The Supreme Court has refused to allow Pimlico Plumbers’ appeal against the Court of Appeal’s decision that plumber and heating engineer Mr Smith was a “worker” with the associated rights.
Many employers were awaiting the outcome of the Supreme Court decision before revising working arrangements and contractual documentation that have been called into question as a result of the earlier cases on worker status. This issue should now be addressed without further delay, to manage the risk of claims. Employers are advised to carry out an audit of working arrangements, if they have not already, to identify and address any issues.
Mr Smith was engaged as a “self-employed contractor” by Pimlico Plumbers. Common features of a self-employed relationship were present: he invoiced Pimlico Plumbers, he was responsible for his own income tax and national insurance and was VAT registered, Pimlico did not supervise or otherwise interfere with the manner in which he did his work and he bore financial risk. Mr Smith had some (albeit limited) right of substitution and he had a conditional right to turn down work and accept work from elsewhere.
Notwithstanding this the Supreme Court agreed with the Employment Tribunal’s finding that the relationship was not one of an independent contractor and Mr Smith was in fact a worker.
Key reasons for decision:
- Personal performance was a dominant feature of the arrangement. Emphasis was placed on the reference to “you” and “yours” in the contract. A limited right of substitution to an alternative Pimlico operative (likened by the Tribunal to swapping shifts) did not negate this.
- The level of control by Pimlico Plumbers over Mr Smith was inconsistent with being self-employed. This included the requirement to wear a uniform and drive a Pimlico Plumbers branded van, carry an identity card and follow administrative instructions.
- Pimlico had tight grips over when and how Mr Smith was paid.
- The contract made reference to “wages”, “gross misconduct” and “dismissal”.
- Mr Smith was subject to restrictive covenants including a three-month non-compete restriction following termination.
As a result of this decision Mr Smith can pursue his claims for disability discrimination and holiday pay.
This is the first time that the Supreme Court has considered the question of employment status in the “gig economy” era. It has endorsed the approach taken by the lower Courts and implicitly reinforced the decisions in other recent cases (e.g. Deliveroo, Uber) which can be summarised as follows:
- we must look beyond the contractual documents and the parties’ labelling of the relationship to determine its true status;
- artificial or “choreographed” contractual relationships will be easily seen through, as will devices such as invoicing or payment mechanisms;
- key elements of the test are:
- the degree of control over the individual;
- the individual’s integration into the workforce; and
- whether or not the individual genuinely markets their services to the world at large;
but other factors can and will be taken into account.
None of this is new and indeed the decisions by the Courts and Tribunals over the last few years show a high level of consistency and clarity in this area.
On a wider note, the continuing stream of Court decisions in response to evolving business models and working practices, together with proposed changes to the IR35 rules and other proposed legislation, will bring about a significant restriction on the range in which self-employment can be genuine.
We advise that all relationships with “self-employed contractors”, “consultants”, “freelancers”, “independent contractors” and similar are audited and that contractual documentation is reviewed.
To discuss this, or any other employment status issues, please contact us.