Further blow for self-employed status: Tribunal finds that Hermes couriers are “workers”

Employment status in the UK

The UK recognises three categories of employment status: employees, workers and self-employed contractors, each with varying levels of protection under employment law.  Employees are entitled to the full suite of employment rights, while self-employed contractors have very little protection under employment law. Workers who are not employees sit somewhere in the middle and are entitled to core rights such as sick pay and breaks, national minimum wage, statutory holidays and holiday pay.  Hermes claimed that their delivery couriers were self-employed and, as such, were not entitled to these core workers’ rights.

The employment tribunal decision

In reaching the decision that the couriers were workers, the tribunal held that:

  • The couriers were controlled by Hermes and had an obligation to perform services personally. They were not performing a professional service nor operating a business undertaking for their clients or customers i.e. there was a “dependent working relationship” such that they were not truly self-employed.
  • While the couriers had a right to substitute others to perform services for Hermes on their behalf, Hermes retained control over who that substitute was and could veto the courier’s choice of substitute. The couriers also had to ensure that the substitute performed the deliveries to the standard required by Hermes.
  • Hermes’ own evidence on the documentation and, in particular, regarding pay negotiations between it and the couriers, was “wholly unpersuasive” and, at times, implausible. The tribunal found that, to the extent any existed, pay negotiation was – in reality – limited and exceptional.

What does it mean for businesses?

This finding is another judgment in a long run of gig economy cases, in which individuals who are ostensibly self-employed have succeeding in their claims that they are, in fact, workers. The reason that Hermes and other companies in the gig economy (Pimlico Plumbers, City Sprint, Addison Lee etc.) are fighting these status cases so hard is that misclassification is expensive, for both future payments and in respect of past omissions, including for non-payment of holiday pay following the recent ECJ’s decision in the case of King v The Sash Window Workshop Ltd. In that case, the ECJ decided that the right to paid annual leave under the Working Time Directive carries over indefinitely where the employer refuses paid leave, including in the scenario where an individual is incorrectly classified as self-employed.

Hermes has stated in the press that it will appeal the decision, amidst intensified calls from unions and others for changes to the law on employment status. In the meantime, businesses are well-advised to take the opportunity to review the proper status of their arm’s length engagements and to rectify any anomalies, in a bid to stave off future claims.

Supreme Court Holds Public Unions May Not Charge Non-Members Fees.

The United States Supreme Court’s decision in Janus v. American Federation of State, County and Municipal Employees (AFSCME) makes clear that agency fee agreements in the public sector are unconstitutional under the First Amendment. Although Janus dealt with government employees, the potential impact on private sector employers also demands careful consideration.

The Decision

In Janus, the plaintiff, an Illinois state employee, challenged the requirement that he pay “agency fees” to a union of which he was not a member. The theory for the agency fee charges was that although the plaintiff was not a member, he benefited from the union’s collective bargaining activities on employees’ behalves. The plaintiff argued that having to pay the fees violates the First Amendment. The Court agreed with the plaintiff.

Today’s decision directly overrules the Court’s 1977 holding in Abood v. Detroit Board of Education, which upheld public sector agency fees. There, the Court pointed to the state’s interest in “labor peace” and in avoiding the problem of “free riders” – people who reap the benefits of union representation without paying for them.

While the Court has previously held that agency fees cannot be used to fund unions’ political activities, plaintiff successfully argued that union activities are inherently political. Consequently, compelling non-union members to subsidize political speech with which they disagree amounts to compelled speech in violation of the First Amendment.

In so ruling, the Court invalidated agency fee laws in 22 states. Now, bargaining fees in the public sector need only be paid on a voluntary basis; employees must “opt-in” before wages can be deducted.

Private Sector Impact

While the Supreme Court’s decision was technically limited to public sector unions, ripples may be felt throughout all unionized (and would-be unionized) workplaces. Likely implications include:

  • Spread of “Right to Work” movement: More states may move to ban the negotiation of contracts requiring all members who benefit from the union contract to contribute to the costs of union representation. 28 states already have such laws.
  • Union destabilization: The Janus decision is a significant blow to unions. If the elimination of mandatory agency fees spreads further within the private sector, union funding and membership may further deteriorate. Unions will lose revenue previously collected from non-union members, and existing union members may consider resignation to avoid agency fee withdrawal. Relatedly, unions may see a decrease in political influence and bargaining power.
  • Revitalized and refocused union activism: Nevertheless, the Janus decision’s threat to public sector unions may light a fire under all union activists, and may encourage organizing efforts outside the public sector.

