How are the recent developments in California linked to events in the UK?
It should be recalled that Governor Newsom signed into law Assembly Bill 5 of 2019 in January of this year. You don’t remember this? Well, Assembly Bill 5 is better known as the Californian Gig Economy law which, in effect, gives thousands of workers employment status. Significantly, this means that many of these affected individuals will now benefit from greater levels of employment protection – including entitlement to sick pay.
Now, think about this: had the COVID-19 outbreak occurred last year, many Californian workers would have had absolutely no entitlement to receive sick pay if such individuals were forced to self-isolate or take time off because they had been infected. No doubt many of these workers turned employees will be breathing a huge sigh of relief that they are now covered by Assembly Bill 5.
Turning our attention to the UK, the British Government has taken a less generous approach to the issue of entitlement to sick pay. True, employees and other workers who already benefit from entitlement to statutory sick pay (SSP) should now be able to claim this from day 1 of sickness absence. It should be emphasised that this is a temporary measure justified on emergency grounds.
Previously, statutory sick pay was payable only from day 4 of the employee’s absence until Prime Minister Johnson’s announcement in the House of Commons on Tuesday 3 March 2020.
Jeremy Corbyn, Leader of the opposition Labour Party, immediately asked the PM if zero hours workers and self-employed individuals would have this benefit extended to them. The PM’s response to Mr Corbyn’s question will have disappointed many of these individuals. No entitlement to statutory sick pay for them. The problem for these individuals is that they do not meet the eligibility threshold where they earn £118 per week (the Lower Earnings Limit).
There is also the small fact that employment status (which is linked to entitlement to sick pay) is defined by the Employment Rights Act 1996. Section 230 of the Act defines an employee as an individual who has a contract of service. Many employment rights flow from this status and this means that many individuals who are engaged on a contract for services will simply not be eligible to claim statutory sick pay.
A link to an article in The Mirror newspaper about the exchanges in the House of Commons between PM Johnson and Mr Corbyn about SSP entitlement can be found below:
… and yet, the UK Government’s thinking on this issue may be quickly evolving. On the BBC’s Question Time television programme broadcast on Thursday 5 March 2020, Matt Hancock MP, the UK Health Secretary said that people on zero hours contracts and self-employed persons should not be financially penalised for doing the right thing i.e. self-isolating themselves or being honest about having the virus.
It will be interesting to see how the story develops and what changes to UK employment law may follow as a result.
I’m currently in the fourth week of Semester 2 and I’m teaching Employment Law to a group of second year students. I usually begin this course by discussing the importance of an individual’s employment status.
In today’s world of work, the great divide very much rests upon whether a person has a contract of service OR a contract for services.
An employee is said to have a contract of service as defined by Section 230(1) of the Employment Rights Act 1996. Having this status potentially allows someone to acquire employment protection such as the right not to be unfairly dismissed; the right to a redundancy payment; the right to be the beneficiary of family friendly and flexible working practices.
After the first few lectures have been completed on employment status, I usually ask the students if they think this is an important issue?
Hopefully, if I have been doing my job properly and they have been listening to me, the penny will have dropped: it is more often better to be an employee than someone who works under a contract for services (e.g. zero hours workers, casual and atypical workers, freelancers and the genuinely self-employed).
There are notable exceptions (aren’t there always?): high earning British television celebrities (e.g. Lorraine Kelly) or a number of BBC news journalists have preferred to be treated as freelancers or self-employed persons. Why? They can then minimise their exposure to income tax liability in a way (often via the medium of personal service companies) that would not be possible because if they were employees they would almost certainly be taxed at source on a PAYE (pay as you earn) basis.
We have seen an explosion in the type of work that is often characterised or labelled as the ‘gig economy’. This work is often characterised by a distinct lack of employment rights; irregular working patterns; chronic insecurity; lack of long term career progression; and low pay. It is often impossible for such individuals to complete the necessary periods continuous service to acquire employment rights.
Companies such as Deliveroo, Lyft and Uber have become synonymous with the ‘gig economy’, as have whole sectors of the employment market e.g. catering, cleaning and hospitality services.
Admittedly, the UK Government of Prime Minister Theresa May (2016-19) did commission Matthew Taylor to review employment status. The main conclusion reached by the Taylor Review was that a minimum level of employment protection should be extended to workers – after all these individuals pay their National Insurance contributions too.
