EU’s newly proposed directive on worker status in the gig economy

The Council of the EU published a statement on 12 June 2023 that Member States will begin negotiations for a newly proposed platform workers directive to create “new law that will help millions of gig workers gain access to employment rights”. It goes on to say that “the majority of the EU’s 28 million platform workers, including taxi drivers, domestic workers and food delivery drivers, are formally self-employed. Nevertheless, a number of them have to abide by many of the same rules and restrictions as an employed worker. This indicates that they are in fact in an employment relationship and should therefore enjoy the labour rights and social protection afforded to employees…”.

So far, there are only proposals and no unanimity between the Member States as to how far the new directive should go. It has reported that Germany, Spain, Greece, Latvia and Estonia abstained from voting, whereas other Member States (including the Netherlands) considered that the proposals did not go far enough. The division between the Member States may lead to further delays in having the directive agreed and therefore rolled out as law across the EU.

Following Brexit, the UK is not required to implement any such regulations into national law. However, our government will be watching developments closely. We may take the EU’s lead and implement similar provisions to protect the estimated 4.5 million gig economy workers in the UK.

The financial and legal implications of a change in employment status for gig economy workers will be huge for many companies such as Uber, Bolt, Deliveroo and Just Eat.

Such a move in the UK would mean new entitlements to pension, paid holiday, sick pay and pay for maternity and other family related rights. Whereas those currently working in the gig economy are usually considered self-employed and therefore do not benefit from any such rights.

If more workers will be considered employees, the cost of doing business for gig economy companies will escalate significantly but could also impact many other employers. It is inevitable that the costs will be passed on to consumers.

The gig economy has been phenomenally successful because it is flexible and agile. It can quickly increase or reduce its workforce depending on its short-term labour requirements and usually with limited administration involved and, fundamentally, the increased costs associated with having employees.

If those who work in the gig economy are to be given employment status, their employers will have a significantly greater administrative burden. For example, to ensure compliance with the pension auto-enrolment obligations, they will be required to deal with the associated paperwork and to make minimum auto-enrolment contributions of up to 3% of earnings. Also, if there is a more generous pension scheme, they could have to pay additional contributions. Aside from the additional pension contribution costs involved, gig economy employers may not have the necessary infrastructure to administer such schemes and will likely need to develop their HR and payroll functions, which will likely lead to additional staffing or other additional costs if payroll is outsourced.

Whilst the proposals will inevitably lead to a decrease in the litigation we have seen over the last few years around worker status, gig economy employers will likely face employment tribunal litigation more generally. This is because workers and employees are entitled to a variety of statutory rights from which the self-employed do not benefit. For example, being paid national minimum wage/living wage and the right to paid holiday, rest breaks and sick pay. They will also receive other costly benefits associated with employment such as minimum notice periods, commission, bonuses and health and wellbeing benefits.  

Employers will also face costs associated with recruitment (for example dealing with right to work or DBS checks) and they will have to pay employer’s national insurance of 13.8%.

It is worth noting that if an employer wants to terminate an employee’s employment, then they need to follow the appropriate procedures to avoid claims of unfair dismissal. All of these will mean additional management and/or HR time having to be spent and therefore additional costs.

Given the significant financial and legal ramifications on changing worker status, gig economy employers and those who are currently categorised as self-employed will be carefully watching the developments in this area, as will our government. Although we are no longer part of the current discussions in the EU it does not mean that the UK government can simply excuse itself from extending protection to those in the gig economy. Undoubtably there will be criticisms particularly given the government’s “bonfire” of EU law turning out to be a bit of a damp squib.

Victoria and Andrew's article was published in People Management, 14 July 2023, and can be found here.