Employment Eye December 2022

Welcome to our latest round up of employment law developments and what they mean for employers.

Employment Appeal decision on Legal Privilege

Legal privilege can be an extremely useful tool to ensure that advice taken from legal advisors will remain confidential, no matter what. However, the recent case of University of Dundee v Mr Prasun Chakraborty serves as a stark reminder that this protection will only apply in specific and limited circumstances.

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IR35

During 2022, government U-turns have become almost customary. One particularly unwelcome turnabout has been the cancellation of the cancellation of IR35. We explore exactly what this means for businesses as we head into 2023.

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Worker’s rights in the gig economy

In 2021 we saw a landmark decision by the Supreme Court which confirmed that Uber drivers are entitled to legal rights as ‘workers’. Predictably, others working in the ‘gig economy’ are following suit, including those working for ride-hailing app ‘Bolt’. In this article we review the implications of the Supreme Court’s decision and the reasons for Bolt drivers’ current class action.

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Employment Appeal decision on Legal Privilege

Legal privilege did not have retrospective application to grievance investigation report

In the case of University of Dundee v Mr Prasun Chakraborty [2022] EAT 150, the Employment Appeal Tribunal (“EAT”) held that an original version of a grievance investigation report did not attract legal professional privilege at the time that it was drafted, and that legal professional privilege would not attach to the document by virtue of the fact that it had been shared with an external legal advisor and subsequently amended.

What is legal professional privilege?

Legal professional privilege is a legal principle which provides protection to certain types of correspondence between a lawyer and their client. This protection allows documents which attract privilege to be withheld from inspection by third parties or a court or tribunal. There are two types of legal professional privilege:

• Litigation privilege, which protects communications between lawyers or their clients and any third party for the purpose of obtaining advice or information in connection with existing or reasonably contemplated litigation. The communications must be for the sole or dominant purpose of conducting adversarial litigation.
• Legal advice privilege, which protects communications between a lawyer and their client that are made for the sole or dominant purpose of giving or receiving legal advice.

Asserting documents as privileged can be essential in a disclosure exercise, particularly if the disclosure of that document may be of any detriment to the prospects of success in the case.

Background of the case

Mr Chakraborty raised a grievance whilst employed by the University of Dundee under the university’s Dignity at Work Policy. The University appointed an internal investigator – a university Professor - to investigate the matter. Whilst the investigation was underway, but before the report had been produced, Mr Chakraborty commenced proceedings in the Employment Tribunal against the university.

After the commencement of proceedings, the investigator produced a first draft of the report which was shared with the university’s external solicitors for review. The university then reviewed and discussed the comments and amendments proposed by the external legal providers and the amendments were accepted by the investigator. The investigator then proceeded to make some further amendments of her own to produce a final version.

The university disclosed the final version of the report and included a copy in the hearing bundle. The final version of the report included in the bundle stated on the first page “Note: This report was amended and reissued on 23.06.2022 following independent legal advice”.

As the first draft which had been reviewed by the university’s external solicitors had not been disclosed, Mr Chakraborty applied to the Employment Tribunal for disclosure of the original unamended report. The university resisted the application on the basis that the original report attracted legal advice privilege. The basis of the university’s arguments was that the disclosure of the unamended report would allow for a comparison between the two to reveal changes that were made as a result of legal advice, which would be privileged. The Tribunal rejected the university’s arguments and ordered disclosure of the unamended report. The university appealed to the EAT.

EAT decision

The EAT dismissed the appeal and held that the report did not attract legal advice privilege as it was not communication between a client and a legal advisor for the purposes of giving or receiving legal advice. In addition, the report did not attract litigation privilege. The purpose of the report was an investigative response to Mr Chakraborty’s grievance; it was not a document which had been made in contemplation of litigation.

The argument advanced by the university was that the document attracted privilege by virtue of the fact that it had been amended following legal advice. The EAT held that there was no authority to support the proposition that an unprivileged previous draft of a document could retrospectively acquire privileged status. This was the case irrespective of the fact that comparison between the two documents could result in some inferences being drawn relating to the advice given. The EAT therefore upheld the decision from the Employment Tribunal.

