Background Facts Judgment Comment

In the latest development in a series of cases about employment status, the Court of Appeal has rejected an appeal by Pimlico Plumbers and found that a self-employed plumber should have been classed as a worker.(1)

Background

Employment status is important because it governs the legal rights for which individuals qualify. An 'employee' is entitled to the full range of rights, including unfair dismissal protection, maternity and paternity leave and sick pay; whereas a 'worker' has a more limited set of rights, such as the national minimum wage, holiday pay and protection from discrimination. Genuinely self-employed contractors have fewer legal rights, but enjoy the benefit of different tax treatment and the flexibility of working for themselves. It is not enough to look at the label given in an agreement when determining an individual's employment status and many factors may need to be considered.

The recent emergence of the gig economy, based on mobile apps and other technological platforms, has brought this issue to the fore. The gig economy is typically characterised by a volume of short-term contracts or freelance work, as opposed to permanent employment. It can offer flexibility in terms of working hours, but instead of a regular wage, workers are generally paid for the individual jobs that they carry out.

This type of flexible arrangement is beneficial to businesses, as they pay individuals only when there is demand for the service and need not incur costs during quiet periods. While gig economy businesses generally deem these service providers to be self-employed, both Uber (for further details please see "Uber drivers win first round in employment status dispute") and Citysprint have recently been in the headlines following employment tribunal findings that individual drivers and couriers were workers. This rapidly growing industry sector engages individuals in a way that challenges traditional employment status categories.

Although the latest case involves a plumbing company and not gig economy work, it deals with similar issues in the complex area of flexible working and employment status.

Facts

Gary Smith worked exclusively for Pimlico Plumbers, having signed an agreement which stated that he was "an independent contractor of the Company, in business on your own account". A company manual referred to a 40-hour working week, though the agreement stated that there was no obligation to provide or accept work. Smith hired a branded van from the company and was registered as self-employed.

Six years after starting work, Smith suffered a heart attack and decided that he wanted to reduce his working days from five to three. Pimlico Plumbers refused his request, took away the branded van and terminated its agreement with him.

Smith brought claims for unfair dismissal, wrongful dismissal, sick pay, holiday pay, arrears of pay and disability discrimination. The employment tribunal found that he was not an employee of Pimlico Plumbers and a number of his claims were dismissed. However, when looking at how Smith worked in practice, the tribunal found that he was a worker. He was therefore entitled to pursue his claims for disability discrimination, holiday pay and arrears of pay. The Employment Appeal Tribunal upheld this ruling and Pimlico Plumbers appealed to the Court of Appeal.

Judgment

Although Smith had registered as self-employed and paid his own taxes, the Court of Appeal agreed with the previous decisions and ruled that he should be legally classed as a worker. This turned on two issues:

  • whether Smith was obliged to provide his services personally; and
  • whether Pimlico Plumbers was a customer of a business operated by Smith.

On the first issue, the Court of Appeal decided that Smith was obliged to provide his services personally. The court held that in order to be a genuinely self-employed contractor, an individual needs an unfettered right of substitution; a conditional right of substitution may also suffice, depending on the conditionality. However, at Pimlico Plumbers there was no example of a plumber ever having sub-contracted all of his or her work to an external plumber and the written agreement and company manual contained no right to do so. There was a limited informal right to swap jobs within the pool of other Pimlico plumbers, but this was more akin to the swapping of shifts than an actual right of substitution.

In relation to whether Pimlico Plumbers was a customer of Smith's business, the key issue was whether he was obliged to work minimum hours. If so, this would be inconsistent with him running his own business under which he could fully control his own work. The Court of Appeal agreed with the employment tribunal's findings that Smith was required to work a 40-hour week. Although the written agreement stated that he had no obligation to accept work, a minimum five-day and 40-hour week was set out in the company manual. The provisions in the agreement that he could reject work did not, in fact, reflect the reality because of his minimum contracted hours.

Comment

This case turned on the facts of how the working relationship between the parties operated in practice, which makes it difficult to draw general conclusions. Similar facts might lead to a different result in another case. The Court of Appeal's judgment also confirms that these issues are often problematic, with one of the judges commenting: "I have not found the case entirely straightforward".

Nonetheless, the judgment does confirm that complex contractual drafting designed to avoid worker status will not necessarily succeed if it does not reflect the reality, particularly if the individual works under the control of one company. Pimlico Plumbers encountered particular difficulty here because its written agreement with Smith and the company manual were different – the court commented on the "contradictory and ill-thought-out contractual paperwork". Businesses should heed the warning and take care when drafting agreements, while being aware of their practical daily arrangements with individuals.

The Court of Appeal expressly noted that this case "puts the spotlight" on a business model under which individuals are intended to appear to clients as working for the business while the business itself seeks to maintain that those individuals are independent contractors rather than employees or workers. This is the essence of the problem highlighted by the gig economy cases.

The government has commissioned an independent review into modern working practices including the gig economy, led by Matthew Taylor, chief executive of the Royal Society for the encouragement of Arts, Manufactures and Commerce. Meanwhile, the Department for Business, Energy and Industrial Strategy has published the outcome of its own 2015 Employment Status Review. This examined various issues, but provided no solution, concluding that "a great deal more consultation and analysis is required before action can be taken to ensure that in attempting to fix one issue, we don't inadvertently create another".

While Charlie Mullins, the managing director of Pimlico Plumbers, has said that he is likely to take the case to the Supreme Court, it is unlikely that the company will be given leave to appeal further. Meanwhile, Uber has appealed against the employment tribunal's finding that one of its drivers was a worker. In particular, the notice of appeal criticises the tribunal's willingness to set aside the written agreement between the parties and its finding that the drivers were required to work for Uber when logged into the relevant app.

Given the ongoing legal challenges to gig economy working, combined with the fact that an estimated 5 million people in the United Kingdom work in this way, the issue of how the law should regulate employment status is certain to remain a hot topic for the foreseeable future.

For further information on this topic please contact Lisa Dafydd at Lewis Silkin by telephone (+44 20 7074 8000?) or email (lisa.dafydd@lewissilkin.com). The Lewis Silkin website can be accessed at www.lewissilkin.com.

Endnotes

(1) Pimlico Plumbers Ltd v Smith [2017] EWCA Civ 51.

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