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This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

The Matthew Taylor Review: Good Work
 Briefing 
Date
12 July 2017

The Matthew Taylor Review: 'Good Work'

In October 2016, Matthew Taylor, the Chief Executive of the RSA and a former adviser to Tony Blair, was commissioned by the Prime Minister to conduct a review of modern employment practices.  Amongst other issues, he was asked to consider the implications of new forms of work, driven by digital platforms, for the field of employment. His Report was born some months later on 11 July.

Summary

Matthew Taylor said at the launch of the Report that he hopes that the concept of 'good work' will be a widely supported and accepted national goal, and has named the Report 'Good Work: the Taylor Review of Modern Working Practices'.  The full report can be found here.

The Report calls for all work to be decent and fair, and says that work should give everyone the opportunity to progress.  It notes that bad work generates costs for society, and low quality work and weak management is a major stumbling block for national productivity.  The Report looks at the way technology will affect us in the future; calling for it to be used to make things better, leaving employees more time to be human.  It cautions against becoming victims of technology.

Flexibility

Many individuals enter the gig economy willingly as a result of the flexibility it offers.  A large proportion of the gig economy is made up of those in the creative industry, as well as project managers and administrative staff.  They are often well paid.  Others, though, struggle to earn the minimum wage through the work they do.

This is a nuanced area, and it would be difficult to make any sweeping changes that would benefit everyone: even if steps are taken to protect the most vulnerable, this may have a knock on effect on those who could lose the flexibility that they value so highly.

The Report is very supportive of flexibility, and indeed calls for increased flexibility.  However, it distinguishes between one sided and two way flexibility.  One sided flexibility transfers all risk to employees.  The Report says that it is wrong that people should be instructed to turn up for non existent work, or to work for years on zero hours contracts without any long term security and the ability to apply for mortgages, etc.

'Good' work

The Report is broadly supportive of the current state of the UK labour market.  It recognises that the 'employment wedge' (the costs of employing people above their salary costs) is already high, and does not want to increase this further.  It believes that many answers lie in better corporate governance, rather than increased legislation.  It stresses that it is important to encourage 'good work', not just work which makes people cogs in machines, and recognises that people are driven by different motivations at different points in their career.  It also says that while pay is one of the determinants of quality work, it is not the only one.  Work/life balance, personal development and personal fulfilment are also important.  Matching skills to the available jobs is also a key factor.  The Report notes that the proportion of graduates working in low-skilled jobs increased from 5.3% in 2008 to 8.1% in 2016.  Increasing worker representation in the decision making processes of companies is also key to achieving this.   In order to monitor the extent to which good work is being offered, the Report calls on the government to identify a set of criteria against which it can be measured annually.

Status

At its heart, the review grapples with the difficult issue of employment status.  Over the years, employment law in this country has evolved to give special protection to employees such as the right not to be unfairly dismissed, and the right to redundancy pay.  In return, employees owe a number of duties to their employer – for example, they are obliged to turn up for work and submit to the control of their managers. 

Conversely, self employed people are, in theory, better able to strike a fairer bargain with the person engaging them, and are free to decide whether to take on or reject work.  As such, they do not enjoy the same statutory protection as employees. 

A third category has evolved, that of 'worker' – someone who is not in a strong bargaining position, but who may not be so tightly bound to the employer.  Workers are given some of the same rights as employees, such as protection from discrimination, protection if they blow the whistle on unlawful practices, national minimum wage, and so on. 

The important thing to note is that the three categories are essentially points on a spectrum, rather than having bold lines separating them.  Deciding which category is appropriate for a particular person can be very difficult – particularly with the advent of new ways of working. The so-called 'gig' economy provides individuals with short term contracts, rather than permanent jobs.  Digital platforms facilitate the way in which this work can be provided to individuals, so that it becomes very easy in theory to match supply and demand.   As a result, the normal tests for employment status can be harder to apply.

The gig economy gives individuals the freedom to choose when they want to work.  On the other hand, the lack of job security can be very stressful for those reliant on the gig economy for income.  There is also a risk of exploitation of vulnerable individuals who lack bargaining power, particularly when they cannot fall back on the statutory protections afforded to workers.

The Report has suggested that in order to make the distinction of 'worker' clearer, they are renamed 'dependent contractors' if workers are under the control of and subordinate to the employer.  This may mean that it is easier to distinguish between someone who is genuinely self employed and someone who needs the protection of statute.  Apart from a rebadging, the difference between this and worker status is that the person supplying the labour may be entitled to offer someone else to do the work for them – which would otherwise have disqualified them from worker protection under the current rules.  In order to assist with improving this clarity, the Report calls on employers to provide workers with a statement on the first day of their employment which sets out their status and rights (extending the current requirement which only applies to employees), and suggests that the government should develop an online tool to provide an indication of employment status as well as advice and information on what rights an individual is entitled to and how to qualify for them.

