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Esports Professionals: Employees or Independent Contractors?

Updated: Oct 4, 2020

The money in professional gaming has changed. Not so long ago tournaments would be few and far between, usually independently organised, and offering small prize pools. Gamers would sometimes band together in order to compete in team games and would come to rather casual commercial agreements about dividing up any prize money they earned. This scenario will still sound familiar to most teams today but with the growth of the esports industry we have seen the emergence of organisations large enough to hold multiple rosters across various titles and who, for all intents and purposes, employ gamers.


Employment and labour laws distinguish between employees and self-employed individuals in order to grant rights and impose obligations which are suitable to the situation. This distinction is very important as employees are often afforded greater rights which can be claimed by the employee, even retrospectively, when an employer miscategorises them. These rights are similar across several jurisdictions but in the UK some include:


  • the right to a statutory minimum notice period;

  • the right not to be unfairly dismissed;

  • rights not to be discriminated against or suffer a detriment;

  • rights to maternity, paternity, adoption, parental, and shared parental pay;

  • the right to receive the national minimum wage;

  • the right to rest breaks; and

  • the right to statutory sick pay and paid annual leave.


In the UK we also have the category of ‘worker’ which sits between that of employee and self-employed. With the evolution of the modern labour and the growth of the ‘gig economy’ the lines between workers and employees are becoming more blurred. In response, greater protections are gradually being afforded to workers through the ‘Good Work Plan’, based on Matthew Taylor’s 2017 ‘Taylor Review’, and other reforms. Workers still do not have entitlements to certain employee rights such as paid family leave, dismissal notice, or statutory sick pay, however, are entitled to an ever increasing list of rights which includes entitlement to a nation minimum wage, paid leave, and protection from discrimination.


In the UK, and most jurisdictions, the status of the individual is based on the reality of the situation and not necessarily what is decided between parties. It is therefore important for esports organisations and players to understand the tests for determining employment status and what consequences that may have. Under UK law the five core elements of an employment relationship are identified as:


  • Personal Service

  • Control

  • Financial Risk

  • Mutuality of Obligation

  • Integration


Satisfying all five elements will likely result in the individual being owed all the rights of an employee. Worker status is usually found where the elements are met but to a lesser standard. For example, there may not be a sufficient framework of control to establish an employment relationship but the individual might be considered a worker if the other elements of the test are sufficiently satisfied to make such a status appropriate.


Personal Service


The personal service test mostly focuses on the difference between a contract ‘of service’ and a contract ‘for services’, and whether another can provide the services in the individuals place. The first question usually concerns the principle purpose of the contract. If engaging the service of a specific individual is the principle purpose, then this suggests an employee or worker relationship. This can be seen with most of the larger teams who contract with specific individuals that have demonstrated their experience and skill. Smaller teams, however, may contract with individuals for their services towards the principle purpose of a certain objective, such as competing in a tournament or league. This would suggest the players are acting as independent contractors and are not employed by the team.


The most important indicator in establishing personal service often lies in the individual’s rights to substitution. The right to provide a substitute or subcontract work is usually considered inconsistent with employee status and indicative of an independent contractor relationship. However, a worker status may still exist where there are limits or conditions on the right of substitution. For example, an individual may be a worker and may also be allowed to substitute the performance of their services when they are incapacitated or if consent is given at the discretion of the client. The impact that substitution will have on an esports roster depends, most importantly, on the skill of the player. This becomes more important and more impactful on determining the individual’s employment status as a team becomes more reliant on specific highly skilled individuals who regularly train alongside their teammates.


Control


An employment relationship requires a certain degree of control, exercised by the employer. Common examples include directing where, when, and how the individual works. Esports teams at different stages of growth demonstrate a wide spectrum of control over their players. At the low-end players can be free to play in their own time and are only requested to compete in the name of the team at such times as are set by the organisers. At the high-end players may be directed to train at specific locations alongside their teammates for the majority of the working week while abiding by other policies such as the use of certain equipment or the wearing of provided clothing. Publishers and tournament organisers often exercise rather strict control over teams and competitors, but it is important to distinguish game and tournament control from team control. Important indicators usually lie in things like practice regimes, presentation, the nature and extent of internal policies, and restrictions over a player’s external opportunities such as sponsorship deals.


Financial Risk


It will come as no surprise to most readers that esports professionals can make some serious money. As the audience grows prize pools are getting larger, streaming is becoming more profitable, and sponsorship opportunities are more abundant. These monetisation methods all rely on the player pursuing success where they bear the financial risk of their own business. For example, a group of players might enter a tournament as a team under the agreement that they split any prize money they win. These individuals would likely be considered independent contractors in business on their own account because they are bearing the financial risk of their own performance.


Some professionals though, are also paid a salary in much the same way as an employee in any other industry. While they may also have other revenue streams, there is little financial risk involved in the relationship between the player and team when the individual is paid regularly, suggesting that salaried professionals are more likely to be considered employees.


Mutuality of Obligations


In an employment relationship the employer is obliged to provide work to the employee and the employee is obliged to perform that work. This is what’s called the ‘mutuality of obligations’. In larger esports teams where rosters are fixed throughout a season this can often be more easily established – the organisation employ the player to play for that season and the player agrees to compete. When evaluating this element within smaller teams, however, it becomes less clear. Fluctuating rosters or ad hoc casual work can indicate that mutuality of obligations does not exist, or at least not to the sufficient standard. Some further complications can occur when players are required to give notice before terminating the relationship or when teams give open invites to work.


A continuous stream of competition is often rare in the esports industry which relies on periodic and ad hoc frameworks. At face value this may sound reassuring to potential employers, however, there is no obligation to provide work during periods where work is unavailable, so each relationship is assessed based on the work given/offered and performed/accepted only when available. This means that, although a team may not submit a roster every week or even every month, if the same individuals are competing each time there could still be an employee or worker relationship.


Integration


The final big-ticket item when evaluating an employment relationship is to look at how integrated the individual is within the organisation. Are they ‘part and parcel’? Consider, for example, whether they hold themself out as part of the organisation or whether they are involved in strategic business decisions. With any esports team there are likely to be some obvious indicators of integration such as matching attire, or mandatory clan name/nickname practices. A rather simple thought experiment that can help is to illustrate the organisation’s structure as a chart… is the individual on there? Where the roster is an integral part of the organisation it would make sense to include them on the chart. However, where the team changes regularly or is considered external from a core corporate framework they may be left off, suggesting they are not sufficiently integrated to be considered employees.



Determining the employment status of an individual is a complicated endeavour, especially in an industry such as esports where there is little in the way of supporting case law. As stated at the top though it is important and can have a huge impact on the rights owed to the individuals, but also in other ways, for example how payments to the individual are taxed. Please feel free to contact Ethoughts through the website or social media if you would like further information.


Adam McGlynn.



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