As we have previously predicted, employment status is set to become 2017’s employment law hot topic.
After the key decision in the Uber case at the back end of 2016, the government has launched the Taylor review into the “gig economy” and also this week published a consultation paper into employment status which was produced in March 2015.
Whilst developments relating to employment status are focussing on the so called gig economy, more traditional business models are also coming under scrutiny. This is highlighted by the decision of the Court of Appeal handed down today (10 February), in which the Court found that a supposedly self-employed plumber was in fact a worker.
Pimlico Plumbers Limited and A N Other v Gary Smith
Mr Smith was a plumber who carried out work for Pimlico from August 2005 until April 2011, having suffered a heart attack in January 2011. He claimed that he was unfairly and wrongfully dismissed, not paid holiday pay, subjected to disability discrimination and that Pimlico made unlawful deductions from his wages.
Pimlico operate a plumbing and maintenance business and at the time of the original employment tribunal decision had 75 office and staff and 125 purported self-employed contractors carrying out plumbing and maintenance on its behalf.
Mr Smith entered into an agreement in 2005 with Pimlico on Pimlico’s standard form which described him as a subcontracted employee. The terms of his engagement were governed by the company procedures and working practice manual, which required Mr Smith to wear the company uniform and to keep it clean. It set out that his normal working hours consisted of a 5 day week requiring him to complete a minimum of 40 hours. It set out that adequate notice must be given to the control room for any annual leave, time off, or any other period of unavailability, which could only be taken in full days. It also said that the must be available during shifts to take “on-call work”. All of his scheduled appointments were dealt with through the control room and there were detailed requirements in relation to timesheets, invoices, estimates and additional labour charges.
Mr Smith had to take on some risk. If Pimlico were not paid by customers, he would not be paid by Pimlico. Mr Smith also had to purchase materials to undertake the work before selling it on with a fixed mark-up.
Mr Smith was subjected to restrictive covenants and prevented from doing private work for Pimlico customers. He was provided with a mobile phone and a Pimlico van but the cost of these was subtracted from any fees due to Mr Smith.
The issue of Mr Smith’s employment status arose as part of his Employment Tribunal claim, as he could only succeed with his unfair dismissal and wrongful dismissal claims if he was an employee. The remaining claims required him to show that he was a worker. The Employment Tribunal found at a preliminary hearing that Mr Smith was a worker for the purpose the Employment Rights Act 1996 but was not an employee.
The tribunal found that Mr Smith was not an employee because there was no legal obligation for Pimlico to provide Mr Smith with work and in cases where Pimlico did not receive payment from customers, there was no obligation for Pimlico to pay Mr Smith for the work undertaken. The obligation to provide work and receive pay are what is known as the “irreducible” minimum for an employee relationship to exist.
The tribunal found that Mr Smith was a worker on the basis that:
- The contractual arrangements provided for Mr Smith to personally provide work for Pimlico.
- The Manual obliged him to work a minimum number of hours per week on days agreed with Pimlico.
- Engineers had to discuss and agree their working hours with Pimlico.
- He could not provide a substitute without permission from Pimlico.
- Pimlico exercised tight control on his ability to compete.
- Pimlico couldn’t ever be considered a client or customer of Mr Smith and is better characterised as a principal.
- Mr Smith was an integral part of Pimlico’s operations and he was subordinate to them. He was not in business on his own account.
The Employment Appeal Tribunal and then the Court of Appeal both upheld the decision of the Employment Tribunal.
A key point in this case was the requirement to perform the work personally, which would ordinarily point towards an individual being a worker. The Court of Appeal took the opportunity to summarise the key principles to consider when assessing whether someone is under an obligation to perform work personally.
- If there is unfettered right to provide a substitute to do the work, there isn’t a requirement to perform the work personally.
- A conditional right to provide a substitute has to be assessed on its facts in light of the contractual and practical arrangements.
- The right of substitution only where the individual is unable to carry out work will usually mean that the individual is still required to carry out the work personally.
- A right of substitution where the individual has to evidence that the substitute is at least as qualified as the individual means there are not required personally to perform the work.
- A right of substitution only with the unqualified consent of another person will mean that the work is being performed personally.
The decision means that Mr Smith can pursue the claims requiring him to be a worker.
This case focuses on a fairly typical business model whereby operatives are held out to the public and customers as operating on behalf of a business but the arrangements as between the business and the operative are such that they are considered to be self-employed.
This case represents another example of so called self-employed contractors being held to the workers, entitling them to entitlements such as holiday pay, minimum wage and protection from discrimination.
We will be covering employment status at our forthcoming employment law seminars.
If you require advice on employment status or have any other HR queries please do not hesitate to contact Joanne Holborn, Tom Scaife or Caroline Rayner on 01228 552600 or 01524 548494.