Employment Status and the ‘Gig’ Economy

Pimlico Plumber’s Employment Status

Those of you who listen to the podcast (The Employment Law and HR Podcast) will recall that I have previously reported on the high profile and important case being pursued by Uber drivers who are seeking to assert their rights as workers. This case is currently being appealed and there have been various other cases involving companies such as Hermes and Deliveroo on the same issue.

In this case the status of ‘self-employed’ persons have once again been under scrutiny, this time by the Court of Appeal.

Smith v Pimlico Plumbers Limited.

The Law

Section 230 of the Employment Rights Act, defines an “employee” and a “worker” as follows:

(1) In this Act “employee” means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.

(2) In this Act “contract of employment” means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.

(3) In this Act “worker” (except in the phrases “shop worker” and “betting worker”) means an individual who has entered into or works under (or, where the employment has ceased, worked under)—

(a) a contract of employment, or

(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual;
and any reference to a worker’s contract shall be construed accordingly.

(4) In this Act “employer”, in relation to an employee or a worker, means the person by whom the employee or worker is (or, where the employment has ceased, was) employed.

(5) In this Act “employment”—

(a) in relation to an employee, means (except for the purposes of section 171) employment under a contract of employment, and

(b) in relation to a worker, means employment under his contract;
and “employed” shall be construed accordingly. …”

Employees and workers have different rights depending upon their status. Workers have fewer employment rights than employees, however they are able to claim national minimum wage and holiday pay (for example).

The Facts

Mr Smith carried out work for Pimlico between August 2008 and April 2011. In January 2011 Mr Smith had a heart attack and on the 3rd May 2011 his relationship with Pimlico was terminated.

At that time Pimlico Plumbers Limited had 75 office staff and 125 people who carried out work on their behalf in the same way that Mr Smith did.

Mr Smith was considered by Pimlico to be a self-employed person and the agreement he signed with them in 2005 and then again in 2009 stated the same. Mr Smith was required to work to and comply with the Company Manual.

The Company Manual included instructions and rules on various things including:

• Personal appearance, including uniform;
• Working times – set 5-day week with a minimum of 40 hours per week;
• Requirement to give notice of annual leave;
• On-call rota;
• The level of contact required with the control room;
• Timesheets;
• Invoicing;
• Requirement to carry the Pimlico ID;
• Issue of mobile phones;
• Requirement to give reasonable notice to terminate;
• Wages;
• Personal conduct rules.

In addition to the rules and procedures contained in the manual Mr Smith was prevented from doing other work without obtaining permission from Pimlico, he had to use his own tools and equipment, and his contract contained post termination restrictions.

On a day to day basis Mr Smith had the discretion to decide which jobs he took on, his working hours and how much he charged customers for the work required. There was no obligation on Pimlico to provide him with work and if he did no work he had no entitlement to pay.

Mr Smith was registered with the Construction Industry Scheme (CIS) and as self-employed with HMRC. He submitted tax returns and was registered for VAT. His tax returns showed that he had to cover a large amount of cost for materials himself and he paid his wife £4,680 per year to undertake secretarial duties.

After his arrangement with Pimlico was terminated in 2011 he made a claim in the Employment Tribunal for unfair dismissal, wrongful dismissal, holiday pay, arrears of pay and disability discrimination.

Pimlico denied that Mr Smith has the right to make his claims as he did not have the status of an employee or worker. The case was listed with the Employment Tribunal for a preliminary hearing to determine this issue.

The Employment Tribunal decided that Mr Smith was not an employee, the key factors being that Pimlico had no obligation to provide Mr Smith with work and there was no obligation to pay him for work undertaken. If a customer did not pay their invoice for more than 6 months it was written off and Mr Smith would not receive payment. Therefore, on conclusion there was no obligation to provide work or pay for it to be a relationship of employer and employee.

The Employment Tribunal did however find that on all the evidence of the relationship between the parties Mr Smith was a worker. This meant that whilst Mr Smith’s claims for unfair dismissal and wrongful dismissal could not continue his claims for disability discrimination, holiday pay and unauthorised deductions from wages could.

The case was appealed to the Employment Appeal Tribunal by both Pimlico and Mr Smith and both appeals were dismissed.

Pimlico appealed to the Court of Appeal.