Commentary

This case emphasises that privilege cannot be applied retrospectively and failing to take appropriate steps to ensure a document will benefit from litigation or legal advice privilege early enough (i.e. on creation) can mean that such protection is consequently never available. We recommend that if legal advice is required on an investigation, lawyers should be consulted before the investigation commences to maximise the chances of a successful application of privilege to documentation. It is also worth ensuring that staff are alive to instances which could lead to the waiver of privilege. We recommend that you keep the sharing of privileged documents to an absolute minimum and ensure that those individuals who do have access to the privileged material are aware that the material is strictly confidential and distribute it only within the confines of the protection’s strict limitations.

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Ever changing – backtracking on the reversal of the “off-payroll working rules” (IR35)

It’s hard to keep up with the ever changing position taken by the Government on off-payroll working rules (or IR35 as it is more commonly referred to). The latest development follows the announcement at the “mini-budget” on 23 September 2022, by the then Chancellor of the Exchequer, that recent changes to the IR35 rules (those made between 2017 and 2021) were going to be reversed from 6 April 2023. A U-turn followed shortly afterward, on 17 October 2022, when Jeremy Hunt (the current Chancellor of the Exchequer) confirmed that there would be no reversals of the IR35 rules.

What’s the purpose of the IR35 rules?

The purpose of the IR35 rules is to ensure that contractors who provide personal services via an intermediary (i.e. a Personal Services Company (PSC) such as a Limited company) are taxed appropriately. It is aimed at tackling tax avoidance in circumstances where a relationship between the contractor and the “end-user” (the company that receives the individual’s services) would, but for the intermediary, be considered one of employer - employee for tax purposes. If the IR35 rules apply then all necessary income tax and national insurance contributions must be deducted as if the individual were employed directly by the end-user.

What’s the current position?

Currently the responsibility for assessing whether the IR35 rules apply sits with the end-user. Once an assessment has been made, the end-user must notify the PSC and the contractor of its determination. If the determination is that the arrangement does fall under IR35 and the end-user considers that the contractor is an employee for tax purposes, the end-user (or fee-payer if there is another entity in the chain that contracts with and pays the PSC) will then make the necessary deductions before paying the PSC.

This process is cumbersome, and the end-user must invest a significant amount of time (and cost!) in making the determination, which ultimately may be challenged by the contractor.

What was going to change?

The reversal would have meant that, from 6 April 2023, the responsibility for determining status would sit with the contractor. This was the position prior to changes to the IR35 rules in 2017 and 2021.

This reversal was welcomed by contractors and businesses alike.

Since implementation of changes in 2017 and 2021 the IR35 rules have been criticised as resulting in genuinely self-employed contractors being unfairly caught by the rules; a reduction in the freedom of businesses to engage with contractors; and an increased cost and burden on businesses. Sadly, it looks like these unpopular arrangements are to remain for the time being.

What’s next?

The IR35 rules remain controversial, and there is scope for a further U-turn given the current economic climate in the UK – so watch this space! For now, it is “business as usual”.

What do I need to know about IR35?

Demonstrating that a relationship is not akin to employer - employee (and therefore falls outside IR35) will necessitate ensuring the relationship with the contractor is at “arms-length”. Evidence that HMRC will take into account when determining status for tax purposes includes (but is not limited to) whether the contractor:

• is under the level of control an employee would be (e.g. they can determine how the work is completed);
• is integrated into the business (e.g. invited to social events);
• can send a substitute in their place;
• uses their own equipment;
• has line management responsibilities;
• is exposed to financial risk (i.e. if the work is not completed to standard whether they will be paid or will have to rectify it at their own cost) and
• receives employee benefits.

As a final word of warning, IR35 determination does not determine employment status, as a contractor may be classified as being self-employed for tax purposes, but the contractor could nevertheless argue that they have acquired employment status and have (or accrue) employment rights such as the right not to be unfairly dismissed. This is particularly relevant for businesses that use the same contractor over a number of years.

We advise business on employment status, including for the purpose of IR35, if this is something you’re grappling with we’d be pleased to assist you. Please get in touch with a member of our Employment Team.

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UK drivers for Bolt claim entitlement to worker rights

Introduction

Drivers who work for the ride-hailing app Bolt have launched legal action against the company, claiming that they should be classified as ‘workers’, rather than ‘self-employed contractors’.