Links to the Taylor Report and the UK Government’s response can be found below:
Admittedly, an employee does not gain these rights from day 1 of employment. They become entitled to claim certain rights as they build up their continuous service with the employer. So, for example, an employee (generally speaking) has the right not to be unfairly dismissed in terms of the Employment Rights Act 1996 if they have completed 2 years of continuous service with the employer.
Meanwhile, on the other side of the world …
… or California dreamin’
It’s not just in the UK that debates about employment status are currently playing out. At the tail end of 2019, it was with particular interest that I read about a story from the United States which highlighted many of the issues which I have just been discussing in this Blog.
A study, carried out in 2015/16 by economists (Professors Lawrence Katz and Alan Krueger at Harvard and Princeton Universities respectively) calculated that “12.5 million people were considered independent contractors, or 8.4% of the U.S. workforce.”
The US State of California has just enacted a law, Assembly Bill 5 2019 or AB5 (known more popularly as the gig economy law) giving those individuals working in the gig economy more employment rights. The law came into force on 1 January 2020.
A link to AB5 as enacted by the California State legislature can be found below:
In theory, AB5 makes it much more difficult for employers to classify individuals as independent contractors for services meaning that many more people will be treated as employees with the right to claim the minimum wage and the right to receive sick pay.
The Supreme Court of California laid down very strict criteria for determining whether an individual was an employee or an independent contractor in what is being referred to as the ‘landmark’ decision of Dynamex Operations West, Inc v the Superior Court of Los Angeles County 30 April 2018 Opinion S222732.
The case establishes the ‘ABC Test’ which operates on the presumption that individuals hired by an organisation or business are employees unless the hirer can show otherwise. In this case, the Supreme Court moved away from the ‘seminal’ Borello Test which had been the standard way of determining a person’s employment status since the 1980s. Critically, AB5 reflects the Dynamex criteria.
Essentially, the hirer must satisfy all three parts of the ABC Test in order to prove that an individual is a genuine independent contractor.
The criteria in ABC Test (as contained in AB5) can be set out as follows:
(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The Dynamex decision is regarded as a landmark judgement because it overturns the Borello Test which had been the leading precedent for determining employment status in California since the late 1980s (see S. G. Borello & Sons, Inc. v Department of Industrial Relations (1989) 48 Cal.3d 341).
In Dynamex, the Californian Supreme Court made the following statement:
“Although in some circumstances classification as an independent contractor may be advantageous to workers as well as to businesses, the risk that workers who should be treated as employees may be improperly misclassified as independent contractors is significant in light of the potentially substantial economic incentives that a business may have in mischaracterizing some workers as independent contractors. Such incentives include the unfair competitive advantage the business may obtain over competitors that properly classify similar workers as employees and that thereby assume the fiscal and other responsibilities and burdens that an employer owes to its employees.”
The Court noted, moreover, that:
“In recent years, the relevant regulatory agencies of both the federal and state governments have declared that the misclassification of workers as independent contractors rather than employees is a very serious problem, depriving federal and state governments of billions of dollars in tax revenue and millions of workers of the labor law protections to which they are entitled.”
A link to the Dynamex judgement can be found below:
Legislators in other US States (New Jersey and New York particularly) have expressed a desire to follow the Californian example and Democratic US presidential candidates, Bernie Sanders and Elizabeth Warren are strongly in favour of this type of law.
As you would expect in such a litigious society as the United States, AB5 has already been the subject of a legal challenge (which was unsuccessful). Predictably, Uber and another company, Postmates, were at the forefront of this action.
This legal challenge was hardly surprising, given that The Los Angeles Times reportedin August 2019 that Uber and Lyft intended to establish a campaigning fund worth $60 million to fight AB5.
So, even in the land of free enterprise, it would seem that not everyone wants to be their own boss and many people would, in fact, be more than happy to welcome the recognition of their status as employees.
That said, AB5 has, surprisingly, not met with the approval of every worker or potential employee. The California performing arts community has experienced problems with the new law, mainly because of its use of the term ‘fine artist’ which was not defined. Fine artists are exempt from the provisions of AB5, but who exactly is a fine artist? No one seems to be sure and The Los Angeles Times reported that one opera company had cancelled performances because they were unsure whether performers were to be classified as employees (with the additional costs that this would entail) or whether they were genuinely independent contractors.
Lorena Gonzalez, the Californian Assemblywoman who drafted AB5 said that a definition of the term was deliberately omitted from the law and that it the responsibility of the State’s Employment Development Department to clarify this issue.
Readers will find links below to media articles about AB5:
One of the consistent themes of my blog has concerned an individual’s employment status in the work-place – or the very real difficulties associated with the lack of such status.
