The new gig

Three years ago only a handful of journalists, HR obsessives and economists had ever heard of a zero-hour contract. Yet following the exposure of their widespread use at companies, including Sports Direct, McDonald’s UK and pub chain Wetherspoons, the controversial contracts formed the core of Labour’s 2015 election campaign, have been publicly discussed regularly by business leaders and politicians while laws have been passed banning the most punitive versions.

The Office for National Statistics now specifically asks workers whether they are on the contracts, which offer no guaranteed hours of employment, and officials have also been forced to change the way the statistics are totted up. But it seems zero-hour contracts are being rapidly replaced as the controversial contract of choice with ‘self-employment’ via the ‘gig economy’.

Swathes of typically young people desperate for a wage, agree to work with the likes for Uber or Deliveroo and are hired as a ‘supplier of services’, rather than being directly employed. It means they only get paid for the deliveries they carry out, so that during quiet periods the company does not need to pay them a wage at all, cutting their costs immensely but leaving workers high and dry. Unions have decried the increasing use of the contracts, judges have criticised the arrangements and an influential Parliamentary Committee is investigating their use.

Some may argue that the tide is turning against the gig economy, but can we expect to see them go the way of the zero-hour contract? Or does the rise and rise of companies harnessing new technologies and using computer algorithms to assess and control workers mean the ‘gig economy’ is here to stay?

The contracts are used primarily in the delivery and travel business. But the companies that employ these practices, such as Hermes, Deliveroo and Uber, received a warning shot when an employment tribunal recently ruled that Uber drivers were technically workers for the company, rather than ‘suppliers’ of services as Uber claimed them to be.

This essential difference means that the drivers should be entitled to regular pay and benefits such as holiday and sick pay. Uber, which has more than 40,000 licensed drivers in 20 UK towns and cities, would also have to start paying National Insurance contributions on behalf of the workers. It is appealing the decision.

Tim Goodwin, associate solicitor at Winckworth Sherwood, explains how the ruling was made. ‘It’s a long-established principle that the courts consider employment status to be a question of ‘substance over form’ – meaning that it’s the reality of the arrangement between the company and the individual that counts, not what you put in the contract,’ he says.

‘It doesn’t really matter whether your boss has called you an employee or a contractor, if the reality is that you are in an employment relationship, which broadly means that your employer has control over your day-to-day activities at work, then the reality is that you will be an employee, and entitled to all of the employment rights that go with that status.’

But, although the ruling was made based on the current laws, politicians and campaigners have taken notice and both the Government and the Business Select Committee have launched reviews into whether the law needs updating.

Speaking to CorpComms Magazine, the committee’s chairman Iain Wright MP explains why the topic has been taken up. ‘We, as a committee, are interested in how robotics will change the nature of work. Every wave of technological advance unleashes new jobs. Will that be the case again? Because I don’t think it’s inevitable,’ he says.

‘Technology now produces a new set of challenges, such as ‘is my job obsolete?’ ‘am I just a number?’ ‘have I got to do set things, set by a computer algorithm?’ and that’s part of the challenge that needs to be faced.

‘That drive to the bottom we’re seeing, when it comes to worker’s conditions and productivity, is ultimately, not conducive to a long-term business venture. We wanted to look at whether we need to tighten rules so that it’s socially progressive while remaining economically competitive.’

Wright is correct to say that technology has always pushed up against workers. Even Sports Direct’s boss Mike Ashley used the tensions as the reason for not upgrading and automating parts of his warehouse, citing the jobs that would be lost in the process.

Paul Nowak, deputy general secretary at the TUC, explains that the issue stems back more than 100 years. ‘This is not a new phenomenon. There’s the famous tale of Walter Reuther, the head of the car workers’ union in the US, walking around the Ford plant with Henry Ford, with Ford showing off new machinery that would replace Reuther’s members.

‘So, technological change has always been the future of work, it’s how you shape that technological change and how you make it work for the benefit of workers and society more broadly.’

But the problem today appears to be that with the explosive rise of computer algorithms, the role of managing workers has switched from people to machines, allowing them to make objective – and potentially brutal – decisions for under-performing staff. It also means for a typical Deliveroo driver, working for the popular food delivery app, the level of interaction they have with management and with other riders is cut to a minimum.

The process appears to allow Deliveroo, and others, to make the claim that the workers are actually ‘self-employed suppliers’ rather than workers because most of the interactions are made through smartphones.

But the Uber court decision is unlikely to be ignored. Lawyers are already eyeing up a possible case against Deliveroo, and a hearing over delivery courier Hermes’ working practices is also on its way.

Goodwin explains: ‘I think the Uber judgment could slow things down. Businesses that use these kinds of arrangements are going to have to think far more carefully about what the relationship is. All new businesses will be very cautious about this and will start looking at this when starting out.’