Bolt is an Estonian-based ride-hailing app that rivals Uber, and has over 65,000 drivers operating here in the UK. In a case that echoes the Supreme Court’s decision in Uber BV v Aslam [2021] UKSC 5, 1,600 of Bolt’s drivers are seeking a similar declaration that they have been wrongly classified as independent contractors. If such a declaration were to be made, each of the drivers would be entitled to worker rights including the right to the National Living Wage and holiday pay.

The rise of the gig economy

As technology continues to revolutionise traditional business models, one trend that has firmly been established in recent years has been the rise of the gig-economy. In essence, the gig-economy is a labour force who opt to conduct their work more through short term and freelance contracts, for work that is typically part-time in nature. The trend represents a move away from permanent roles, with more fixed elements such as hours and location, by the labour force. It’s a shift which has appeal for both worker who seek the benefit from the flexibility and freedom in how they work, as well as business owners who can run their businesses with significantly lower expenses. The rise of the gig economy has led to a revolutionary change in some industries, and has significantly contributed to the rise of ride-hailing apps such as Uber and Bolt. For both companies their drivers have the freedom to pick and choose the jobs they take, the hours they work and the locations they operate in. Until the Supreme Court’s decision, these drivers have worked under the label of ‘self-employed contractor’.

Employee, worker or self-employed - why does it matter?

The legal status of each driver working for Bolt will determine the legal rights to which that driver is entitled. ‘Employees’ benefit from the most significant employment protections, including the right not to be unfairly dismissed and the right to a statutory minimum notice period. ‘Workers’ enjoy fewer rights than employees, but more than self-employed contractors; benefitting most significantly from a right to holiday pay and the National Living Wage. Bolt’s drivers, like Uber’s drivers, are claiming they have been misclassified as self-employed contractors and therefore denied the appropriate worker rights.

Uber BV v Aslam

As outlined above, the question of status for gig economy workers has been raised before. A group of Uber drivers brought an action for Unlawful Deduction of Wages, claiming that they were denied payment of the appropriate wage, and paid annual leave, because they were wrongly labelled as self-employed contractors instead of workers. Uber’s main argument was that it acted solely as a technology provider for its subsidiary (Uber London) who, itself, was merely acting as a booking agent for the drivers.  Uber also relied heavily on the wording in its written contracts with its drivers that clearly stated that the drivers were independent contractors. The Supreme Court looked beyond the written contract, claiming that it was not an accurate reflection of the reality between the parties. The Court stated that the contract should not be the starting point, but that rather whether an individual is a worker is primarily a question of statutory, not contractual, interpretation. The Court also highlighted that the drivers’ remuneration was fixed by Uber and the drivers were not permitted to charge more than the fare calculated. Uber was also capable of penalising drivers where they were seen to be declining too many fares.  

How do you determine whether a person is a worker or a contractor?

We may see Bolt seeking to rely on the fact that their operating model is different to Uber’s, with Bolt’s drivers receiving higher earnings per trip, and as such having the freedom to earn more, as well as having a total flexibility for job choices. The process of ensuring that an independent contractor is not a worker requires an assessment of the realities of the working arrangement and, as the Uber case made clear, courts will go beyond just the wording of the contract where necessary. The following measures can be taken to help guard against independent contractors being determined to be workers by the courts:

• Allowing an individual significant freedom in the delivery of their services – including freedom over when and how they deliver work.
• Giving an individual the freedom to substitute the delivery of the work without many or any restrictions.
• Allowing the individual the freedom to negotiate the prices for their work.
• Ensuring the individual uses their own money to buy any business related assets, or covers the costs of delivering on their contracted responsibilities.
• Not integrating the individual into the business e.g. not requiring them to wear the organisation’s uniform, nor use the business’s email address and not requiring them to adhere to internal employment processes.
• Allowing the individual the freedom to turn down work.

Comment

As technology continues to facilitate the growth of the gig economy, we may see many more iterations of this question arise. The decision in Uber made it clear that courts would not wholly rely on the wording or intentions of the parties when signing the agreement. Instead, courts will adopt a far more holistic approach to determine the reality of the working relationship between the worker and the organisation. In order to protect their businesses, employers must stay vigilant in their management of independent contractors, as without doing so they run the risk of allowing these individuals to acquire worker, or even employee, rights.​

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If you would like advice or assistance in relation to any workforce issues, or indeed any of the topics mentioned in this newsletter, please get in touch with a member of our Employment Team.