The Decision

The Court of Appeal denied Pimlico’s appeal and upheld the original decision of the Employment Tribunal that Mr Smith was a ‘worker’. In doing so they reviewed the decision-making process of the Tribunal including looking at the actual working arrangement between the parties and particularly the terms of the agreement between them.

The definition of a worker has two elements; 1) requirement to provide personal service or perform the services personally and 2) not to do so as a client or customer in a business undertaking.

Pimlico argued that Mr Smith could not be said to have been required to provide personal service as the agreements and way of working between the parties was such that Mr Smith could use an assistant or apprentice to assist him.

The Court of Appeal therefore took time to analyse several previous cases regarding the employment status of various individuals and summarised the applicable principles of the requirement to provide personal service which is a key requirement for ‘worker’ status:

1) ‘An unfettered right to substitute another person to do the work or perform the services is inconsistent with an undertaking to do so personally.

2) A conditional right to substitute another person may or may not be inconsistent with personal performance depending upon the conditionality. It will depend on the precise contractual arrangements and, in particular, the nature and degree of any fetter on a right of substitution or, using different language, the extent to which the right of substitution is limited or occasional.

3) By way of example, a right of substitution only when the contractor is unable to carry out the work will, subject to any exceptional facts, be consistent with personal performance.

4) By way of example, a right of substitution limited only by the need to show that the substitute is as qualified as the contractor to do the work, whether or not that entails a particular procedure, will, subject to any exceptional facts, be inconsistent with personal performance.

5) By way of example, a right to substitute only with the consent of another person who has an absolute and unqualified discretion to withhold consent will be consistent with personal performance.’

It was concluded that whilst Mr Smith and other operatives could use assistants and apprentices this was not inconsistent with the requirement to provide personal service.

On consideration of the whole relationship, the written agreement and the way in which Mr Smith worked the Court of Appeal were satisfied that he was a worker.

Points to note

What is interesting about this case, and many other cases on this topic, is that it comes down to the facts of the case and how the relationship worked on a day to day basis. This is then analysed against the statutory definition and factors weighed up as their importance in determining employment status.

It is for this reason that many people struggle with actually pinning down the status of a worker/employee and why I often advise business owners that you cannot be entirely sure of the outcome unless it is tested in the Courts or Tribunals.

My overall advice is that if it feels like an employment relationship in any way then you should take a cautious approach and weigh up the risks verses the benefit of not providing the person with the benefits of worker or employee status.

The second observation I made on this case was regarding the comments that have been posted on the news story online. There seems to be an even spread of people in favour of Mr Smith’s actions verses those against. Many comments make the point that for several years Mr Smith enjoyed the benefits of being a self-employed person in terms of his taxable status and being able to earn higher amounts and claim more expenses for things such as home office and assistance from his wife. Although he of course did not have the associated rights of an employee during this time many argue that if he was an employee or worker, with those benefits, his rate of pay and income would have been lower as a result.

Certainly, much of the criticism levelled at organisations such as Uber and Deliveroo has been that they are taking advantage of vulnerable people who are low paid and treated badly, and this has in turn prompted the government to instigate an independent review into modern working practices.

It could be said that, unlike the Uber drivers, Mr Smith and Pimlico each had something to gain by their ‘self-employed’ relationship up to the point that Mr Smith became unwell. I would be very interested to hear your thoughts on this matter.

Action to take

1) As a general rule, in determining if the relationship could be employee or worker then I would say if it looks like it, smells like and feels like it, it probably is! Look at the whole of the situation and the motive for determining the relationship in the way you have;

2) Although there are no hard and fast rules it is recommended that you seek advice where you are entering into a ‘self-employed’ or ‘consultant’ arrangement with someone;

3) If you have existing relationships that could be construed as employee or worker status it is a good idea to get advice sooner rather than later. The media coverage of these types of cases are leading many people to think about their own rights and seek advice accordingly;

4) If you would like to discuss in a free no obligation telephone call, contact me on 023 8098 2006 or 01983 897003.

Court of Appeal – Smith v Pimlico Plumbers Limited

You can read the full judgement here

I would be really interested to hear your thoughts and experiences on this issue, please leave your comments or questions below.

 Don’t forget getting advice from a Solicitor does not have to be complicated or costly!

 


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The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.

The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.

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