Will 2018 mark the end of the gig economy?

Earlier this June, the UK’s supreme court ruled in favour of a contractor who worked as a plumber for a company, establishing that he was a worker and not self employed.

In the case, Gary Smith, worked as a plumber of Pimlico Plumbers for 6 years until he got a heart attack. He asked for a sick leave from the company which got rejected, and afterward dismissed. Mr Smith then sued the company for unlawful dismissal.

In the judgment, the court said that even though some of Mr Smith’s conditions looked like he was self-employed, such as when Mr Smith could refuse work, others were inconsistent with the concept of a contractor. The judge highlighted that Mr Smith wore a branded uniform, had a tracker in a rented van (which Mr Smith had to return to the company after he got dismissed) and carried an identity card.

What it means is that thousands of workers like Mr Smith in the UK may not find themselves with added security of benefits like sick pay and holiday pay.

Back to basics: Independent contractors vs employee

It is unsurprising that many people still can’t figure out the legal distinctions between an independent contractor and an employee. Essentially, an independent contractor is someone that you hire to do a particular task on an ‘ad hoc’ basis such as building an app. The contract is generally a short term contract and you don’t have control over the contractor over how the work gets done.

On the other hand, an employee is somebody that you hire on a full time basis which you have substantial control over his or her working hours and generally follows your instructions. Unlike a contractor, the employee is employed solely to serve his or her employee. Another biggest legal distinction is when it comes to statutory rights and benefits. As an employee, you are entitled to leave entitlements such as annual leave, sick leave, and even medical leave. As an employer, you are required to pay statutory payments such as EPF, SOCSO and tax deductions.

Why is this case important (especially if you are a founder or investor in a startup)?

Well, two reasons come to our mind. Firstly, the case sets an important precedent for many people working in the gig economy industry that they may have certain employment rights. The issue of employment rights in the so-called gig economy may not be so much on the confusion in the law but rather companies who seem to think the law need not be obeyed.

Secondly, our Malaysian laws are similar with the English laws as we have inherited the common law system. To put it simply, our laws are not just made by statutes passed by the Parliament, but also through decided cases made by judges. In other words, Malaysian judges are guided by legal precedents by applying previous decisions made by similar cases in higher courts. Even though Mr Smith’s case was decided in the UK, our Malaysian judges still regard the cases as ‘highly persuasive’ and may possibly rely on the reasoning arrived to by the UK judge.

Another example that is close to perhaps many of us Malaysian is the e-hailing drivers. After the skirmish between taxi and e-hailing drivers, the previous government said that the e-hailing companies including their drivers will be required to be regulated. The government said that amendments will be made to the Land Public Transport Act 2010 which falls within the purview of the Land Public Transport Commission or better known as SPAD. Recently, the new government announced that the SPAD will be ‘reabsorbed’ into the Transport Ministry which most likely also means that the statute which gave birth to SPAD itself may be abolished in the first sitting of the Parliament sometime this year. At this time of writing, it is not clear whether such amendments may still be made and what would be the extent of such amendments.

More rights for the ‘gig economy’?

Unfortunately, it may not be so soon. Ultimately, all eyes will be on the government as businesses await legislation on how to categorise their workforce. This could still be a matter of years away depending on the political will of the powers that be.

Similarly, it would be an uphill challenge for the workers in the gig economy to fight for more rights against the well funded unicorn startups unless the workers are united through some kind of union or association to push for better improvements of their lot.


The court’s decision is a landmark that clarifies the legal distinction of an employee and a contractor. This decision may not appeal to Uber, Uber, a ride hailing company which is in dispute with their drivers over their employment status as the outcome would affect Uber’s business model.

On a final note, if you are running a startup that especially deals with a lot of freelancer and contractors, you should take some time to consider the existing business model so that you may not be caught under the similar legal predicament in the future. Similarly, if you’re working for a ride hailing or delivery services, it’s really important for you to be aware of certain rights and obligations which you may not typically receive unless you are an employee.

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