42: Uber judgment highlights auto-enrolment implications of wrongly categorising workers as self-employed

On 19 February 2021, the Supreme Court ruled that Uber drivers are workers, not self-employed. The ruling focuses on how to determine employment status for the purposes of statutory rights to the national minimum wage and holiday pay. However, it also has pensions implications since workers have the right to be auto-enrolled into a workplace pension, subject to meeting minimum age and earnings thresholds.

In addition to assessing past and current holiday pay and national minimum wage liabilities, employers who may have misclassified workers as self-employed should therefore also consider the consequences of non-compliance with their auto-enrolment duties.

Key factors include:

• it is not possible to contract out of the statutory rights given to workers, so auto-enrolment rights are not negotiable;
• the Pensions Regulator (TPR) has wide ranging enforcement and compliance powers and can require employers to put employees in the position they would have been in if their employer had complied with auto-enrolment duties on time;
• this means employers may need to pay back missed employer contributions, backdated to the date when workers first met the age and earnings criteria to join the scheme. TPR can also require them to pay missed members’ contributions and order that interest is payable on the missed contributions;
• consideration will be needed in respect of individuals who were not automatically eligible but who had a right to opt-in. The very nature of gig economy work which means that workers are likely to have fluctuating earnings and fluctuating working patterns may make it difficult to establish an individual’s qualifying status for automatic enrolment purposes at any given point in time;
• TPR will take enforcement action against employers who fail to comply with their automatic enrolment duties. This could include compliance notices, fixed or escalating fines, and court action. TPR also has extensive powers of inspection; and
• on a practical level, employers are likely to face significant administrative difficulties. For example, they may not have sufficient payroll records to determine the rights of workers who were previously treated as self-employed. They will also have decisions to make about the appropriate level of remedial action and the extent to which that will fit with TPR’s expectations.

Given the large number of employers potentially affected by the Supreme Court’s judgment, we would expect TPR to provide more guidance on how to deal with misclassified workers and historic auto-enrolment liabilities.

In the meantime, employers should assess their workforce to quantify the risk of claims from self-employed contractors who believe that they are in reality workers or employees. Deciding on employment status can be a difficult exercise, involving consideration of many factors besides the contractual documentation.

Although the Supreme Court’s judgment contains useful guidance for employers operating in the gig economy, employment status cases are very fact-specific and their outcome tends to be uncertain. It is worth noting that employment status claims may also be relevant in an insolvency and restructuring context due to the risk of potential preferential claims for pension contributions.

Once an employer has determined the extent to which self-employed contractors are in reality workers or employees, they will need to give careful consideration to the remedial steps.

In relation to automatic enrolment, they will need to consider notification requirements to TPR and ensuring that the action taken removes any risk of further enforcement action from TPR, including whether to require individuals to pay their own missed contributions. Engagement will also be needed with their workplace pension provider

Our specialist solicitors in the pensions and employment team can help with all aspects of the law relating to employment status and the associated automatic enrolment issues.