Section 230(1) of the Employment Rights Act 1996 defines who is an “employee” in the following terms:
“… an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.”
As I have stated on more than one occasion, those who have a contract of service rather than a contract for services tend to be in a much stronger position legally speaking when it comes to a range of employment rights such as:
Paternity and maternity pay/leave
Statutory adoption pay/leave
Consultation rights in redundancy and TUPE situations
Entitlement to redundancy payments
Entitlement to sick pay
Minimum notice periods
Protection against unfair dismissal
The above are just some of the rights that people with employment status potentially can acquire depending on their length (or continuity) of service with their employer.
Those individuals with more insecure working patterns (e.g zero hours and/or casual workers) will almost never be in a situation to acquire such rights because it is almost always impossible for them to build up the necessary period of continuous service with the organisations to which they provide services. Typically, many of these workers are part of what has become known as the “gig economy” where the feature of employment contracts known as mutuality of obligation is absent.
Admittedly, the UK Government has attempted to begin to address the disadvantages facing “gig economy” workers by setting up the Taylor Review (which published its findings in July 2017). The final report made 53 recommendations concerning modern, employment practices:
The desire to extend workers’ rights seems to be something of a trend as, in April 2019, the European Union also ratified a new Directive with the working title Transparent and predictable working conditions in the European Union. This Directive (for the remaining EU 27 member states) will certainly give casual workers greater legal rights, but given the current uncertainty over the UK’s Brexit position, it remains to be seen if this measure will ever be implemented in this country (for more information, see my blog entitled “The gig economy” which was published on 19 April 2019).
One of the most significant new rights that the UK Government is proposing to extend to non-employees is the right to sick pay from day 1 of their service. It is calculated that this reform (if implemented) will benefit some 2 million workers.
A link to how the story was reported by The Independent can be found below:
On 16 April 2019, the European Parliament adopted measures in a new European Union Directive that will give workers providing services in the so called gig economy greater legal protection. The Directive will not apply to those individuals who are genuinely self-employed (see previous Blog: “Hello, I’m Lorraine and I’m definitely self-employed” published on 22 March 2019).
The final text of the Directive was adopted with 466 votes to 145 and 37 abstentions. The EU Council of Ministers had already approved the measures.
The EU member states will have three years to put the rules into practice.
The new Directive has a working title of the Transparent and predictable working conditions in the European Union. The Directive will eventually repeal Council Directive 91/533/EEC and it has been introduced using the Ordinary Legislative Procedure of the EU (formerly the Co-decision procedure).
Council Directive 91/533/EEC of 14 October 1991 related to an employer’s obligation to inform employees of the conditions applicable to the contract or employment relationship. Note the wording of this Directive title: it contains the key term of ’employees’, so casual workers were most definitely not covered by its provisions.
Member states will have 3 years in which to implement the new Directive.
Typically, in the popular imagination, gig economy workers are personified by the likes of Uber taxi drivers and Deliveroo couriers. In comparison to employees, gig economy workers tend to lack job security and have far fewer employment rights. Unlike employees who have a contract of service, gig economy workers have a contract for services (a key distinction in employment law).
In a press release issued via the official EU website (Europa), the main objectives of the new Directive are listed:
Basic rights (i.e. a floor of rights) for workers in casual or short term employment
Working conditions must be clearly stated on Day 1 of employment, and no later than 7 days in permitted circumstances
Limiting probationary periods to a maximum of 6 months
A link to the EU press release can be found below:
The new Directive is firmly part of the EU’s Social Pillar which was itself adopted at Gothenburg, Sweden on 17 November 2017.
As European Commission President, Jean-Claude Juncker said at the time of the adoption of the Social Pillar:
“Today we commit ourselves to a set of 20 principles and rights. From the right to fair wages to the right to health care; from lifelong learning, a better work-life balance and gender equality to minimum income: with the European Pillar of Social Rights, the EU stands up for the rights of its citizens in a fast-changing world.”
At the moment, the UK has committed itself to leave the EU. The latest deadline for doing so is 31 October 2019. Will a future UK Parliament or Government choose to implement the provisions of the Directive if this country is an ex-member state of the EU? That really depends on the type of relationship that this country has with the EU 3 years from now. Any future trading agreement with the EU may contain provisions about minimum employment protection laws. We will just have to wait and see what happens. It seems rather sad that when the EU is passing a very progressive measure, the UK has decided to leave the organisation.