Pressure is mounting on the UK government to close loopholes in employment law to protect people working in the gig economy from being underpaid and otherwise exploited.

Two parliamentary committees have issued a report making a series of recommendations that could have major implications for the business models of tech giants like Uber and Deliveroo which have been able to shrink labor costs by classifying the bulk of their workforce as ‘self-employed’, thereby avoiding having to fund worker benefits.

In the report, entitled A Framework for Modern Employment, the work and pensions select committee and the business, energy and industrial strategy committee have urged the government to “close loopholes that enable dubious business practices”.

“The expansion of self-employment and business models built around flexible work on digital platforms promise positive opportunities for entrepreneurs, workers and consumers alike. But these changes also create confusion about the rights and entitlements of workers, and add to the potential for exploitation. Evidence tells us this exploitation is already occurring,” the committees write.

“Responsible businesses have nothing to fear from our recommendations. Indeed, they stand to benefit from the level playing field we seek to create. A willingness to exploit workers should not be a competitive advantage. A race to the bottom risks undercutting the vast majority of businesses that do treat their workers well,” they add.

The report follows a government-commissioned independent review of modern working practices, which was carried out by Matthew Taylor and published this summer. (The government has previously said it will respond to the Taylor review by the end of the year.)

Among the committees’ recommendations are that companies with a self-employed workforce above a certain size should be required to treat individuals as workers by default.

Such a change would put the onus on gig economy firms to prove individuals in their workforce are self-employed rather than vice versa.

They would also be liable for paying workers’ benefits, such as holiday pay and the national minimum wage — unless they could prove individuals are self-employed.

Although it’s not clear exactly what size/revenue generating threshold is being proposed.

“Recent court cases have exposed a pattern of companies using bogus self-employed status as a route to cheap labour,” the committees write. “Implementing a model of worker status by default for companies with substantial dependent workforces currently labelled as self-employed would better protect such workers. The onus would be on the firm to prove self-employed status, when disputed, rather than on the worker to do so through the courts.”

Earlier this month Uber lost its first appeal against a UK employment tribunal ruling last year which found a group of Uber drivers bringing the legal challenge should be classed as workers — making the company responsible for paying benefits such as holiday pay and the UK’s National Minimum Wage.

Uber said it would continue to appeal the tribunal ruling but with domestic pressure mounting for the government to amend the law that legal process may well get overtaken by a new set of rules that take account of how gig economy giants operate.

During an evidence session before one of the committees last month Uber’s rep told it that if the company had to provide all the ~50,000 ‘self-employed’ drivers on its platform in the UK with workers’ rights it would cost the company “tens of millions” of pounds.

While a Deliveroo rep said that if all its ~15,000 riders in the UK were given worker status it would require it to add an additional £1 to hourly delivery costs.

“The costs of having to treat people as workers probably add on something between 15 and 20 per cent of what they’re paying the drivers at the moment,” said Sean Nesbitt, a litigator on employment issues at law firm Taylor Wessing, discussing the implications for Uber’s business if it had to reclassify all drivers as workers.

The law firm has previously estimated the cost to Uber UK of doing this would be at least £13.5M.

Nesbitt added: “I think they’re large enough and they have enough revenue and capital to be able to make changes and enough market share but those changes are likely to involve passing on the increased cost to customers and won’t be capable of just being passed on to drivers — at least without the risk that they reduce their marketshare of drivers.

“And maybe Uber are prepared to rebalance and give up some marketshare for profit. But they will then be competing with other rides on other values beyond cheapness and reliability — including, perhaps, brand affinity. And not just that initial one of being ‘cool’.”

The two committees are also urging the government to rework the statutory definitions of employment status to clear up confusion between different classifications — specifically arguing for lawmakers to “emphasize the importance of control and supervision of workers by a company, rather than a narrow focus on substitution, in distinguishing between workers and the genuine self-employed”.

They have also suggested the government investigates placing a requirement on companies to pay a premium on top of the national minimum wage and national living wage to workers who work non-contracted hours — to compensate for the risk and uncertainty of not having any guaranteed work.

The other option would be for companies to guarantee “hours that reflect the periods worked each week”, with the committee suggesting the government works with the UK’s Low Pay Commission to find suitable companies to pilot the idea.

Another change they want to see is support for enabling greater use of class actions in disputes over wages, status and working time, and an obligation for employment tribunals to order higher, punitive fines and costs orders if an employer has already lost a similar case.

While the time required to reset a workers’ ability to accumulate rights for continuous service is recommended to be expanded from a break of just one week resetting their service to a full month.

Companies employing workers should also be required to provide them with a “clearly written statement of employment conditions” — and do so within seven days of them starting the job, suggest the committees.

Responding to the committees’ report, a spokesperson for the department of Business, Energy and Industrial Strategy told us: “We are considering this report carefully and will respond in due course.”

“We have record numbers of people in work thanks to our flexible labour market, benefitting both workers and business. But we recognize that the labour market is not working for everyone which is why we commissioned Matthew Taylor to review modern working practices to ensure our employment rules and rights keep up to date,” the spokesperson added in a statement.

While Uber and other gig economy tech giants may be facing major legislative changes in the UK market — which would throw up further hurdles to their global businesses reaching profitability — a more existential question raised by the entire saga of gig economy business models vs their less disruptively paced regulators is whether tech giants would be so generously sized if the spirt of the law had been applied on them from day one.

“It might be Uber wouldn’t have got to that size and scale, or got to it so quickly, if they had had to make these changes,” suggests Nesbitt. “But now that they’re there, and they’ve got such a strong and first mover advantage in the market… they may have the capacity to make the changes, whereas they might not have got to that size and scale if they’d had to make them sooner.”

“I can remember a conversation with a long-standing client of mine last year in America… who said the problem with Uber is it’s just too cheap!” he adds. “And what a genius simplification of the issue that is.”

Nesbitt also points to remarks made by the appeals tribunal judge who, ruling against Uber earlier this month, could be seen weighing the impact of the company’s scale and size — with market dominance apparently feeding into her consideration of how much control it wields over its platform workforce, and thus, in a wider sense, market dominance itself being seen as a cause for concern vis-a-vis exploitative employment practices.

“It’s getting close to that heart of the anxiety that lots of policymakers have and academics have about the nature of information economy companies — about the importance of data and scale, and that sort of underlying anxiety that you see around the place where people are worried about market dominance,” adds Nesbitt.

“The idea that there’s some anxiety that we might be getting ready for that sort of debate we had 100 years ago about market dominance and the need for other technologies to counteract the dominance of certain businesses. And you could see some signs of that [in the judge’s judgement] where she’s talking about scale and position in the market, in that sort of strange interface between competition law and employment law and what benefit to the consumer could very suddenly be seen to the disbenefit of the consumer or some other section of society.”