On 13th June 2018, the Supreme Court handed down its judgment in the appeal of Pimlico Plumbers Ltd and another v Smith determining that a plumbing and heating engineer who worked under a contract describing him as a self-employed operative was in fact a worker within the meaning of Section 230(3) of the Employment Rights Act 1996.
This judgement, by the UK’s highest court, is the latest in a line of comparable rulings involving high profile businesses, such as Deliveroo and Uber. The bearing of these rulings on businesses operating in a gig-economy is disconcerting as they could be exposed to potential claims from individuals seeking entitlement to certain additional employment rights such as holiday pay, the right to be protected from discrimination and protection against deduction of wages.
Generally, individuals providing services fall into three categories: employees, workers and self-employed contractors. Employees potentially benefit from all employment rights, workers benefit from a mediocre level of employment rights and self-employed contractors benefit from few employment rights. The distinction between the three categories can be ambiguous due to there being no legal definition of ‘self-employed’ and the definitions of ‘employee’ and ‘worker’ differing under employment and tax legislation.
Under Section 230(3) of the Employment Rights Act 1996, a 'worker' is defined as being an individual who has entered into or works under (1) a contract of employment, or (2) any other contract, express or implied, under which the individual undertakes to do or perform any works or services for another party to the contract whose status is not by virtue of the contract that of a customer of any profession or business undertaking carried out by the individual.
For many years it has been recognised that there are certain self-employed individuals whose services are so integrated into the business of others that they should be afforded additional employment protection.
Mr Smith worked for Pimlico Plumbers between August 2005 and April 2011. Mr Smith was required to wear a Pimlico branded uniform, had to carry a company identity card, used a Pimlico branded van and was required to closely follow the administrative instructions of the company’s control room. Throughout his employment with Pimlico, Mr Smith worked solely for them, retained control over which jobs to accept and the length of his working hours and could also decide how much work was required for a customer and whether the price should be negotiated. In 2011, Mr Smith was dismissed by Pimlico following his attempt to reduce his working hours after suffering a heart attack.
Mr Smith submitted a claim to the Employment Tribunal following his working arrangement with Pimlico being terminated and successfully argued before an Employment Tribunal, the Employment Appeal Tribunal and the Court of Appeal that he was a worker. Despite the fact that Mr Smith filed tax returns on the basis that he was self-employed and was VAT registered, the Supreme Court unanimously upheld the decision of the Court of Appeal that Mr Smith was a worker. In forming its decision the Supreme Court relied on the fact that the dominant feature of Mr Smith’s contract with Pimlico was an obligation of personal performance. Self-employed individuals normally have an unrestricted right of substitution. Whilst Mr Smith could utilise a substitute it had to be another Pimlico operative and therefore this was more akin to swapping a shift between workers than providing a substitute. The Supreme Court also found that although Mr Smith had a degree of operational and financial independence, his services were marketed by the company and he was subject to the company’s rigid control (in respect of his uniform, the company’s administrative control and payment terms) and therefore Pimlico was not a customer or client of Mr Smith. While there was no mutuality of obligation for work to be provided and accepted, Mr Smith was required to notify the Company in good time of days on which he would be unavailable for work. His contract also referred to ‘wages’, ‘gross misconduct’ and ‘dismissal’ and referenced various restrictive covenants limiting his working activities immediately following termination.
The Supreme Court’s decision will allow Mr Smith to proceed with claims of disability discrimination, unlawful deduction from wages and holiday pay against Pimlico. Meantime, a number of other cases concerning employment status continue to make their way through the courts.
While each case will be determined on its own facts, it is evident that where a company retains significant control over how an individual works and where there is no or limited right of substitution, the individuals they engage may be considered workers and will benefit for additional legal rights and protections, no matter what label any contract may apply to the relationship.