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Employment and worker status – the hot topic

Another leading decision has just been made by the Court of Appeal (“CA”) relating to employment status (in other words, whether an individual is an employee, a worker, or self-employed).

The question of employment status has been the central issue to many employment cases over the past 12 months and this recent case, Pimlico Plumbers & Charlie Mullins v Gary Smith is important as it is likely to be a leading case on employment status in future years.

In Pimlico, the court has ruled that self-employed plumbers providing their services to a plumbing company were in fact workers, not self-employed contractors. As the Master of the Rolls said: “This 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… there is a legal relationship of… independent contractor rather than employer and employee or worker.”

As with all employment status cases, it is a fact- sensitive case, and the Judge carried out a detailed assessment of the evidence and contractual documentation that Mr Smith worked under when at Pimlico Plumbers. Importantly, the Court of Appeal gives a clear summary of the principles for the ‘personal service’ aspect of the employment status tests.

The facts

Mr Smith was a plumber who carried out work solely for Pimlico Plumbers between August 2005 and April 2011. He had signed an agreement that his work would be governed by terms and conditions set out in Pimlico’s manual, which included stipulations as to working hours, uniform and appearance; restricted the ability of Mr Smith to work for himself or other companies; obliged Mr Smith to use a Pimlico van for his work; and provided that Mr Smith could only swap jobs with other Pimlico operatives. During this period, Mr Smith filed tax returns on the basis that he was self-employed. He was registered for VAT and submitted regular VAT invoices to Pimlico. In January 2011, Mr Smith had a heart attack and Pimlico subsequently terminated its arrangement with him on 3 May 2011, following which he brought claims in the employment tribunal alleging unfair dismissal, wrongful dismissal, entitlement to pay during the period of a medical suspension and failure to provide particulars of employment. These claims all depended on Mr Smith being an “employee”. At a pre-hearing review, an employment judge found that Mr Smith was not employed under an employment contract, and therefore concluded that he could not continue with these particular claims.

However, Mr Smith had also made claims for unpaid holiday pay and unlawful deductions from wages. For these purposes he did not need to show that he was an employee, just that he was a ‘worker,’ in other words, he was employed under a contract ‘whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual’. He also claimed against both Pimlico and its owner, Mr Mullins, for direct disability discrimination, discrimination arising from disability and failure to make reasonable adjustments. For these purposes, he needed to be an employee within the extended definition in the Equality Act 2010, which includes those employed under ‘a contract personally to do work’ (in other words, “workers”).

The employment judge ruled that Mr Smith was a worker and an employee in the extended sense (meaning that he could claim disability discrimination). The main purpose of the agreement he signed in 2005, and a subsequent agreement containing updated terms which Mr Smith signed in 2009, was for Mr Smith to personally provide work for Pimlico. The Pimlico manual stated that he had to work 40 hours per week (Mr Mullins’ evidence was that the minimum week in practice was 36 hours per week), and although there was some flexibility, Mr Smith was required to agree the hours he would work with Pimlico. There was not an unrestricted right to provide a substitute if Mr Smith did not want to carry out work himself at any given time: there was no such right given to Mr Smith by the contractual documents and no evidential basis for such a practice. Even though in practice engineers with Pimlico swapped jobs around between each other, and also used each other to provide additional help where more than one person was required for a job or to do a job more quickly, and there was evidence that external contractors were sometimes required to assist a job due to the need for further assistance or to conduct specialist work, the fact was that Mr Smith was under an obligation to provide work personally for a minimum number of hours per week or on the days agreed with Pimlico. Mr Smith had a degree of autonomy in relation to the estimates and work done, but Pimlico exercised very tight control in most other respects. These factors led the judge to conclude that Pimlico could not be considered to be a client or customer of Mr Smith’s business.

The Employment Appeal Tribunal (“EAT”) agreed with the employment tribunal, prompting Pimlico to appeal further to the Court of Appeal. In the CA’s view, the EAT had been correct to conclude that Mr Smith was under an obligation to provide his services personally. Unlike earlier decisions of the EAT and Court of Appeal, in which it had been held that an express right of substitution or delegation was incompatible with an obligation of personal performance, the facts here indicated that there was not an express right. Nor was there any scope for the Court to imply such a right. Furthermore, having found that Mr Smith was obliged under the terms of his agreements with Pimlico to do a minimum number of hours per week, the employment judge was correct in concluding that the degree of control Pimlico had over Mr Smith was also inconsistent with Pimlico being a customer or client of a business run by Mr Smith. In particular, the judge was entitled and right to place weight on the onerous restrictions in the agreement, preventing Mr Smith from working as a plumber in any part of Greater London for three months after termination.

What does this mean for employers?

This case provides useful guidance on the factors that may make an individual a ‘worker’ for employment law purposes, rather than a self-employed contractor. It highlights the importance of getting the paperwork right from the outset, but also that if what happens in reality is different from what is set out in any written agreement, the courts will rely on what happens in practice. The fact that the individual initially “agreed” that they were self-employed and were happy to work on that basis for many years, does not prevent them from bringing and succeeding with a claim to the contrary later down the line. This can lead to employers having to face expensive claims for back-pay (for example in relation to any unpaid holiday and sick pay) and in some circumstance will enable workers to bring successful discrimination claims. It may also encourage others within the business to follow suit.

If you regularly use self employed contractors but are unsure whether they are actually workers or employees, please do get in touch.