In light of Janus, employers should evaluate the state of their relationships with any current unions, analyze potential stimulants of unions, and prepare for a potentially volatile uptick in union activity.

Reed Smith Summer Associate Coco Arima also contributed to this post. 

How should organisations present gender pay gap information?

The Government Equalities Office has published new research giving helpful guidance on clearer ways for employers to present pay gap data. The research is the result of a trial by the Behavioural Insights Team focusing on how the public interprets gender pay gap figures. Taking as its starting point the idea that gender pay gap data should be a way for people to hold companies to account, the trial sought to find the most transparent way for figures to be presented. The question they were aiming to answer was “How should gender pay gap information be presented to drive change effectively?”.

Researchers tested four different ways of presenting gender pay gap data, with variations based on whether the figures were contextualised against a benchmark for their sector, and whether the data was expressed in percentage terms or in terms of pounds and pence. The findings indicate that people respond better to visual representations of the figures, described as money rather than percentages: i.e. illustrating that women at x organisation earn 90p for every £1 that men earn. Researchers also concluded that benchmarking of gender pay gap statistics (i.e. comparing companies against each other) better enabled people to make assessments as to which companies were performing well as against their competitors.

When reporting their figures for the first time, many organisations chose to go further than they were required to do, by adding information that interpreted reasons for the pay gap, and explaining actions being taken to tackle it. Some companies also provided more detailed statistics. But, for the most part, figures were presented as percentages (in line with Government guidance) with the adoption of visual aids being varied. With the first round of reporting now complete, this new research gives helpful guidance on clearer ways to present pay gap data. Companies keen to use pay gap reporting as a positive tool for both internal communications and messaging to the wider market would be well advised to take this into account when preparing their statements for the second year of reporting.

For more information on gender pay gap reporting please see our blogs:

Gender pay gap reporting: do we need more?

Gender pay gap reporting: why it matters now

Supreme Court decision announced in Pimlico Plumbers case

The Supreme Court has delivered its ruling on the landmark Pimlico Plumbers case, upholding previous decisions that an ostensibly ‘self employed’ plumber was in fact properly classified as a ‘worker’ with valuable employment rights under UK law (including discrimination protection and holiday pay). The case has been closely monitored because of its impact on organisations engaging large numbers of individuals on a self-employed basis, including those operating in the ‘gig economy’.

The case centred on the employment status of Gary Smith, a plumber who worked on a self employed basis with Pimlico for approximately six years over 2005-2011. Both the Employment Appeal Tribunal and the Court of Appeal supported Mr Smith’s position that he was a ‘worker’ with limited (but often valuable) employment rights, including holiday pay. Pimlico Plumbers appealed the case to the Supreme Court. Pimlico Plumbers has lost that appeal, with the Supreme Court supporting previous rulings that key aspects of Smith’s working conditions meant he cannot be classed as an independent self-employed contractor for employment law purposes.

In the Supreme Court’s view, the fact that Pimlico exercised tight administrative control over Smith, imposed conditions around how much it paid him and on his clothing and appearance for work, and restricted his ability to carry out similar work for competitors if he moved on from the company, all supported the conclusion that he was a ‘worker’ and not genuinely self employed. It also noted that the dominant feature of his relationship with the company was that he would do the work personally, rather than pass it on to a substitute contractor, even though he did have the option to pass work to another Pimlico operative.

Decisions on employment status are always fact sensitive and therefore the precedent impact of this case for employers in the long run is not clear cut. However, the publicity surrounding the decision is likely to lead to future challenges by ostensibly self employed individuals looking to unpick those arrangements in the event of a dispute.

New Jersey Equal Pay Act effective July 1

On July 1, 2018, the Diane B. Allen Equal Pay Act becomes effective in New Jersey. The law contains a myriad of requirements, including recordkeeping and anti-retaliation provisions, and it prohibits pay disparities based on an employee’s membership in a protected class (i.e., sex, race, color, age and religion). The law provides a six-year statute of limitations for pay equity claims (previously limited to two years).

