28th June 2018
The highest Court in the UK has confirmed (in a unanimous decision) that a plumber who worked for Pimlico Plumbers for 6 years, was a worker and not self-employed. Pimlico Plumbers had lost at each stage of the legal dispute leading up to the Supreme Court decision.
Even though the case was decided on its own facts, it is likely that the Supreme Court’s decision will have an influence on the other high-profile, ongoing legal disputes on worker status including those currently being appealed by Uber and Citysprint to the Court of Appeal and Employment Appeal Tribunal respectively (due to be heard later this year). It is frustrating that the decision does not set out over-arching principles or guidance for lower Courts to consider in cases of this nature, but it will put renewed pressure on the Government to take urgent steps to provide clarification on categorising workers and self-employed contractors.
We look at the key ‘need-to-know’ points for employers on this decision.
Gary Smith worked for Pimlico Plumbers as a plumber and heating engineer for six years until 2011, when he suffered a heart attack. He then asked for a three-day week but this was rejected, his rented Pimlico Plumbers’ van was taken away and he was dismissed. Pimlico Plumbers disputed that he was sacked because he wanted to work fewer days.
Mr Smith had paid tax as a self-employed person and was vat registered but he claimed that he was, in fact, a worker and was therefore entitled to certain payments such as holiday and sick pay.
The first question for the Employment Tribunal to rule on was whether Mr Smith was a worker or self-employed (as the company claimed). This is because workers do not benefit from the full range of employment rights given to employees, but they are entitled to certain ‘worker’ protections such as holiday and sick pay.
Upholding previous decisions of the lower Courts, Lord Wilson said: “Although the contract did provide him with elements of operational and financial independence, Mr Smith’s services to the company’s customers were marketed through the company.
“More importantly, its terms enabled the company to exercise tight administrative control over him during his periods of work for it; to impose fierce conditions on when and how much it paid to him, which were described at one point as his wages; and to restrict his ability to compete with it for plumbing work following any termination of their relationship.
“The dominant feature of Mr Smith’s contracts with Pimlico was an obligation of personal performance.
“We hold that the tribunal was entitled to conclude that the company cannot be regarded as a client or customer of Mr Smith. So, Mr Smith wins the case and the [Employment] Tribunal can proceed to examine his claims as a worker.”
The ultimate deciding factor in this case was that Mr Smith had a lack of control over his work. For example, he was contractually obliged to do a minimum number of hours a week and he did not have the right to use a substitute if he was not available. Moreover, he wore a Pimlico Plumbers uniform, had a tracker in his Pimlico Plumbers’ branded van and carried a Pimlico Plumbers’ ID card. His contract referred to ‘wages’, ‘gross misconduct’ and ‘dismissal’.
The Court recognised that there were some factors in Mr Smith’s case that pointed towards self-employment (e.g. that he was vat-registered and paid tax as a self-employed person) but, ultimately, the overall contract with Pimlico Plumbers was inconsistent with him being a truly independent contractor.
It is fair to say that the owner of Pimlico Plumbers, Charlie Mullins, was outraged at the Court’s decision. He commented that the claim was an “exploitation” by a “highly-paid, highly-skilled man who used a loophole in current employment law to set himself up for a double pay-day.” He claimed that Mr Smith had been quite content to be self-employed (or at least until he wasn’t) because it meant he could earn more money than operating as an employee.
It is perhaps best not to be too cynical because the UK workplace is not a free market. For every case of a well-paid contractor ‘exploiting’ the system there will be someone struggling with long, badly-paid hours in the gig economy who doesn’t have the luxury to refuse work at will or to avoid unethical hirers who misuse gaps in the legal framework. Hirers who are, arguably, undermining those ethical companies that do stick to their legal obligations.
In any event, the reality is that whether Mr Smith (or anyone in his situation) is acting disingenuously or otherwise is almost entirely irrelevant to the Court’s legal analysis of their employment status.
As he has been found to be a worker, Mr Smith’s claim for compensation can now proceed and will be heard by the Employment Tribunal probably before the end of this year.
The decision serves to highlight that the law on worker status remains in a huge state of confusion. Employers using self-employed contractors face significant challenges in properly categorising and structuring their workforce.
The Government issued a consultation under the ‘Good Work’ plan earlier this year. This was in response to the Taylor Review which considered the issue of employment status for people working in the gig economy. Many felt the consultation following the Review was a case of kicking the ball further down the tracks and we still do not know how the Government will proceed. Calls for action from employers and their representative bodies will only get louder in the wake of the Pimlico decision.
Frances O’Grady, general secretary of the TUC, has commented, “It’s time to end the Wild West in the gig economy”. Whichever way you look at it, few employers or *employees/*workers/*self-employed contractors (delete as applicable) would disagree with the overall sentiment that something needs to be done.
In our view, the two factors that are more likely than anything else to eventually drive substantive reform in this area are that, a) the Government and HMRC are potentially losing tax revenue due to current mis-classification of workers/self-employed contractors and b) they know it and are already on to it.
In what many consider to be an unashamedly audacious proposal to ‘pass the buck’ to employers, the Government has recently proposed putting the onus on private sector companies to determine whether their contractors are genuinely self-employed for tax treatment reasons. If this proposal is enacted, companies who mis-classify contractors as self-employed could bear liability for the resultant tax bill.
This is a system that has already been brought into force, despite significant objections, in the public sector.
Employers who are concerned that they may have mis-classified their contractors or ‘gig workers’ as self-employed should seek legal advice. This is a key business risk and a well-conducted risk assessment/analysis will help to establish whether the company faces potential exposure and, if so, what can be done to mitigate this.
In most cases, it will be possible to create a practical plan of action to minimise future exposure and deal with any latent exposure. As always, forewarned is forearmed.
If you would like any advice on this article please contact David Smedley or Andrew Rayment.