Government scrutiny of worker status in the gig economy

The gig economy has reshaped the employment landscape, offering businesses flexibility while allowing individuals to work on their own terms.

Minister’s warning on worker misclassification

On 25 January 2025, the UK government issued formal warnings to gig economy companies regarding potential misclassification of workers as self-employed, which could deny them essential employment rights.

The warning was issued in response to business practices which raised concerns about potential worker exploitation, including delayed wage payments, individuals being required to pay a fee to access their earnings more quickly, and long working hours without legally-mandated rest breaks

Legal framework: employment status classification

The distinction between “employed”, “self-employed” and “worker” status is pivotal in employment law.

Case law: Uber BV v Aslam

A landmark case in this area is Uber BV v Aslam [2021] UKSC 5, where the Supreme Court held that Uber drivers are workers entitled to the national living wage and paid holidays. The court emphasised that the reality of the working relationship takes precedence over contractual terms that label individuals as self-employed. This case underscores the principle that if a company exercises significant control over individuals and they are integrated into the business, they are likely to be deemed workers.

Implications for employers

The ongoing regulatory scrutiny in this area highlights that employers must proactively and carefully assess working relationships to ensure the correct classification of individuals as employees, workers, or self-employed. This is determined by the actual nature of the working arrangement rather than contractual labels.

Key factors in determining employment status include – without limitation:

• Control – the extent to which the company dictates how, when, and where work is performed
• Integration – whether the individual is integrated into the business, such as by using company branding, software, or infrastructure
• Mutuality of obligation – whether the company is obliged to provide work and the individual is required to accept it
• Personal service – whether the individual must carry out the work personally or has the right to send a substitute
• Financial risk and independence – whether the individual bears financial risk, provides their own equipment, and markets their services independently.

A failure to accurately classify individuals can result in employment tribunal claims including for unfair dismissal, unpaid wages and unpaid holiday pay, HMRC investigations for unpaid tax and National Insurance contributions, regulatory enforcement actions, as well as significant reputational damage.

Irretrievable breakdown of the employment relationship: EAT clarifies key considerations in unfair dismissal claims

The Employment Appeal Tribunal (“EAT”) in Alexis v. Westminster Drug Project has provided important guidance when irretrievable breakdown of the employment relationship can justify dismissal for some other substantial reason (“SOSR”) under the Employment Rights Act 1996.

The decision in in this case reinforces the principle that, in certain circumstances, loss of trust and confidence between employer and employee can provide a fair basis for dismissal.

The facts

The claimant, who has dyslexia, was employed by the respondent and was interviewed for alternative roles as part of a restructure. She was unsuccessful in securing a role and subsequently raised a grievance, arguing that she should have been provided with interview questions 24 hours in advance as a reasonable adjustment for her condition.

Following a grievance process and appeal, the outcomes were largely favourable to her, including an offer of a new interview. However, she rejected the grievance outcome and proceeded to send multiple emails to senior management, including the appeal manager and chairman of the organisation.

As a result, the employer arranged a meeting to assess whether her continued employment was viable. Following this meeting, the decision was made to dismiss her on notice, citing SOSR due to an irretrievable breakdown in the employment relationship.

The employment tribunal and EAT Decision

The claimant brought a claim for unfair dismissal, but the employment tribunal rejected her claim, finding that the employer had reasonable grounds for concluding that the employment relationship had broken down beyond repair.

She appealed to the EAT, arguing that the employer had failed to give sufficient weight to:

• Her length of service
• Potential alternatives to dismissal

The EAT dismissed the appeal, holding that:

1. Length of service was not a relevant factor in determining whether the relationship had irretrievably broken down. While length of service is often considered in dismissal cases, it does not override an employer’s reasonable belief that trust and confidence have been lost.
2. Alternatives to dismissal had been considered, but once the employer reasonably concluded that the employment relationship had broken down, dismissal was the only viable option.

Key insights for employers

This case reinforces that:

• Loss of trust and confidence can be a fair reason for dismissal under SOSR, provided the employer has reasonable grounds for concluding that the working relationship is no longer sustainable
• Employers should ensure they have clear evidence to support an irretrievable breakdown, such as ongoing disputes, refusal to engage with reasonable outcomes, or disruptive behaviour
• Length of service alone is not a barrier to dismissal where a breakdown in the relationship is substantiated
• Employers must consider alternatives before dismissing for SOSR, but where trust and confidence is lost, dismissal may be justified.

The EAT’s decision highlights the importance of a structured and well-documented approach when dealing with difficult workplace relationships. Employers should ensure robust procedures are followed to demonstrate that all reasonable options have been explored before dismissal is considered.