Worker status – the plot thickens

22 February, 2017
by: Cripps Pemberton Greenish

The Court of Appeal recently handed down its judgement in the case of Pimlico Plumbers Ltd and another v Smith [2017] EWCA Civ 51.

Pimlico Plumbers, following on from the high-profile Uber and Citysprint cases, is the latest case in which the courts considered the important question of whether individuals are classed as employees, workers or self-employed individuals.

Why does it matter?

Different rights and obligations apply depending on whether an individual is classed as an employee, worker or self-employed.

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.

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 his contract was terminated. He brought a number of claims including unfair dismissal, wrongful dismissal, holiday pay and discrimination claims.

After considering the agreement between the parties and the reality of the working relationship, the Employment Tribunal (ET) found that Mr Smith was a worker rather than an employee – therefore a number of his claims were dismissed. The Employment Appeal Tribunal (EAT) upheld that decision and Pimlico Plumbers appealed.

In coming to its decision on whether Mr Smith was a worker or self-employed, the Court of Appeal (CoA) focussed on two key issues:

  1. whether Mr Smith was required to perform work personally; and
  2. whether Pimlico Plumbers was a client of Mr Smith.

The requirement to perform work personally

A requirement to personally perform services strongly indicates a worker or employee relationship. In this instance, the CoA held that whether Mr Smith undertook to perform work personally turned entirely on the terms of the contract.

The language used in the contract suggested that Mr Smith was to perform the services personally.

However, the contract permitted Mr Smith, subject to the prior approval of Pimlico Plumbers, to arrange for an external plumber to perform the work in his place and there was an informal practice of effectively swapping jobs/shifts with other Pimlico Plumbers.

The CoA concluded that this did not constitute a truly ‘unfettered right of substitution’ and as such Mr Smith had been required to perform the work personally.

Was Pimlico Plumbers a client of Mr Smith?

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 again agreed with the ET that Pimlico Plumbers was not a client of Mr Smith. Rather, Mr Smith was subordinate to, and an integral part of, Pimlico Plumbers.

Although his contract stated that there was no obligation for Pimlico Plumbers to offer work and no obligation on Mr Smith to accept work, the company’s contractual ‘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. Also relevant was the fact that Mr Smith’s contract contained onerous restrictive covenants, including a prohibition from working as a plumber in Greater London for 3 months after termination of his contract.

The appeal was dismissed.

Advice

Although fact specific, this case highlights the difficulties faced for a business model that wants individuals to appear to the company’s clients as part of the company, but at the same time the company tries to maintain that the individuals are independent contractors rather than employees or workers of the company.

Mr Smith’s contract described him as an ‘independent contractor’ but the courts will look behind this and examine the reality of the relationship. 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.

In light of the uncertainties posed by the ever changing labour market, the government has commissioned a review of employment practices in the modern economy.  Employment status is set to remain a hot topic for some time to come.