National minimum wage

Since the Report was commissioned, a number of Employment Tribunal decisions have identified that those working in the gig economy are workers, and entitled to normal worker protection.  Matthew Taylor has said that he supports the direction in which the courts are moving.  However, he is keen on maintaining the flexibility that currently exists.  He is concerned that if gig economy workers were entitled to the minimum wage for being 'on call' during off peak times where there is very little, if any, work to be done, this could lead employers to impose shift patterns or limit the access to work.  Instead, the Report has proposed that workers should be paid on a 'piece work' basis that reflects the productivity of the worker rather than the time they spend on the job.  It suggests a three stage test:

  • if an employer can show that the rate they propose for each job done (or the pay available under the algorithm designed by the employer) would, for an average worker who is working during an averagely busy period, result in the worker achieving 1.2 times the national minimum wage;
  • if the employer gives real time information as to the availability of work and the likely hourly wage that a worker would receive, were they to log on at that time; and
  • if the worker is free to reject the work

If all of the above true then the employer should avoid liability under the national hourly minimum wage legislation if it turns out that the worker subsequently earns less than the minimum hourly rate.

This is already proving controversial.  Unions and the Labour party have both condemned this as being a retrograde step, taking away the right to the minimum wage. 

The Report calls for greater powers to be given to the Low Pay Commission, including a recommendation that the LPC looks into giving a higher national minimum wage to those on contracts with low guaranteed hours to incentivise employers to provide guaranteed hours where possible.

Zero hours contracts

Matthew Taylor has concluded that zero hours contracts serve a useful function, and are welcomed by some workers.  He points to the example of McDonald's, where workers were invited to change their contracts from zero to fixed hours contracts, and only 20% took up the invitation.  However, he recognises that the system could be open to abuse.  He therefore has proposed that workers on zero hours contracts should be given the right to request to move to fixed hours, in much the same way employees currently have the right to request to work flexibly.  Employers should be required to seriously consider the request, and, crucially, should be transparent and publish figures about the number of requests received and granted.

To assist in avoiding the exploitation of agency workers, who may be drafted in to work cheaply alongside permanent staff, the Report has called for the Swedish derogation in agency work to be abolished, so that all agency workers will be entitled to the same basic rights as permanent staff after a short probationary-type period. Additionally, the Report suggests that agency workers should have the right to request a direct contract of employment if they have been placed with the same organisation for 12 months and that organisation should consider the request in a reasonable manner.

Information and consultation

In order to improve employee engagement, the Report advocates an extension to the rights contained in the Information and Consultation of Employees Regulations 2004, which currently require an employer to agree to recognise a works council if 10% of the employees request it.   The Report suggests that the threshold should be reduced to 2% of the workforce, and workers as well as employees should be able to request it.

Other protections

To protect workers in the gig economy, the Report recommends that further protection is offered to pregnant women and those on maternity leave, as they are vulnerable to employers reducing their hours to zero without expressly dismissing them.  It also calls for statutory sick pay to be universally available from the first day of employment.

The Report also suggests that it should be possible to "roll up" holiday pay into a calculation of an hourly rate.  In addition it suggests that changes should be made to make it easier for employees to accrue continuous service by extending the length of non-employment which breaks continuous service from one week to one month.

Self employed people should be treated more favourably, the Report says, and calls for an increase in portable benefits platforms which could provide self employed people with a safety net in the event of sickness or old age.

The report also gives specific recommendations for improving work in the social care and hospitality industries and recommends a national framework for training.

In addition, it emphasises the importance for businesses to promote health and wellbeing in the workplace, including a proposal for city mayors to work with businesses to do so.

Furthermore, the Report suggests that it should be possible to 'roll up' holiday pay into a calculation of an hourly rate, and that changes should be made to make it easier for employees to accrue continuous service by extending the length of non-employment which breaks continuous service from one week to one month.

Enforcement

While the Report suggests that the fees in Employment Tribunals should be reviewed and lowered, it has recommended that it should be free for individuals to apply to the Tribunal for an assessment of their employment status.  This, together with the use of an online tool that the government could provide to assist individuals and employers alike to understand their rights and obligations, would go some way to clarifying the individual's rights. 

The Report goes on to say that the burden of proof in relation to employment status should be reversed so that an employer must prove that the individual is not entitled to the rights they are claiming, and not the other way round.  If an employer is a repeat offender in relation to respecting someone's status, it should face aggravated penalties.  The Report also calls for employers to be named and shamed if they fail to pay Tribunal awards, and proposes that the process for recovery of unpaid awards should be simplified for workers.

The Report also suggests that the powers of HMRC should be extended to include the power to investigate failures to pay holiday pay as well as sick pay and the National Minimum Wage and to penalise defaulting employers accordingly.

Tax

The other issue relating to an increase in self employed individuals is that the amount of tax revenue generated from them is lower than from employees.  Some cynics may say that this is the main reason why the government has become interested in the gig economy. 

Matthew Taylor has stated that in order to address the underlying forces shaping the market, it is necessary to look at taxation.  Employed people pay much more tax than self employed, and this should be addressed with a consistent and equal way of taxing labour.  The Report considered that the attempt to change the approach to National Insurance in the last budget was the correct approach.  He has also suggested that the cash economy should be eradicated.  He suggests that as payment platforms become increasingly common, cash payments to window cleaners (for instance) should become a thing of the past, thereby increasing tax revenues.  Technology should also be harnessed to help self employed workers more easily account for their tax through the 'Making Tax Digital' system that currently exists.

Conclusion

The extent to which the recommendations in the Report will be implemented into statute remains to be seen.  Before the election, it was likely to have formed the basis of legislation for years to come.  However, given the reaction from Labour and the unions, it may only become a 'best practice' guide for employers in the gig economy.  As Matthew Taylor said, everyone will have their own view; no one will agree with every word.