The direct selling business model: More like Uber or more like Deliveroo?

Being a ‘worker’ rather than a ‘self-employed contractor’ for the purposes of employment legislation entitles the individual to certain statutory rights and protections including the national minimum wage, holiday pay, a maximum working week and rest breaks. Workers’ rights are not applicable to the genuinely self-employed; but nor is it necessary for a worker to be an employee, and ‘workers’ are not entitled to the full array of rights that employees receive.

In the Uber case, in February 2021, the Supreme Court applied the traditional test: the determining factor is the level of control exercised over the person carrying out the work – the vulnerabilities of individuals which create the need for statutory ‘worker’ protection are their ‘subordination’ to and ‘dependence upon’ another person in relation to the work that they do, and the ‘touchstone’ of such subordination and dependence is (as has long been recognised) the degree of control exercised by that other person over the work performed.

The Court focused on the following factors in concluding that Uber exercised a significant degree of control over its drivers and that the drivers were workers and not independent contractors:

• The drivers’ remuneration was fixed by Uber because the Uber app calculated and fixed the fare and drivers could not charge more than that fare; plus Uber fixed a ‘service fee’ which it deducted from the amount paid to the drivers.
• The terms of the contract between drivers and passengers were laid down by Uber.
• Although drivers were free to choose when and where to work within their licensed area, once they had logged in to the app, Uber in practice limited their choice about whether to accept requests for rides because Uber controlled the information provided to the driver, monitored the driver’s acceptance/cancellation rates, and disconnected the driver from the app if the cancellation rate exceeded a certain level. This all placed the drivers in a position of subordination to Uber.
• Uber owned the app and used it as a way of controlling the drivers by monitoring their acceptance and cancellation rates, stipulating the routes to be used, and imposing a driver rating system which it used as an internal tool for managing performance. Uber also exercised significant control over the way in which drivers delivered their services, for example vetting the type of car that could be used.
• Uber restricted communication between passenger and driver to the minimum necessary to perform the trip and took active steps to prevent drivers from establishing any relationship with a passenger capable of extending beyond an individual ride.

In the Deliveroo case, in June 2021, the Court of Appeal focused on the following factors in concluding that Deliveroo did not exercise a significant degree of control over its riders and that the riders were independent contractors:

• The absence of an obligation to provide services personally. Riders were genuinely allowed to use a substitute to fulfil a shift, subject only to limited restrictions on that practice, and the frequency with which that right is exercised in practice is irrelevant.
• The absence of specific hours of work.
• The absence of any requirements to do any work at all.
• The requirement for riders to provide their own tools of the job’ –  a bike and a phone.
• Freedom to work for a competitor.

Whilst the Court of Appeal spent much time considering the right of substitution and the corresponding absence of a duty of personal service (an “indispensable feature of the relationship of employer and worker”) and noted that it is always at least a material factor and may be a decisive factor, Lord Justice Underhill, who gave the leading judgement, also said that the other factors (i.e. the absence of specific hours of work, the absence of any requirements to do any work at all, and the requirement for riders to provide their own bike and their own phone) may be sufficient to conclude that the riders are independent contractors and not workers either taken together with, or even without, the right of substitution.

A direct seller typically has no obligation to work at any time or indeed at all, and can work as and when they wish to do so and, if they do decide to work at any time, then it is most likely that the direct selling company neither knows that the direct seller is working at that time or what they are doing (maybe meeting customers, preparing or making presentations, catching up on paperwork etc.). Both the Uber case and the Deliveroo case emphasise the importance of the facts of the relationship over the contract drafting, and for direct sellers there is usually no gap between the contract terms and the reality in this respect.

The question of the level of control exercised by a direct selling company will need more consideration, and business practices will vary and will reflect different business models, so the answers may be different for different companies; but in principle we continue to believe that if the controls imposed by a direct selling company are those controls which any company might reasonably be expected to wish to exercise over its independent contractors, particularly those which are relevant to ensuring quality standards and regulatory compliance, and not as a means of subordinating the direct seller and making them dependent upon the direct selling company in relation to any work that they do then it is unlikely that those controls will lead to a determination that the direct seller is a ‘worker’.

Disclaimer: We at Memery Crystal (and our parent company RBG Holdings plc) support and encourage free/independent thinking in relation to issues which are sometimes considered to be controversial subject matters. However, the views and opinions of the authors of articles published on our website(s) do not necessarily reflect the opinions, views, practices and policies of either Memery Crystal or RBG Holdings plc.