That is not to say that these kinds of contracts will disappear – for many start ups that are capital intensive and require a large workforce, they will remain the obvious choice and are best suited for computer algorithms to determine which ‘suppliers’ to use on a day-to-day basis. And with traditional investors pouring money into these start ups and hoping to hit the next Deliveroo or Uber, they will start to become impatient if they do not see a swift return.

Mariana Mazzucato, the RM Phillips Chair in the Economics of Innovation at University of Sussex, explains why this has become such a big issue. ‘One of the biggest problems in modern day capitalism is the extreme financialisation of large companies. The S&P 500 companies in the last decade have spent $3.5 trillion on share buybacks – not reinvesting those profits back into human capital, but just boosting their share prices.’

She adds that private equity funds and venture capitalists in the UK typically expect a return on their investments within three to five years, which is tough when you consider the most successful start up of recent years, seven-year-old Uber, made a loss of $1.2 billion in the first half of 2016.

Nowak adds: ‘There are obviously some companies who are using technology to drive down workers’ pay and conditions and weaken the employment relationship and de-skill jobs.’

In a new initiative, following the Government’s decision to change the Business, Innovation and Skills Department into the Department for Business, Energy and Industrial Strategy, business leaders and politicians have been meeting to discuss what ‘industrial strategy’ means and to what extent technology plays a role.

But Wright, whose committee will be responsible for scrutinising the Government’s industrial strategy, explained that the new forms of employment contracts must also be taken into account for the future.

He says: ‘In the past you would have certainty and stability with a job for life. That’s not the case now, so we have to ensure that bogus self-employment is eradicated because the level of exploitation when it comes to workers by businesses seems to be growing.’

Laws will no doubt be tightened and exploitation clamped down on, and there are already calls for the Government to start scrutinising the rules closely and help start ups not fall foul of negative headlines at the least; employment tribunals at the worse.

Mark Littlewood, director general of the Institute of Economic Affairs, suggests: ‘I think there is a risk that if you are in a disruptive sector setting up completely new concepts of a business – most likely digital or technological – you are in a twilight zone of regulatory uncertainty compared to established, grandfather industries.

‘If you’re a hotel you know all the hotel regulations but if you’re running Airbnb, are you regulated as a landlord? As a hotel? As a tourist agency? And these regulatory uncertainties for new businesses potentially pose an existential threat.

‘I would propose the Government considers a department of ‘we don’t know what it is yet’ to provide some degree of rational, regulatory certainty to disruptive companies which are not easily pigeonholed into present regulatory sectors.’

But for all the uncertainty – one thing is clear; the gig economy is set to grow and the number of people working on self-employment contracts will likely soar as more and more workers realise they are actually not technically workers, but merely ‘suppliers’.

The workforce went through the same realisation when zero-hour contracts became part of the business and political lexicon. But the question that remains is, as with zero-hour contracts before, will enough people be critical of them to cause real change?

And if so, how prepared are businesses to defend the practice or would they be better off changing conditions now?

Retailers in particular could face extra scrutiny. While they do not use the contracts themselves, the majority of delivery firms that they use do so. Even though a new John Lewis microwave might be delivered by a Hermes driver, most customers would consider the driver to be representing John Lewis, even if he or she technically is not.

MPs are also paying attention to workers more than ever, as recent grilling of both Sports Direct boss Mike Ashley and Sir Philip Green, former owner of BHS, show.

As Wright explains: ‘Workers should be seen as a real asset of a company for driving forward prosperity that everyone shares in. Is that being squeezed too much? That’s the key question.’

WHAT SIZE IS THE GIG ECONOMY?

Around 4.9 million people currently work in the so-called gig economy in the UK, according to a joint study by the Foundation for European Progressive Studies and UNI Europa.

But a further nine million people – one fifth of the adult population – have tried to find work via sharing economy platforms, such as Upwork or Uber.

The study, which surveyed 2,238 UK adults aged 16 to 75, found that 81 per cent of gig workers are the main breadwinners for their households. But the income earned is relatively modest.

Four out of ten workers – 42 per cent – earn less than £20,000 a year before tax and other deductions, while 30 per cent earn between £20,000 and £34,999. Just seven per cent earn in excess of £55,000.

The majority (88 per cent) of those seeking work in the gig economy are looking for online work that can be carried out at home, while 12 per cent (roughly five million people) are looking for work, such as carpentry, gardening or cleaning, that is performed in other people’s premises. Seven per cent (or three million people) are looking for work as drivers.

The study found that gig workers ‘piece together a livelihood from a range of different tasks’: 61 per cent were registered with between two and five sharing economy platforms.

Women are more likely to be gig economy workers than men, according to the study, and just over half of all workers are under the age of 35. One in five is based in London.