A report published in the UK in June, following a government-sponsored review into modern working practices, has recommended renaming a form of self-employed status “dependent contractor.”
While the concept of a hybrid between an employee and an independent contractor has existed in UK law since 1998, when the Working Time Regulations introduced the European category of “worker,” the terminology is new.
In the US, the opposite is true. The term “dependent contractor” has been discussed as an additional category of employment status for the past two decades, but it has never made it into law.
However, the rise in the number of workers providing personal services on a freelance basis in the last five years has made the debate on both sides of the Atlantic more urgent.
UK Taylor Review
The report in question is “Good Work: The Taylor Review of Modern Working Practices,” by Matthew Taylor, chief executive of the Royal Society for the Encouragement of Arts, Manufactures and Commerce. It was commissioned in October 2016 by the UK government in response to growing concerns over the low pay and lack of rights experienced by people working in the gig economy.
In it, Taylor calls on the government to improve the quality of work experienced by the estimated 1.3 million people that comprise the gig economy workforce for firms such as Uber and Deliveroo. He also highlighted the need to ensure that “all work is fair and decent with realistic scope for development and fulfilment.”
His view is that renaming the existing category of “worker” as “dependent contractor” will make it easier to distinguish between those freelance workers who are not in business on their own account and the genuinely independent contractor. The “worker” category already benefits from certain rights, such as to be paid the national minimum wage, holiday pay and sick pay, but many gig workers are denied such rights because their contracts label them as independent contractors.
The distinction between an employee, a “worker” and an “independent contractor” depends on a legal analysis of the facts of the relationship between the individual and their employer. This is not an exact science and results in costly legal claims to determine the correct status. How the law is interpreted varies widely.
Taylor believes there is merit in outlining in primary legislation the high-level criteria that need to be met: personal service; the degree of control exercised by the employer; whether there are ongoing contractual obligations to provide and perform work (sometimes known as mutuality of obligation); and, more generally, whether the individual is carrying out a business undertaking.
And, in order to allow the legislation to respond dynamically to changing conditions and relevant case law, the detail that underpins these criteria should be specified in a way that can be updated quickly, with a greater use of secondary legislation and guidance.
Other jurisdictions already make the distinction in law. In Canada, the word “dependent” refers to an economic relationship in which the contractor depends mainly or entirely on a single employer or client. In order to qualify for dependent contractor status in some Canadian jurisdictions, a worker must earn 80% or more of their income from a single source. In Spain, it’s 75%. And to qualify for Germany’s version of dependent contractor (called an “employee-like” person), more than 50% of the worker’s income has to come from one client.
In the modern gig economy, workers perform services for a range of clients, through a variety of different platforms, often in addition to full-time employment. This test of dependence would not work, and both in the US and the UK there is general consensus that the issue is more than simply giving the intermediate category of worker a name.
Taylor takes the view that in developing the legal test for “dependent contractor” status, control should be of greater importance, with less emphasis placed on the requirement to perform work personally. Control may be exercised briefly, but significantly to alter the balance of power between the individual and their employer. And this is the issue behind many of the cases brought against employers such as Uber, Deliveroo, Lyft and Fedex. This third category of worker values the flexibility but lacks the commercial clout to stand up for their rights.
The Taylor review makes a number of recommendations in addition to the “dependent contractor” label, but there is no clear mandate for the government to implement such changes in law. The report has been described by the GMB union as “tinkering around the edges and creating more loopholes employers will inevitably exploit.” Business leaders have also given it a cool reception.
In the US, the idea gained some traction when US Senator Mark Warner released a statement calling for new legislation around classification, rather than allowing the issue to be “litigated on a case-by-case and state-by-state basis,” following one of the successful cases against Uber in 2015. But since then the focus has centered on enabling such workers to access benefits that would otherwise be denied to them.
So the debates go on. While there is consensus on both sides of the Atlantic that the words “dependent contractor” are an accurate description of the intermediate position between being an employee and being a fully independent contractor, the law is yet to catch up.