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

Background

An individual's employment status is important because it governs the legal rights for which they qualify. An employee is entitled to the full range of rights, including unfair dismissal protection, maternity or paternity leave, and sick pay; whereas a worker has a more limited set of rights, such as the national minimum wage and holiday pay. Self-employed contractors have fewer legal rights but enjoy the benefit of different tax treatment and the flexibility of working for themselves. To add to the confusion, a wider definition of 'employment' – which is essentially the same as the definition of a 'worker' – applies for the purposes of protection from discrimination.

There are various tests for deciding which of these categories an individual falls into. This depends on the facts of the relationship in practice, and it can be difficult for companies to confirm whether an individual has been categorised correctly. The emergence of the gig economy, which is based on apps and other technological platforms, has brought this issue to the fore. While gig-economy businesses generally deem these service providers to be self-employed, Uber, Citysprint and Addison Lee have all been on the wrong end of decisions that classified individuals as workers, meaning that they were entitled to additional rights. The vexed question of employment status was also one of the main issues considered in the Taylor Review (for further details please see "The future of employment law: Taylor-ed to fit?".

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". There was also a company manual which referred to a 40-hour working week, although the agreement stated that there was no obligation to provide or accept work. Smith was registered as self-employed; however, his contract imposed various requirements on him, including that he:

  • drive a branded van with a tracker;
  • wear a branded uniform;
  • carry a Pimlico identification (ID) card; and
  • follow administrative instructions from the control room.

Six years after starting work, Smith suffered a heart attack and decided to reduce his working days from five to three. Pimlico refused his request, removed the branded van and terminated his agreement.

Smith brought various claims before the employment tribunal, which found that he did not fall within the narrower definition of 'employee', but that he was both a worker and in employment for the purposes of discrimination law, based on how he worked in practice. This meant that Smith was entitled to pursue claims for disability discrimination, holiday pay and arrears of pay. The Employment Appeal Tribunal and the Court of Appeal both upheld the ruling.

Court of Appeal decision

The Court of Appeal focused on two key issues:

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

The court decided that Smith was obliged to provide his services personally, as he had no unfettered right of substitution if he could not or did not want to carry out the work. The court also concluded that Pimlico was not a customer of Smith's business, as in practice he was obliged to work minimum hours.

Pimlico appealed to the Supreme Court, whose ruling was eagerly awaited, as it was an opportunity for the highest court to clarify the confusing issue of employment status.

Supreme Court decision

In a unanimous judgment, the Supreme Court upheld the previous decisions, ruling that the employment tribunal had been entitled to find that Smith was a worker and that he was in employment for the purposes of protection from discrimination.

The Supreme Court focused on the two main tests that had been considered throughout the case:

  • whether Smith was obliged to carry out his services personally; and
  • whether Pimlico was a client or customer of Smith's business.

Personal service In relation to personal service, the Supreme Court stated that the employment tribunal was entitled to conclude that Smith's contract involved an obligation of personal performance. Although he had the right to appoint a substitute, this was limited. In particular, the substitute had to be another Pimlico operative and Smith was not free to use any substitute that he wished. The contract was also directed at performance by Smith personally, referring to:

  • his skills;
  • a warranty that he was competent to carry out the work; and
  • the requirements to have a high standard of conduct and appearance.

As any substitute had to be another Pimlico operative, they would also be bound by these conditions.

Client or customer In relation to whether Pimlico was a client or customer of a business operated by Smith, the Supreme Court held that the employment tribunal had been entitled to conclude that this was not the correct analysis of the situation. On the facts, the court found that Pimlico was obliged to offer work if it was available and Smith was obliged to keep himself available to work up to 40 hours per week. The court noted the tight control that Pimlico had over Smith, including the requirements concerning:

  • company branding;
  • the van tracker;
  • the ID card; and
  • following instructions.

In addition, the Supreme Court referred to severe terms about when and how much Pimlico was obliged to pay Smith, which included no payment until the client had paid Pimlico, as well as references in the contract to wages, gross misconduct and dismissal.

Comment

Anyone who was hoping that the Supreme Court would radically change the approach towards employment status in this judgment will be disappointed. A succinct summary of the decision was that "the [employment tribunal] was entitled to reach this decision on the facts, applying the existing law on this topic".

As with many employment status cases, the outcome 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 could lead to a different result in another case. Nonetheless, the following features of the Supreme Court judgment may help to guide outcomes in other cases:

  • In relation to personal service, the Supreme Court suggested that in some cases it may be appropriate to consider whether the "dominant feature of the contract" was personal performance. This confirms that some factors (eg, limited substitution rights to colleagues) may suggest self-employment, but an individual will still be a worker if the facts overall weigh more heavily in favour of the obligation to do the work personally.
  • On the topic of substitution, the Supreme Court focused on whether the other party was uninterested in the identity of the substitute. It was fatal to Pimlico's case that the right to substitute applied only to other Pimlico operatives. The implication is that this type of limited right of substitution will not be enough to defeat an obligation of personal service, particularly where the contract places clear personal obligations on the individual. This suggests that only a right of substitution that is both genuine and unfettered is likely to count towards self-employment – essentially, where the company does not care who does the work, provided that it gets done. Indeed, this lack of control over substitutes was key to Deliveroo's success in resisting a union application for its riders (for further details please see "Deliveroo defends union recognition application by demonstrating riders are genuinely self-employed").
  • The Supreme Court referred to various previous cases on the question of whether a company is a client or customer of an individual's business. The key focus is whether the individual:
    • actively markets their services as an independent person to the world in general; or
    • is recruited to work as an integral part of the principal's operations.
  • The Supreme Court relied on various factors that showed Smith was in practice controlled by Pimlico and therefore was an integral part of Pimlico's business.
  • The Supreme Court was also critical of the unclear contractual arrangements, noting that Pimlico "put before the tribunal an irrelevant contract, cast in highly confusing terms, and now complains that the tribunal's interpretation of them was highly confused". This acts as a reminder that the courts and tribunals will be deeply unimpressed by unclear contracts, and the onus is on the company to set out clear and coherent terms if it wishes to rely on them as supporting genuine self-employment.
  • Finally, the Supreme Court confirmed that the tests for a worker and employment under the Equality Act are the same under the current interpretation of the law, even though the wording of the legislation is different.

Overall, the Supreme Court declined the opportunity to further clarify or change this confusing area of law. It noted the problems caused by definitions of employment status, commenting:

It is regrettable that in this branch of the law the same word can have different meanings in different contexts. But it gets worse. For, as I shall explain, different words can have the same meaning.

However, on its facts the case required nothing more complicated than an application of the existing law.

Although this was not a case about the gig economy, it will have implications for such cases, as well as more general issues around employment status. The position essentially remains the same – it depends on the reality of the relationship in practice. As such, it will continue to be difficult for parties to be sure about the correct categorisation of status in more borderline cases.

This somewhat unsatisfactory situation is likely to continue unless the government acts on the recommendations of the Taylor Review and carries out an overhaul of the legislation on employment status (for further details please see "Government response to Taylor review – a damp squib?").

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

Endnotes

(1) Pimlico Plumbers Ltd v Smith [2018] UKSC 29.

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