13 February 2017

A recent Court of Appeal ruling looks set to help protect the rights of workers engaged in the emerging “gig economy”.

In Pimlico Plumbers Ltd and Anor v Smith, the Court of Appeal has upheld the decision of the Employment Appeal Tribunal that a plumber, who had signed a contract suggesting that he was self-employed, was in fact a ‘worker’.

Mr Smith worked as a plumber for Pimlico Plumbers Ltd for 6 years. The contract governing their relationship described him as a “self-employed operative”. Mr Smith was required to work a minimum number of working hours each week, wear a uniform (which displayed Pimlico’s logo) and use a branded van leased from Pimlico for his work, giving the impression he was employed by the company. The contract restricted his ability to work for himself or other companies and provided that he could only swap jobs with other Pimlico operatives. However, he could choose when he worked, which jobs he accepted and was required to provide his own tools and equipment. He also filed self-employed tax returns, dealt with his own insurance, was VAT registered and submitted regular VAT invoices to the company.

Mr Smith suffered a heart attack, following which he sought to reduce his working days. The company refused, subsequently terminating its arrangement with Mr Smith. Mr Smith sought to challenge this, bringing a number of claims in the Employment Tribunal including unfair dismissal, wrongful dismissal, entitlement to pay during medical suspension, holiday pay, wages, disability discrimination and failure to provide written particulars of employment. This raised issues regarding his employment status.

You will recall that UK employment law provides different levels of protection for employees, workers and self-employed contractors, with employees enjoying the greatest protection. Workers have more limited rights and do not, for example, have the right not to be unfairly dismissed. Workers do, however, have more employment rights than self-employed contractors, including the right not to be unlawfully discriminated against, and the right to receive the national minimum wage as well as paid holidays.

The Employment Tribunal decided that Mr Smith was not an employee (and so could not claim unfair dismissal), essentially because there was no obligation on the company to provide any work and the obligation to pay was limited. However, it held that he was a worker under section 203(3) of the Employment Rights Act 1996 and also in “employment” under section 83(2) of the Equality Act 2010 meaning that it had jurisdiction to hear the claims of disability discrimination, holiday pay and unlawful deduction of wages. On appeal, the Employment Appeal Tribunal upheld this decision.

Pimlico appealed to the Court of Appeal. Last week, the Court of Appeal dismissed the appeal, holding that the original Tribunal had been right to regard Mr Smith as “an integral part of [Pimlico Plumbers'] operations and subordinate to [it]”. The Master of the Rolls observed that “the case puts a spotlight on a business model under which operatives are intended to appear to clients of the business as working for the business, but at the same time the business itself seeks to maintain that, as between itself and its operatives, there is a legal relationship of client or customer and independent contractor rather than employer and employee or worker.”

The Court of Appeal stated that in the context of section 203(3)(b) of the Employment Rights Act 1996, Regulation 2 of the Working Time Regulations 1998 and section 83(2) of the Equality Act 2010, a distinction is to be drawn between:

1. Persons employed under a contract of service;
2. Persons who are self-employed, carrying on a profession or a business undertaking on their own account, and who enter into contracts with clients or customers to provide work or services for them; and
3. Persons who are self-employed and provide their services as part of a profession or business undertaking carried on by someone else

concluding that the Employment Tribunal had correctly concluded that Mr Smith fell into category 3 rather than category 2.

This is an interesting decision as unlike earlier decisions where it has been held that an express right of substitution or delegation was incompatible with an obligation of personal performance, the facts of the present case suggest that there was no such express right nor was there any scope to imply such a right in Mr Smith’s contract. The Court of Appeal found that Mr Smith was obliged to work a minimum number of hours per week and held that the degree of control exercised by the company over him was inconsistent with the company being a customer or client of a business operated by Mr Smith. It further held that the Tribunal had been correct to place weight on the onerous post-termination restrictions contained in the agreement between the parties which prevented Mr Smith from working as a plumber within a restricted area for three months post termination.

Unlike other recent high-profile cases, this decision is binding on other courts and tribunals and is likely to be a key authority in forthcoming cases involving the “gig economy”.

This is an interesting decision and serves as a timely reminder of the importance of correctly classifying and identifying individuals’ employment status. Mistakes can be costly (in terms of defending litigation and liability for tax, national insurance, penalties and interest) and could lead to adverse publicity for your business. As ever, taking early legal advice is advisable in this complex and fast-developing area of law.

Contact: Lesley Grant Associate ljg@bto.co.uk T. 0141 221 8012