The Status of Workers Bill: Lord Hendy’s speech

Lord Hendy’s Status of Workers Bill, which has been through three readings in the House of Lords, has recently moved to the House of Commons, under the direction of Andy McDonald. Subsequently, there has been much discussion about the Bill and the issues it raises. Here we re-publish John Hendy’s speech, with which he introduced the second reading of the Bill in September 2021. It gives a very useful overview of the Bill and it’s potential impacts: 

Covid-19 has highlighted many of the failings in the law of the workplace in the UK. Working people have found that their workplace rights have not secured their jobs, their incomes, or their health. One particular injustice is that many hundreds of thousands have only very few of the rights that Parliament has legislated that employees must have, such as rights to the minimum wage and to unfair dismissal protection. This is because “armies of employers’ lawyers,” to use a phrase used by the Court of Appeal in one case, have constructed contracts that seek to categorise these workers as something other than employees.

The proper interpretation of such contracts has provided meat and drink to lawyers and judges for decades. The Bill is intended, if not to remove, then at least to narrow the grounds of contention by unifying the classification of workers into a single status, subject to an important exception.

Let me deal with a preliminary point on my use of the term “worker.” There is a definition in the Bill but, for the purposes of my speech today, I use the term loosely and generically: I mean a person who works for a living. This is close to the generic meaning in international law as used by the International Labour Organization (ILO), the Council of Europe and the European Court of Human Rights. The current problem is that there are sub-species of worker, and this gives rise to the injustice that the Bill is intended to cure. Each subcategory—I identify six—is entitled to a different set of statutory rights. That means that employers, understandably, have an incentive to downgrade the status of staff, so as to diminish the rights that they enjoy and hence the costs inherent in the provision of those rights.

By creating a single status, this possibility is removed. In consequence, the effect of the Bill would be to give entitlement to all statutory employment rights to all workers from day one of their engagement, although I would gladly accept an amendment to remove or reduce waiting time for rights to be effective, such as for unfair dismissal. The Bill does not affect rights, such as to holidays, that increase over time.

I have said that there is an important exception in the Bill. This is my first category. Those who are genuinely self-employed, in business on their own account, with their own clients or customers, will be unaffected by the Bill. These are, by and large, the professionals. Examples are the owner-driver of the London taxicab or Hackney carriage – “mushers,” as they are known in London – the self-employed painter and decorator, the jobbing electrician, the gigging musician, the novelist, the barrister, of course, and many more. Their status and their rights will be untouched by the Bill.

Some of these professionals have established a personal service company, a PSC, through which they find it convenient to work. This is a limited company in which the professional or a member of the family is the major shareholder and director. The professional is the sole employee and is content that his or her rights as an employee are exercisable only against their own company. Such genuine PSCs, my second category, will also be exempt.

The Bill is intended to stamp out abuse of these first two categories. It will therefore regulate my third category, bogus self-employed workers. These are workers whose arrangements are dressed up to look as if they are self-employed, but who are, in reality, employees. Unless they challenge their status in successful litigation, they are not entitled even to the national minimum wage or paid holidays—not even some health and safety protections.

Bogus self-employment is rampant in the construction industry but by no means confined to it. Drawing the line between bogus and genuine self-employment is not easy, but the courts will be aided by the Bill placing the burden of proof on the employer who claims that the relationship is genuine.

The Bill will also regulate my fourth category: those forced into PSCs. This is where a worker is told by the real employer that if she wants to work, she must set up a personal service company to make a commercial contract with the real employer to supply her services and to make a contract of employment with herself. This contrivance is often arranged by the employer.

On the face of it, the worker has full employment rights, but only against her own personal service company; the real employer is insulated against any responsibility for her rights. Such abusive PSCs are common in parcel delivery, construction, and many other sectors. I will not dwell on the technicalities, but the Bill endeavours to draw a clear line between the genuine and the abusive PSC.

The fifth category are the so-called limb (b) workers. The term derives from the definitions in Section 296(1)(b) of the Trade Union and Labour Relations (Consolidation) Act 1992 and Section 230(3)(b) of the Employment Rights Act 1996. These are workers who have a contract but not a contract of employment. They are a subspecies of the self-employed. They get only some of the rights that employees have—for example, the national minimum wage and paid holidays. They do not get protection against unfair dismissal, parental leave and so on. This is the status that the Uber drivers achieved in their Supreme Court victory earlier this year. Limb (b) workers are common in food delivery, taxi driving and other service industries.

Finally, there are the employees. They are entitled to all the statutory rights that Parliament has provided, so long as they have been employed for long enough.

The Bill takes up issues identified in the Matthew Taylor report some years ago, but by proposing a single status it goes beyond Matthew Taylor’s recommendations. I wanted to give a sense of the scale of the problem, but the statistics are limited. What can be said is that at present there are about 28 million employees, a figure that includes the single employees of up to some 700,000 personal service companies. In addition, there are just under 5 million self-employed, but the statistics do not distinguish between those who are limb (b) workers, those who are bogus self-employed and those who are genuinely self-employed. What is clear is that the number of those in PSCs and self-employment is proportionately greater and growing faster than elsewhere in Europe.

Though some opportunistic employers will not welcome the Bill, it would in fact benefit employers generally by preventing greedy or uncaring employers from undercutting good employers who are prepared to confer full employment rights on their staff. It would also stop the worst employers free-riding on the rest of us by using categories for their staff that avoid payment of national insurance, tax, and pension contributions.

The Bill is obviously intended to benefit workers and I am pleased to say that it is supported by the Trades Union Congress. It will, if passed, extend employment rights to hundreds of thousands who do not currently enjoy them. It will protect those who already have such entitlement from the danger of being degraded, downgraded to, or undercut by workers with fewer rights.

Employers often try to persuade workers of the benefits of a lesser status on the basis that it provides flexibility for the worker, but this is a false argument, since legal status has nothing whatever to do with whatever flexibility employers confer on their workers. That flexibility can just as easily be enjoyed by employees if the employer is prepared to concede it. If the Minister supports the Prime Minister’s avowed levelling-up objective, here is a measure that he can and should support.

A video of John Hendy’s speech can be viewed here.