Case update (1): Employment status

What do we already know?

We updated you in our June Newsflash Employment status and the “self-employed” plumber on the Supreme Court’s decision that a ‘self-employed’ plumber could be categorised as a ‘worker’ for employment purposes.

What’s new?

As promised in our above June Newsflash we provide further details of the case below.

Summary:  Can a plumber, who is self employed for tax purposes, be categorised as a “worker”?

Yes, says the Supreme Court in Pimlico Plumbers and another v Smith available here.

Facts:  The worker, Mr Smith, worked as a plumber for Pimlico Plumbers Limited (Pimlico) for around six years. He was labelled as a “self-employed operative” and described in documentation as an independent contractor, in business on his own account. However, under the arrangements between Pimlico and Mr Smith, he:

  • was required to wear a uniform and to drive a van, both with Pimlico’s logo;
  • had his movements monitored by Pimlico via GPS installed in the van;
  • could only be contacted by customers through Pimlico;
  • had a contract which:
    • did not permit him to provide a substitute to do his work and largely pointed to personal performance. Instead, Pimlico did permit work to be transferred between operatives and where necessary allowed external specialists to be used; and
    • contained post-termination restrictive covenants.

Also, customer contracts and estimates were issued in the name of Pimlico.

However, Mr Smith:

  • was paid by Pimlico against receipt of an invoice;
  • was required to provide his own tools, equipment and materials;
  • took personal liability for work performed by him and provided his own professional indemnity insurance;
  • was taxed as self-employed and was VAT registered;
  • had no obligation to accept work from Pimlico (but he was required to notify the days on which he was unavailable); and
  • could in theory reject particular jobs and could decide his own working hours (but was required to do a minimum number of hours work each week).

Mr Smith brought a Tribunal claim against Pimlico on the basis that he was an employee and had been unfairly dismissed by Pimlico and discriminated against on grounds of disability by failure to make reasonable adjustments.  He also made allegations in respect of unpaid holiday pay and unauthorised deductions from wages.

The Tribunal considered the question of Mr Smith’s employment status as a preliminary issue.  The Tribunal held that Mr Smith was not an employee and so did not qualify for protection against unfair dismissal. However he was found to be a ‘worker’ and entitled to holiday pay and protection against discrimination.

Pimlico appealed to the EAT and then to the Court of Appeal.  Both courts rejected the appeal and upheld the Tribunal’s decision that Mr Smith was a worker.

Pimlico then appealed to the Supreme Court.  The Supreme Court unanimously dismissed Pimlico’s appeal. The key factors which led to the worker status finding were that:

  • the dominant feature of Mr Smith’s contract with Pimlico was an obligation on Mr Smith to perform work personally (any right to a substitute was significantly limited); and
  • the status of Pimlico was not that of a client or customer of Mr Smith.

In ruling that Pimlico was not a client or customer of Mr Smith the Supreme Court agreed with the Tribunal that there was an umbrella contract between the two parties i.e. one which cast obligations on Mr Smith even when he was between assignments for Pimlico.

The Court also took into account how much control Pimlico exercised over Mr Smith, referring to the fact that Mr Smith should “wear the branded Pimlico uniform; drive its branded van, to which Pimlico applied a tracker; carry its identity card; and closely follow the administrative instructions of its control room”.

Implications:  This decision is important as it is a Supreme Court decision on worker status and as such it gives strength to recent decisions by the lower courts on this issue.

Whilst cases in this area will always turn on their own facts, the decision does provide useful authority on the personal service requirement and in particular when a contractual right of substitution might be inconsistent with personal service.

The decision also shows the continued importance of contractual terms seen in the context of the reality of the parties’ working practices. In particular, for self-employed status to hold true, removing a requirement for personal service and allowing a right of substitution is important.  Also the use of standard contractual documentation should be approached with caution and it would be advisable for employers to undertake an audit of any such arrangements to assess whether any ‘self employed’ staff could in fact be deemed to be workers.

There is yet more to come on the issue of employment status as the Court of Appeal is due to consider the Uber case at the end of October 2018. Further, the Government is likely to take action following the Taylor Review of Modern Working Practices which made detailed recommendations for reform of UK employment law in respect of non-traditional employees, both in the “gig economy” and elsewhere. For further news on the Taylor review and the Uber case see our updates here.