In the absence of a seniority or merit-based system, an employer will not be able to pay different rates of compensation for substantially similar work unless the difference is based on legitimate, bona fide job-related factors that are also based on business necessities. These factors include training, education, experience or performance. However, these factors cannot perpetuate a differential in pay or be based on any protected class. Also, these factors must be reasonably applied and must explain the entire wage differential.

Lastly, an employer cannot claim that a factor is based on a business necessity “if it is demonstrated that there are alternative business practices that would serve the same business purpose without producing the wage differential.” An employer found in violation of the law is subject to treble damages, and a willful violation allows an employee to recover punitive damages.

U.S. Supreme Court Rules Class Action Waivers Are Enforceable

On Monday, May 21, 2018, the U.S. Supreme Court ruled that agreements between employers and employees providing for individualized arbitration proceedings are enforceable. The decision came in a trio of cases, all raising the issue of whether the Federal Arbitration’s Act’s saving clause, which removes the obligation to enforce an arbitration agreement in certain circumstances, was triggered. The plaintiffs-employees argued that the saving clause applied because agreements requiring individualized arbitration proceedings violated the National Labor Relations Act (NLRA) by barring the employees from engaging in “concerted activity” through pursuing claims on a class or collective basis. The Court disagreed.

The decision ends a split that developed among the federal Circuits after the National Labor Relations Board’s 2012 decision in D.R. Horton Inc., which held that requiring employees to sign agreements precluding class or collective claims addressing employment issues violated the NLRA. In the three cases for which certiorari was granted, the Fifth Circuit rejected the Board’s position in Murphy Oil USA Inc. v. NLRB, while the Seventh and Ninth Circuits upheld it in Lewis v. Epic Systems Corp. and Morris et. al. v. Ernst & Young, LLP, respectively. Since the three petitions were granted, the Sixth Circuit joined the Seventh and Ninth Circuits, and the Second and Eighth Circuits joined the Fifth Circuit.

Writing for the majority, Justice Neil Gorsuch stated that “Congress has instructed in the Arbitration Act that arbitration agreements providing for individualized proceedings must be enforced, and neither the Arbitration Act’s saving clause nor the NLRA suggests otherwise.” Specifically, the Court held that the Arbitration Act’s saving clause, which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for revocation of any contact,” only recognizes general contract defenses, not interference with fundamental attributes of arbitration. Further, relying on the standard principles of statutory construction and the history of the NLRA, the Court held that there was no conflict between the Arbitration Act and the NLRA because “concerted activity” focuses on the right to organize unions and bargain collectively and does not include class and collective procedures.

The Court’s decision makes clear that, with some exceptions, employers may require employees to agree to forego class or collective actions, limiting them to individual arbitrations. The main exceptions to the Court’s decision are agency actions (such as actions brought by the Equal Employment Opportunity Commission) and certain types of state laws (such as California’s Private Attorneys General Act). Employers should review their current approach to arbitration agreements, weighing their benefits and costs, and determine whether the Court’s decision warrants a change in their approach.

For more information on developments in this area, please contact John McDonald at jmcdonald@reedsmith.com or the Reed Smith lawyer with whom you normally work.

California Supreme Court Holds Worker Classifications Easy As A-B-C

The California Supreme Court handed down its highly anticipated decision in Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County, No. S222732 (Cal. April 30, 2018), adopting a new legal standard to be used in determining whether workers should be classified as employees or as independent contractors. Specifically, in the unanimous Dynamex decision, the Court professed adoption of a “simpler, more structured test” for determining whether a company “employs” or is an “employer” under the California Industrial Welfare Commission’s (IWC) Wage Orders. The Court not only adopted a new legal standard for worker classifications, but also set out an affirmative burden on a company to prove that workers are properly classified.

At issue in Dynamex was the scope of Martinez v. Combs, 49 Cal.4th 35 (2010), which held that the IWC Wage Orders embody three alternative definitions of “employ”: “(a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship.” In particular, Dynamex challenged the trial court’s certification of a class of delivery drivers because of the trial court’s reliance upon the three alternative definitions of “employ.” Dynamex argued that the multifactor common law test from S.G. Borello & Sons, Inc. v. Dep’t of Industrial Relations, 48 Cal.3d 341 (1989), is the only proper test.

