MPs propose overhaul of employment framework: Select Committees' Report published with draft Bill

When the Taylor Review published its report, ‘Good Work’, in July (see our briefing here), many commented that the loss of the government’s majority in the general election would mean its recommendations would be put on the back burner for some time. 

As you may have seen, two House of Commons Select Committees – the Work and Pensions Committee and the BEIS Committee – have today breathed fresh life into Taylor’s recommendations.  They have published a joint Report, entitled ‘A framework for modern employment’, which sets out how they believe the employment framework should be amended to reflect and support the modern world of work. 

The Report adopts many of the Taylor Review recommendations. It also includes a draft Bill setting out proposed legislative changes (pages 28 -32).  In the Report the Committees urge Theresa May to prioritise legislating on the issues they have identified. 

We set out below the Report’s key recommendations – we have noted where the proposal is also reflected in the draft Bill.

Employment status – in the draft Bill

• Section 230(3) of the Employment Rights Act 1996 – which defines worker status - should be amended to include a list of the key factors which the courts may refer to when deciding on employment status.  
• The factors relevant to whether an individual is an employee should include:
  • whether the individual is obliged to perform work personally;
  • whether there is the potential for the ‘employer’ to exercise substantial control  over how the work will be carried out (eg is there scope to discipline the individual? Who directs where and how the work will be carried out and with what equipment? Who determines working hours and rate of pay?);
  • whether the individual is integrated into the business of the ‘employer’;
  • who provides the necessary equipment;
  • the degree of financial risk undertaken by the individual; and
  • whether the individual is prohibited from working for others during the contract.
• The draft Bill provides that all of the factors above, except for whether there is an obligation to perform the work personally, will also be relevant to whether an individual is a worker (sometimes referred to as ‘a limb (b) worker’) plus it provides that the court may also have regard to whether the worker was engaged in marketing their business before the contract came into existence, and  whether any substitution clause is, in practice, capable of being freely exercised by the individual.
• The draft Bill introduces a new definition of ‘independent contractor’ (ie self-employed) which is neither an employee nor a worker. Relevant factors that a court may take into account when determining whether an individual is an independent contractor include: 
  • whether the individual assumes responsibility for the success or failure of their business;
  • whether the individual can hire others at their own expense;
  • whether the individual has the ability to determine the manner in which the services are carried out;
  • whether the individual actively markets their services;
  • whether the individual can negotiate and set the price for their services; and
  • whether the individual is responsible for their own indemnity cover or public  liability insurance.

Worker status by default – in the draft Bill

• If, in a tribunal claim, there is a question as to whether the claimant is a worker, it should be presumed that they are, unless the contrary is established.  The Report states that this presumption of worker status would only apply to companies who have a self-employed workforce above a certain size defined in secondary legislation - the Report does not propose what this threshold should be. 
• Employers should  be required to provide a written statement of status to an individual within seven days of starting work – this should specify whether the individual is an employee or a worker and detail their rights and entitlements. 

Pay premium for non-guaranteed hours – in the draft Bill 

• A pilot scheme should be put in place under which workers who work non-guaranteed hours should be entitled to a premium on the national minimum wage and the national living wage. 
• The Low Pay Commission (LPC) would be responsible for identifying which companies/sectors should take part in the pilot, which should not last for longer than two years. The LPC would also be consulted on the rate at which the premium should be set, the potential impact on marginal hours of employment and compliance.  

Employment tribunals – class actions – in the draft Bill

• There should be the potential for employees to bring ‘class actions’ in the Employment Tribunal for certain types of claims, including claims for unlawful deduction of wages, worker status, and under the Working Time Regulations. If a ‘class action’ is brought successfully by one person, the result will apply to everyone in the class – currently, in the UK, class actions are limited to consumer protection cases.
• The Report also recommends that the Employment Tribunal should be required to consider the increased use of higher, punitive fines and costs order if an employer has already lost a similar case. 

Continuous service – in the draft Bill

• An employee should be allowed to take a break in service of one month without this constituting a break in continuous service (for the purpose of determining their employment rights) – this is currently one week. 

Abolition of the Swedish derogation

• Agency workers are entitled to be paid the same as a permanent member of staff doing the same job after they have completed a 12 week qualifying period. However, agency workers can choose to opt out of this equal pay entitlement (the opt out being known as the ‘Swedish derogation’) if they receive a minimum level of pay between assignments. The Report recommends that the government repeals this opt out legislation. 

Deterring non-compliance 

• Businesses which commit repeated or serious breaches of employment legislation should be subject to stronger and more deterrent penalties, including punitive fines.
• The government should expand ‘naming and shaming’ to non-accidental breaches of employment rights by businesses and supply chains.

Written statement of terms and conditions

• Employers should have a duty to provide workers, as well as employees, with a written statement of terms and conditions – currently employers are only required to provide this to employees (section 1 of the Employment Rights Act 1996). 
• The right to receive this statement should apply from day one and the statement should be provided within seven days of starting work – currently a section 1 statement needs to be provided within two months of starting work. 

ICE Regulations – workers to count towards 50 employees threshold and support level threshold reduced

• Workers, as well as employees, should count towards the threshold of 50 employees before a company is covered by the Information and Consultation of Employees Regulations (ICE Regulations) and the threshold level of support for the implementation of the ICE Regulations should be reduced from 10% to 2% of the workforce.