Recent UK Ruling Highlights Risks of “Independent Contractor” Status
In most jurisdictions, there is a binary distinction between “independent contractors” and “employees,” with employment rights only afforded to “employees.” In the UK, there is a third class—“worker” —who benefit from certain employment rights, including paid time off and a minimum wage.
The case of Addison Lee Ltd. v. Lange and Others provides important guidelines on the distinction between “workers” and “independent contractors” which are of critical importance for businesses that engage atypical workers. Importantly, UK Employment Appeal Tribunal (“EAT”) rejected an appeal filed by British taxi company Addison Lee Limited, and instead affirmed the Employment Tribunal’s finding that Addison Lee’s drivers were not independent contractors, but instead qualified as “workers.”
Michall Lange and two other drivers brought claims against Addison Lee, asserting that they qualified as “workers” under UK regulations. This was despite their contracts expressly stating they were independent contractors. The drivers, therefore, argued that they were entitled to holiday pay and minimum wage.
Under Addison Lee’s system, all drivers were provided with a hand-held computer, which they were instructed to turn on whenever available for work. When provided a job, a driver was expected to immediately accept it or provide an acceptable reason for not doing so. A failure to accept a job or provide a legitimate reason for not doing so could result in sanctions, such as logging the driver off of the system or referring the matter to a supervisor. Although Addison Lee did not promise its drivers a specific amount of work, it did instruct drivers that they should try to work an average of 50 to 60 hours per week.
The Employment Tribunal Decision
The drivers’ attorney argued to the Employment Tribunal that the independent contractor status provided in Addison Lee’s employment contracts did not reflect the true arrangement among the parties. Addison Lee countered that drivers should not qualify as workers because Addison Lee did not require them to work. Therefore, Addison Lee maintained, each driver was running his or her own small business—Addison Lee merely provided the cars and equipment.
The Employment Tribunal concurred with the drivers, holding that although they were technically free not to work, “[t]he commercial reality [was] that they are undertaking to do work when and as soon as they log on.” In other words, while logged on, a driver had undertaken to do work for Addison Lee and was expecting Addison Lee to offer such work. This created a mutuality of obligation through the contractual obligation for Addison Lee to offer work and for the individual to accept it, subject to the individual’s occasional entitlement to decline if a parcel was too heavy. This mutuality of obligation meant that the drivers should be classified as “workers” rather than independent contractors. Further, the Employment Tribunal determined that time drivers were logged on counted as “working time,” regardless of whether the driver was transporting a passenger.
Addison Lee appealed to the EAT, contending that a driver logging on to the system should be considered only “a signal of willingness or availability, not a commitment to undertake journeys,” and that there was insufficient basis for departing from the express wording of the relevant contracts which stated that the drivers were independent contractors.
However, the EAT held that the Employment Tribunal had been right to look behind the express wording in the relevant contract in order “to glean the true agreement from all the circumstances of the case,” including, importantly, the parties’ relative bargaining power. With those principles in mind, the EAT held that it was reasonable for the Employment Tribunal to find that the drivers were workers based, in particular, on the fact that drivers were required to accept jobs when logged in to Addison Lee’s system. Regardless of the contractual provision stating that drivers need not take work, the reality was that when logged in, drivers were obligated to undertake jobs assigned to them, which meant they had the status of workers.
The analysis provided in Addison Lee confirms that the label given to a contract is not determinative. It is an example of how the commercial reality will determine the status of someone undertaking work. Relationships that have the character of a “worker” relationship, such as the mutuality of obligation in this case, requiring the individual to accept offered work, may lead to a rejection of the independent contractor status, requiring payment of applicable wages and benefits. With more and more companies seeking to take part in the “gig economy” of independent work, businesses should review their practices and policies to assess the true nature of the relationship with those that they engage.