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NY State of Mind: New State and City Laws (Part 4)

This is the fourth in a series of blog posts concerning recent employment law developments in New York State and City:

Legislation Update: New York State Legislature Passes Sweeping Anti-Sexual Harassment Legislation

The New York State Legislature has had an eventful year and is showing no sign of slowing down. Adding to the growing federal and state legislation stemming from the #MeToo Movement, on March 30, 2018, Governor Andrew Cuomo signed a Bill containing several changes to the law governing sexual harassment in the workplace.

First, the Bill prohibits mandatory arbitration of sexual harassment claims brought under Article 75 of New York’s Civil Practice Law and Rules (CPLR). Interestingly though – and unless the federal law changes – this provision will be preempted by the Federal Arbitration Act (FAA), which displaces any conflicting state law. The conflict between the two laws will undoubtedly create confusion and tension as the new Bill takes effect. Interestingly, however, there is currently a Bill pending in the Senate, which seeks to amend the FAA to prohibit arbitration clauses in agreements relating to sexual harassment claims. Should the Senate Bill be enacted, the preemption issues surrounding this new Bill will likely be resolved.  The foregoing provision will become effective 90 days after the Bill becomes law.

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NY State of Mind: New State and City Laws (Part 3)

This is the third in a series of blog posts concerning recent employment law developments in New York State and City:

The New York City Council is at it again – enacting yet another groundbreaking law intended to create some of the broadest workplace protections in the nation. The law itself – an amendment to the Fair Workweek Law that took effect last fall – requires that Big Apple employers grant temporary schedule changes to employees for qualifying “personal events.” This temporary scheduling law goes into effect on July 18, 2018.

Specifically, the Bill entitles employees to a maximum of two requests for a temporary schedule change per calendar year for qualifying personal events. A qualifying “personal event” is defined as

i. The need for a caregiver to provide care to a minor child or care recipient;

ii. An employee’s need to attend a legal proceeding or hearing for subsistence benefits to which the employee, a family member or the employee’s care recipient is a party; or

iii. Any circumstance that would constitute a basis for permissible use of safe time or sick time pursuant to New York City’s Earned Sick and Safe Time Act.

As defined by the law, “temporary change” means “a limited alteration in the hours or times that or locations where an employee is expected to work, including, but not limited to, using paid time off, working remotely, swapping or shifting work hours and using short-term unpaid leave.” Each requested change can only alter the employee’s schedule as to one business day.

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Supreme Court: Auto Service Advisors Exempt from FLSA Overtime Requirements

Ruling has encouraging implications for all employers

Earlier today, the U.S. Supreme Court ruled that auto service advisors—employees at car dealerships who advise customers about repair work—are exempt from the Fair Labor Standards Act’s (FLSA) overtime requirements. The ruling reverses unexpected decisions by the Department of Labor and the Ninth Circuit that upended what had been standard practice at auto dealerships.

The 5-4 decision in Encino Motorcars, LLC v. Navarro turned on the interpretation of the FLSA’s exemption of “any salesman, partsman, or mechanic” who is “primarily engaged in selling or servicing automobiles.” Justice Clarence Thomas’ majority opinion determined that services advisors fall under the exemption because they are primarily engaged in servicing automobiles vis-à-vis their sales of those services.

Although the analysis of FLSA exemptions is highly fact-specific, the Encino Motorcars decision impacts all employers because the majority rejected the commonly-invoked principle that FLSA exemptions should be interpreted narrowly. Instead, the Court held that the “narrow-construction principle relied on the flawed premise that the FLSA ‘pursues’ its remedial purposes at ‘all costs’.” In other words, the majority established that a court’s objective in analyzing FLSA exemptions is to give them a fair reading, not a narrow one.  This rejection of the “narrow reading” of FLSA exemptions means that employers seeking to apply the exemptions to their employees now face a more relaxed standard.

The Supreme Court’s decision affirms the established pay practices for service advisors at dealerships throughout the United States. Employers can now confidently treat these employees as exempt from overtime requirements under the FLSA. However, employers should make sure that they also follow any applicable state wage law requirements. Employers with employees who perform functions similar to auto service advisors should take this opportunity to re-examine those employees’ job duties, compensation, and classification to ensure compliance with federal wage and hour law.

If you have further questions about this issue, please contact John McDonald at jmcdonald@reedsmith.com.