As the trend of legal decisions establishing worker status continues, should you reconsider employing self-employed contractors?

Following the recent and well publicised case brought against Uber, the latest Court of Appeal's decision in Pimlico Plumbers Limited and Charlie Mullins v Smith provides useful guidance and clarification on when an individual will be deemed to be in employment, a worker or genuinely self-employed.

The Facts

Gary Smith worked for Pimlico Plumbers (Pimlico) as a plumber from August 2005 until May 2011, when he was dismissed following a heart attack in January 2011. His original contract referred to him as a 'sub contracted employee' and incorporated Pimlico's procedures and Working Practice Manual. This contract was replaced by a more detailed agreement in September 2009, which referred to Mr Smith as a 'self-employed operative'. This stated that:

  • the actual days he provided his services to Pimlico or its clients would be agreed from time to time
  • he had to correct any errors free of charge or repay Pimlico the cost of correcting them
  • a high standard of conduct and appearance was required at all times
  • his fee would be paid against his invoices and set at 50% of the cost charged by Pimlico to their clients provided Pimlico had received clear funds and there were no complaints
  • he was responsible for his own taxes and had to provide his own equipment and materials
  • he had to follow ten 'personal conduct' guidelines such as not smoking or using the customers toilet or telephone

In practice, Mr Smith decided his own working hours. Pimlico had no obligation to provide work on any particular day. If there was not enough work, none would be provided and he would not be paid. He had discretion whether to negotiate on price, covered substantial costs of materials himself, provided his own protective clothing and used his own accountant to file his tax returns.

The Claims

Following his dismissal, Mr Smith brought claims against Pimlico for unfair and wrongful dismissal and against its Managing Director, Charlie Mullins, for disability discrimination.

In order to allow him to proceed with those claims, the tribunal needed to first determine Mr Smith's 'employment status'.

Why Is Employment Status Important?

  • Employees have the broadest range of legal protection including from unfair dismissal. They are entitled to statutory notice and redundancy payments, as well as benefits such as pension, statutory sick and maternity/paternity pay.
  • Workers have a more limited range of rights but are entitled to receive the national minimum wage and to paid holiday under the Working Time Regulations 1998.
  • Self-employed contractors have limited statutory protection other than potentially from discrimination claims, but otherwise as determined by the terms of their contract, which can be terminated in accordance with the agreed terms.

The Decision

Mr Smith's case proceeded all the way to the Court of Appeal. Ultimately it was found that he was not an employee, largely because there was no legal obligation on Pimlico to provide him with work.

The employment judge also felt that Pimlico's right to withhold payment if its customer had not paid and his obligation to rectify problems in the work at his own expense were also inconsistent with an employment relationship, as was the degree of financial risk borne by Mr Smith.

It was, however, found that Mr Smith was a 'worker' on the basis that he was required to undertake the work personally. Worker status will be conferred on an individual where there is a contract in place to perform work personally (where there is not found to be a customer/client relationship of a business undertaking). The critical factor was found to be that Mr Smith did not have an unfettered right to appoint a substitute to undertake the work on his behalf and so was engaged under a contract to perform work personally. The judgement provides us with a clear set of principles around when an individual will be found to have a contract to work personally (and so be a worker), based on the interpretation of substitution clauses:

  • A right of substitution, which only applies when the contractor is unable to carry out the work will usually be consistent with personal performance, and so means that the individual will usually be deemed to be a worker.
  • A right to substitute only with the consent of another person (who has discretion to withhold consent) will be consistent with personal performance and so will mean that the individual will usually be deemed to be a worker.
  • An unfettered right to substitute another person to do the work is inconsistent with a requirement to work personally and so will usually mean that an individual is not a worker or an employee.
  • A right of substitution, which is only limited by the need to show that the substitute is as qualified as the contractor to do the work will usually be inconsistent with personal performance and so will mean that an individual is usually found to be self-employed and not a worker or an employee.

Best Practice

This case makes it clear that there is still scope for the self-employment contractor model (for example for visiting music teachers or coaches). It is essential that the contractual documentation supports this status, and that it is also reflected in practice.

Schools seeking to engage individuals on this basis must take care to ensure that the individuals providing the services genuinely meet the necessary criteria such as having a genuine right to ask a substitute to undertake the work. To ensure this can happen in practice, you may wish to ask them to provide details of anyone they may ask to undertake lessons on their behalf, and ensure that all safer recruitment checks have been carried out.