Fuel for the employment fire

Tanker drivers' actions in the fuel crisis showed the power of the self-employed.

John Hayes looks at the challenge facing employment lawyers

Last month's petrol crisis illustrated how powerless companies are to compel the self-employed - tanker drivers in this instance - to work, even under government pressure.

Increasingly, companies are retaining the services of self-employed individuals to do key jobs, rather than employing people directly.

Almost the whole IT industry is staffed by 'techies' who supply their services on a self-employed basis, either contracting directly with the end user or, more usually, through their own limited liability service companies.

The risk of businesses being effectively held to ransom by self-employed workers is increasing all the time.

In the knowledge economy this poses real issues about the control and ownership of confidential information and intellectual property, especially when so much of our clients' shareholder value is bound up in them.

The workers who generate this information are self employed.

So who owns it? If it is the company, how does it prevent a worker using this information for his own (self-employed) purposes? Does the company have a directly enforceable contractual right against that worker or his service company (which could be wound up)? What will the shareholders of our clients think of the company's lawyers if they have no remedy?

The roots of these problems lie in two issues: employment rights and tax.

In a recent CBI survey, British businesses listed greater employment rights as one of the key drags on competitiveness.

Rights introduced by Europe or the UK government over the past three years include, the Working Time Regulations, increased unfair dismissal rights, a right to recognise a union and a clutch of 'family friendly policies', such as parental leave, time off to look after dependants, and extended maternity rights.

British business equates the growth in employment protection with a blizzard of red tape (loss of management time) and open-ended liability (cost).

Workers seem increasingly happy to deprive themselves of these essential rights.

Increasingly, people want choice about when and how they work.

If they want to get down from their tankers and shake hands with protesters, they are free to do so.

The driving force is tax.

A self-employed person has significant control over how much tax he pays - an employee has none.

Self-employed workers routinely set off a range of expenditure against tax, and many service companies employ both spouses.

The aim of this exercise is to reduce the target income susceptible to taxation by the Inland Revenue.However, the government has introduced a controversial new law to combat what it sees as the bogus tax status of many 'self-employed' individuals.

IR 35 came into effect under the Welfare Reform and Pensions Bill 1999 and applies to all earnings in this tax year onward.

IR 35 applies to workers who supply services through an intermediary service company - not those who contract with a client direct.

A worker will be taxed as an employee of that service company where but for that company he would be an employee.

IR 35 is the hot legal issue to self-employed workers at present.

Techies have protested vehemently.

They commonly earn six-figure incomes by supplying their services through personal service companies which contract with the client.

Many work a basic 35 to 40 hour week for the same company, and will be caught by IR35 when they used to take their earnings in the form of dividends from their service companies.

The scissors effect of increasing employment rights and substantial tax savings mean that more workers are supplying their services on a self-employed basis.

Freedom to work is the new work dynamic.

The old master and servant relationship of employer to employee is breaking down.

Self-employed workers are the new masters and employers, and employment - or 'work' - lawyers will have to respond accordingly.

John Hayes is head of the employment department at London law firm Bracher Rawlins