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July 11 2018
In the latest major development in a series of cases on employment status, the Supreme Court rejected an appeal by Pimlico Plumbers and confirmed that a self-employed plumber should have been classed a worker.(1)
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?".
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:
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.
The Court of Appeal focused on two key issues:
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.
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:
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:
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:
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.
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:
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 (email@example.com). The Lewis Silkin website can be accessed at www.lewissilkin.com.
(1) Pimlico Plumbers Ltd v Smith  UKSC 29.
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