Mr Smith worked as a plumber for Pimlico Plumbers for six years until 2011. He successfully argued before the Employment Tribunal and the Employment Appeal Tribunal 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 Court of Appeal.
Despite the fact that Mr Smith filed tax returns on the basis that he was self-employed, was VAT registered and was entitled to choose when he worked and which jobs he took, the Court of Appeal held that he was a "worker". Significant factors in its decision included:
- Mr Smith was required to wear Pimlico's uniform and to use a van leased from Pimlico. Both the uniform and the van clearly displayed the Pimlico logo.
- Pimlico could monitor Mr Smith's movements via a GPS system in his van.
- Mr Smith had to work a minimum number of hours per week.
- Mr Smith was not permitted to provide a substitute to do his work. In practice, plumbers engaged by Pimlico could swap jobs or assist each other, but this was more akin to swapping a shift between workers than providing a substitute. Even the occasional use of external specialists was consistent with a requirement for Mr Smith to provide work personally.
- While Mr Smith had a degree of autonomy in relation to estimates and the work done, Pimlico exercised tight controls over the relationship overall. This was inconsistent with them being a customer or client of Mr Smith.
- The agreement contained onerous restrictive covenants preventing Mr Smith from working as a plumber in any part of Greater London for three months after termination.
Subject to any appeal by Pimlico (who have indicated that they are considering appealing to the Supreme Court), the decision will entitle Mr Smith to proceed with claims of disability discrimination, unlawful deduction from wages and holiday pay against Pimlico.
Why is the Pimlico decision so important?
The Court of Appeal stated that: "the case puts a spotlight on a business model under which operatives are intended to appear to clients of the business as working for the business, but at the same time the business itself seeks to maintain that, as between itself and its operatives, there is a legal relationship of client or customer and independent contractor rather than employer and employee or worker".
The Pimlico decision follows hot on the heels of an Employment Tribunal ruling last month that a cycle courier engaged by CitySprint was a worker and the well-publicised Employment Tribunal decision in 2016 in which Uber drivers were also found to be workers.
While each case will turn on its facts, there appears to be a growing trend whereby businesses operating in the "gig economy" may find that individuals they have purported to engage on a self-employed basis are in fact workers for the purposes of employment rights. This is especially so where the business retains a significant degree of control over how the individual works and where there is no right of substitution.
The Pimlico decision is particularly significant because, unlike the Uber and CitySpint decisions, this was a Court of Appeal ruling, which means it is binding on other Courts and Tribunals and will, therefore, be a key authority in future cases concerning employment status.
The Department for Business Innovation and Skills (BIS) has recently published its Employment Status Review (PDF) which examines the current system for determining employment status and considers possible reforms. It identifies that "for a small but growing section of the labour market there is a lack of clarity over employment status". The review does not make any specific recommendations for reform. It acknowledges that "there are a number of options presented but most are highly complicated, would take years to deliver and could create issues of their own" and concludes that "in order to assess the viability, benefits and impacts of any change in this area, a substantial amount of further work is required".
Meanwhile, the Taylor review of modern employment practices is expected to be published later this year. That review will consider the implications of new forms of work, like within the "gig economy", on workers' rights and responsibilities. Employment status therefore promises to remain a hot topic and we may see legislative reform in due course. For now, though, the Pimlico decision is the best place for organisations to look for guidance.
What does this mean for your organisation?
The Pimlico decision does not mean that you cannot successfully operate a business model whereby your labour is genuinely self-employed. 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.