The big question……employee, worker or self-employed?

2 March, 2017
by: Cripps Pemberton Greenish

It is common place in the construction industry for a company to engage an individual to provide services on its behalf to an end client, and to want that individual to appear to the client to be part of the company. However, at the same time the relationship between the individual and the company is often said to be a business one, with the company arguing the individuals are self-employed contractors rather than employees or workers of the company.

The recent Court of Appeal (CoA) decision of Pimlico Plumbers Ltd and another v Smith [2017] EWCA Civ 51, following on from the high-profile cases of Uber and Citysprint, considered the important question of whether individuals are classed as employees, workers or self-employed. By doing so, the CoA highlighted the difficulties facing the above popular business model.

Why does it matter?

An individual’s status determines their rights and obligations.

Some core legal protections only apply to employees, such as the right not to be unfairly dismissed and the right to receive statutory redundancy payments; while workers are not entitled to these rights, they are entitled to minimum wage, holiday and sick pay; and, a self-employed/independent contractor’s rights are very limited since they are viewed to be operating as a business in their own right.

It could be that classifying an individual as self-employed is not an issue whilst both parties are happy with the relationship (unless, HMRC were to look into it!), but if a disgruntled individual challenges their status and is found to be a worker or employee, the company is in a difficult position.

The Pimlico Plumber

Mr Smith was registered as a self-employed plumber (and benefitted from the associated tax breaks) and worked exclusively for Pimlico Plumbers from 2005 until 2011, when after a period of illness his contract was terminated. He brought a number of claims including unfair dismissal, wrongful dismissal, holiday pay and discrimination claims.

This was an interesting case with elements supporting employment or worker status, whilst others indicated that Mr Smith was self-employed.

Factors supporting employment/worker status

The relationship was subject to the terms of a written agreement along with the company’s contractual manual. The manual provided for a minimum of 40 hours per week over 5 days and included stipulations about wearing company uniform and using a company van with Pimlico Plumbers’ logo.

The drafting of the agreement also suggested Mr Smith was to provide ‘personal service’ and it contained onerous restrictive covenants. All such provisions would suggest employment or worker status.

Factors supporting self-employed status

In addition to the agreement stating Mr Smith was self-employed, that he was registered accordingly and invoicing Pimlico Plumbers, under the agreement the company was not obliged to provide Mr Smith work and he was not required to accept it; Mr Smith could arrange for an external plumber to perform the work in his place (subject to the prior approval of Pimlico Plumbers); and there was an informal practice of effectively swapping jobs/shifts with other Pimlico Plumbers.

The Decision

In the first instance, considering the written agreement between the parties and the reality of the working relationship, the Employment Tribunal found that Mr Smith was a worker of Pimlico Plumbers – rather than an employee, meaning a number of his claims were dismissed.

Pimlico Plumbers appealed to the Employment Appeal Tribunal and then to the CoA on the grounds Mr Smith was not a worker. In coming to its decision that it agreed with the Employment Tribunal, the CoA considered two main issues: (i) was there a requirement to perform work personally?; and (ii) was Pimlico Plumbers a client of Mr Smith?

The CoA concluded that the drafting of the contract and the fact that there was not a truly ‘unfettered right of substitution’, meant that Mr Smith had been required to perform the work personally.

If Pimlico Plumbers was in fact a client of Mr Smith it would support the argument that he was acting as a business in his own right, rather than as an employee or worker of Pimlico Plumbers. The CoA deemed that in light of all the facts (including the contractual requirement of a minimum number of hours, irrespective that Mr Smith had frequently worked fewer hours) Pimlico Plumbers was not a client of Mr Smith. Rather, Mr Smith was subordinate to, and an integral part of, Pimlico Plumbers.

Advice

Although fact specific, this case highlights that irrespective of what you label the relationship, the courts will look behind this and examine the reality of the situation.

In short, businesses need to think carefully about how they engage people if they want to avoid creating an employer/ employee or employer/worker relationship – particularly if the individuals are providing services to a company’s client.

For more information on similar employment topics please visit our employment blog  or for advice on this topic please contact Erica Dennett or Chris Hovenden