“Gig economy” companies exploit workers and are free-riding on the welfare state

Deliveroo couriers plan legal action against the food delivery firm to claim better employment rights including the minimum wage, sick pay and holiday.

The 20 delivery riders say they are employees and not, as the company argues, self-employed contractors. In the latest challenge to employment conditions in the gig economy, they are seeking compensation for not receiving holiday pay and for being paid wages below the legal minimum for employees.

The Deliveroo worker’s move follows successful employment tribunal cases brought by cycle couriers at CitySprint, Excel and drivers for taxi app Uber. All three cases found the riders were workers, meaning they are entitled to basic employment rights including holiday pay and the minimum wage, rather than self-employed contractors with no employment rights. 

Uber claimed that its 40,000 drivers in the UK are self-employed, and therefore not entitled to pensions, holiday pay, or other basic employment rights. An employment tribunal in London disagreed, calling Uber’s argument that it was simply a technology company “ridiculous”, and they were relying on “fictions and twisted arguments.”

HMRC is investigating delivery giant Hermes for paying workers less than the minimum wage. Staff receive no holiday or sick pay, and risk losing work if they can’t make their rounds due to illness or lack of childcare.

Some 78 couriers working for Hermes, a company that describes itself as “the UK’s largest nationwide network of self employed couriers”, have subsequently made complaints to Frank Field, the chairman of the House of Commons work and pensions select committee.

It is estimated that falsely classifying workers as self-employed is costing the UK up to £314m per year in lost tax and national insurance contributions. 

A recent study has found that the average self-employed contractor is now paid less than in 1995. 

The Resolution Foundation – a think tank that aims to improve pay for families – partly has blamed the changing nature of the self-employed workforce. Their report says: “With the introduction and growth of the [so-called] New Living Wage, by 2020 more than 1 in 7 are expected to be paid at or only just above the legal minimum. This increases the need for employers and government to provide personal progression opportunities to get people beyond the wage floor.”

Currently, the government expects individuals to make in-work progression without support, or face financial penalties (sanctions) to their top up Universal Credit. This draconian approach forces unreasonable responsibility onto individuals and their familes, because the problem of low pay is one of exploitative employers and government policy rather than of individual behaviour.

Employers are responsible for setting pay levels and terms. The problem is more broadly one of the key features of neoliberalism, which has led to increasing employment precarity, characterised by insecure, exploitative forms of work. Meanwhile, the organisation of labour and collective bargaining by trade unions are being portrayed as “market distortions” by a government (and a party) that has legislated mercilessly to undermine the basic rights and fair levels of pay for employees.

The Labour party have pledged to reverse the Conservative’s anti-union laws if they are elected June.

The political logrolling of the profit incentive presents us with the most unedifying and hard face of neoliberalism, in which human need is profoundly devalued; the employee is merely availed of as an object of value extraction. The Conservatives certainly don’t value the idea of “a fair day’s wage for a fair day’s work”, despite all their rhetoric about “making work pay”. Over the past six years, we learned that this slogan was only a semantic decoy: a cover for the dismantling of our welfare state by a creeping, unremitting stealth.

The report went on to say that many more people had taken up lower-paid jobs in the so-called “gig economy“, essentially self-employed workers taking on a variety of different roles, while the proportion of self-employed business owners with their own staff had fallen. The number of hours worked by the self-employed had also declined.

The foundation said this had limited wage growth before the financial crash, but that pay had been “squeezed” in real terms more recently, falling £100 a week by 2013-14.

Last year, TUC general secretary Frances O’Grady said: “Britain’s new generation of self-employed workers are not all the budding entrepreneurs ministers like to talk about.

“While some choose self-employment, many are forced into it because there is no alternative work. Self-employment today too often means low pay and fewer rights at work.”

The Resolution Foundation’s most recent briefing looks at the final quarter of labour market data for 2016. It says: “Most importantly, inflation has risen rapidly in recent months, weighing heavily on real pay growth – though published pay statistics will take some time to fully reflect this. Well over a third of the workforce are experiencing shrinking pay packets according to the latest figures, in sectors ranging from accommodation to finance and the public sector. Many more will join them in the coming months as inflation continues to rise, with pay across the economy as a whole set to have fallen in the first three months of 2017.

Indeed, our ‘Spotlight’ article notes that real pay in the public sector has likely now begun a fall that could well last for several years. Conversely, private sector pay growth will continue to outpace the headline average earnings figures.”

A Department for Business spokesperson said the government was “committed to building an economy that works for everyone”.

Last year, Damian Green said, in a speech at the Resolution Foundation, that the private sector and voluntary sector “should be more involved in the provision of welfare services”. Green’s endorsement of the “exciting” gig economy and the “huge potential” that it offered came just the month after an employment tribunal found that drivers for the Uber car service should in fact get the minimum wage and paid holiday. 

