Mr Smith worked as a plumber for Pimlico Plumbers for six years until 2011. He successfully argued before the Employment Tribunal, the Employment Appeal Tribunal and the Court of Appeal that he was a worker for the purposes of employment legislation. Pimlico maintained that he was a ‘self-employed operative’ – which is how he was described in the agreement between Mr Smith and Pimlico - and appealed to the Supreme Court.
Despite the fact that Mr Smith filed tax returns on the basis that he was self-employed, was VAT registered, was entitled to reject work and was able to take outside work, the Supreme Court held that the Employment Tribunal had been entitled to find that he was a ‘worker’. Significant factors in its decision included:
- Mr Smith was required to wear a Pimlico branded uniform and to use a Pimlico branded van leased from Pimlico.
- Mr Smith had to carry a Pimlico identity card and closely follow the administrative instructions of its control room.
- The contract referred to ‘wages’, ‘gross misconduct’ and ‘dismissal’, and included a suite of restrictive covenants concerning Mr Smith’s working activities following termination.
- While Mr Smith was able to swap assignments with other plumbers already working for Pimlico, this was more akin to swapping a shift between workers than providing a substitute – this was not a case where the employer was uninterested in the identity of the substitute.
The Supreme Court’s decision will entitle Mr Smith to proceed with claims of disability discrimination, unlawful deduction from wages and holiday pay against Pimlico. In the meantime, a number of other cases on employment status continue to make their way through the courts.
Why is the Pimlico decision significant?
Although the decision does not add to or change the established principles involved in determining employment status, there is currently significant cross- industry and policy focus on the question of employment status, particularly within the gig economy. As a result, many organisations and policy groups will take a keen interest in this Supreme Court decision, which appears to support the recent trend for findings that individuals purportedly engaged on a self-employed basis are in fact workers for the purposes of employment rights.
While each case will turn on its facts, it is clear that where an organisation retains a significant degree of control over how the individual works and where there is no (or very limited) right of substitution, it may be that the individuals they engage will be workers and will therefore benefit from certain legal rights and protections.
Following the 2017 Taylor Review of modern employment practices, the Work and Pensions Committee and the BEIS Committee published their joint report A Framework for Modern Employment in November 2017. Its key recommendations included:
- New legislation with clearer definitions of employment status emphasising the importance of control and supervision of workers by a business, rather than focusing on whether the individual can appoint a substitute, to distinguish between workers and the genuine self-employed.
- Individuals should be assumed to have ‘worker status’ by default in businesses with a workforce over a certain size.
- A requirement for a clear written statement of a worker’s rights and entitlements to be provided within seven days of the start of their engagement.
- Businesses that benefit from a flexible workforce should either guarantee a number of hours per week or pay a premium national minimum wage level to compensate for uncertainty.
- Higher punitive fines and costs orders for businesses that falsely classify workers as self-employed and have already lost a similar case.
The government also published its formal response to the Taylor Review on 7 February 2018 and said that the majority of the recommendations of the Taylor Review are to be acted upon in some way. In particular, the government accepts that there is a lack of clarity and certainty over employment status and it has begun consultation on the test for employment status and how it could potentially be defined in legislation. The government also intends to develop an online tool to determine questions of employment status. The majority of its proposals are, however, subject to further consultation and it will be interesting to see how the Supreme Court’s decision in Pimlico feeds into those consultations.
What does this mean for your organisation?
The Pimlico decision does not mean that you cannot successfully operate a business model using genuinely self-employed contractors. However, it is important to carefully consider the reality of your relationship with them rather than relying on contractual labels or tax structures (an individual's status for tax purposes is a separate question to their status for employment purposes). A close analysis of your contractual arrangements and working practices will help to identify any risk areas and enable you to identify any changes which might be appropriate or any unforeseen costs which might be incurred.