rates set but not more) or the service fee deducted from the fare – this factor was described as "of major importance"
• the contract terms were set by Uber and not negotiated
• drivers’ freedom to choose when to work once logged in to the app was constrained, including withholding of the passenger destination and through penalties for too many ride refusals/cancellations
• Uber controlled the way in which the service was delivered, including through the use of ratings given by passengers and used as a purely internal performance management tool (rather than to inform a passenger's choice of driver)
• drivers’ ability to communicate with passengers was very limited thereby removing the opportunity for them to improve their economic position through professional or entrepreneurial skill (rather than just working longer hours).

The Supreme Court noted that the lack of 'umbrella' contract requiring a minimum level of work to be offered and done does not preclude worker status during the periods of work, although it did accept that a low level of work might tend to indicate a degree of independence or lack of subordination in the work relationship which might be incompatible with worker status.

In determining when the individuals were to be treated as "working" for the purposes of holiday rights under the Working Time Regulations, the Supreme Court accepted that the system of logging drivers off the app for ten minutes if their level of acceptance or ride requests fell below a prescribed level was operated coercively and in effect imposed an obligation to accept a minimum amount of work.  The tribunal was therefore entitled to find that, once logged into the app and in the relevant area, drivers could be viewed as "working".  On the facts, the claimants were at the business's disposal one logged on: although theoretically a driver could also be simultaneously logged onto a competitor's app, there was no evidence that in reality there were any alternative competitor apps available to drivers at the relevant time.  It followed that the drivers' time logged into the app was "working time" for statutory holiday purposes and "unmeasured work" for national minimum wage purposes.

Please do get in touch with your usual HSF contact if you would like to discuss the implications of this ruling for your business.