Green also said: “The Government is a necessary, but not sufficient provider of welfare.” 

Shadow Digital Economy minister Louise Haigh tabled an amendment to the Government’s Digital Economy Bill, New Clause 24, following the tribunal ruling against Uber. 

She said there was still a danger that despite the ruling, Silicon Valley multinationals and other employers could use “loopholes” to break the rules and get around workers’ protections. 

Haigh said: “This is a landmark ruling for workers in the digital economy, and a great victory for the GMB and its members.

“The digital economy was supposed to promise choice and flexibility, but the reality for too many in the sector is that they are overworked, underpaid and exploited by bosses they never meet and who do not even fulfil their basic duties as an employer.

The Work and Pensions Committee report

In a new report the Work and Pensions Committee also concluded that the government must close the loopholes that are currently allowing “bogus” self-employment practices, which are potentially creating an extra burden on the welfare state while simultaneously reducing the tax contributions that sustain it. Increasingly, some companies are using self-employed workforces as cheap labour, excusing themselves from both responsibilities towards their workers and from substantial National Insurance liabilities, pension auto-enrolment responsibilities and the Apprenticeship Levy. 

In an inquiry that has had to be curtailed because of the election, the Committee heard from “gig economy” companies like Uber, Amazon, Hermes and Deliveroo, and from drivers who work with them. The evidence taken painted starkly contrasting pictures of the effect and impact of “self-employment” by these companies.

Companies utlilising self-employed workforces frequently promote the idea that flexible employment is contingent on self-employed status, but the Committee says this is a fiction.

The report

The Committee says:

• The apparent freedom companies enjoy to deny workers the rights that come with “employee” or “worker” status fails to protect workers from exploitation and poor working conditions. It also leads to substantial tax losses to the public purse, and potentially places increased strain on the welfare state.
• Designating workers as self-employed because their contract offers none of the benefits of employment puts the cart before horse. It is clear, though, that this logic has taken hold, enabling companies to propagate a myth of self-employment. This myth frequently fails to stand up in court, but individuals face huge risks in challenging their employment status that way.
• Where there are tax advantages to both workers and businesses in opting for a self-employed contractor arrangement, there is little to stand in the way.
• An assumption of the employment status of “worker” by default, rather than “self-employed” by default, would protect both those workers and the public purse. It would put the onus on companies to provide basic safety net standards of rights and benefits to their workers, and make the requisite contributions to the social safety net. Companies wishing to deviate from this model would need to present the case for doing so, shifting the burden of proof of employment status onto the better resourced company. 
• Self-employed people and employees receive almost equal access to all of the services funded by National Insurance, especially with the introduction of the new state Pension, yet the self-employed contribute far less. The incoming government should set out a roadmap for equalising employee and self-employed National Insurance Contributions.
• The Department for Work and Pensions (DWP) needs to ensure that its programmes and resources reflect the positive contribution that self-employment can make to society and the economy. This may require an expansion of specialist support in JobCentre Plus.
• The DWP is seeking to support entrepreneurship without subsidising unprofitable self-employment. The existing Minimum Income Floor (MIF) in Universal Credit (UC) does not get this balance right and risks stifling viable new businesses. The incoming Government should urgently review the MIF with a view to improving its sensitivity to the realities of self-employment. Until this is complete, the MIF should not apply to self-employed UC claimants.

Chair’s comments

Frank Field MP, Chair of the Committee, said;

“Companies in the gig economy are free-riding on the welfare state, avoiding all their responsibilities to profit from this bogus “self-employed” designation while ordinary tax-payers pick up the tab. This inquiry has convinced me of the need to offer “worker” status to the drivers who work with those companies as the default option. This status would be a much fairer reflection of the work they undertake which seems to fall between what most of us would think of as “self-employed” or “employed”. 

It would also protect them from some of the appalling practices that have been reported to the Committee in this inquiry. Uber’s recent announcement that it will soon charge its drivers for sickness cover is just another way of pushing costs onto the workforce, to reinforce the impression that those workers are self-employed.

Self-employment can be genuinely flexible and rewarding for many, but “workers” and “employees” can and do work flexibly. Flexibility is not the preserve of poorly paid, unstable contractors, nor does the brand of “flexibility” on offer from these gig economy companies seem reciprocal. It is clearly profit and profit only that is the motive for designating workers as self-employed. The companies get all the benefits, while workers take on all the risks and the state will be expected to pick up the tab, with little contribution from the companies involved.

It is up to Government to close the loopholes that are currently being exploited by these companies, as part of a necessary and wide ranging reform to the regulation of corporate behaviour.”

• Read the report summary
• Read the report conclusions and recommendations
• Read the full report: Self-employment and the gig economy

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