Self employed rights and the whole question of the gig economy has been raised once more in a recent case. Whilst contracting people who are self employed may suit some companies in terms of providing flexibility, are the savings on items such as sick pay worth it?
In the recent case of Pimlico Plumbers Ltd v Smith, the Court of Appeal has decided that Gary Smith, a plumber, who was self-employed for tax purposes, was nevertheless a ‘worker’ within the meaning of the Employment Rights Act 1996 and the Working Time Regulations 1998 and an ‘employee’ under the extended definition of that term in the Equality Act 2010.
Gary worked solely for PP Ltd between 25 August 2005 and 28 April 2011. He signed an agreement that bound him to terms and conditions set out in PP Ltd’s “Manual”, which included rules about working hours, uniform and appearance; prevented Gary working for himself or other companies; required him to use a PP Ltd van for his work; and only allowed him to swap jobs with other PP Ltd operatives.
Gary was happy with this arrangement. He filed his self-employed tax returns, registered for VAT and happily submitted regular VAT invoices to PP Ltd. Then things went wrong for Gary. He had a heart attack in January 2011 and PP terminated its arrangement with him on 3 May 2011.
Understandably unhappy about this, Gary sued PP Ltd in the employment tribunal alleging unfair dismissal, wrongful dismissal, entitlement to pay during the period of a medical suspension and failure to provide particulars of employment. The success of these claims depended on Gary being an employee employed under a “contract of service”.
Initially, an employment judge held that Gary was not employed under such a contract, and correctly concluded that the tribunal had no jurisdiction to hear these claims. However, Gary pressed on and also made claims for unpaid holiday pay and unlawful deductions from wages.
He did not need to be an employee to successfully bring these claims, he only needed to be a ‘worker’, under a contract ‘whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual’.
Gary also claimed against both PP Ltd and its owner, millionaire Rod Stewart lookalike, Charlie Mullins, for direct disability discrimination, discrimination arising from disability and failure to make reasonable adjustments. For these purposes, he needed to be an employee under the Equality Act, which includes those employed under ‘a contract personally to do work’.
The employment judge held that Gary was a worker and an employee in the extended sense. The main purpose of the agreement between him and the company, was for Gary to personally provide work for PP Ltd. The Manual obliged him to work 40 hours per week, and although there was some of that flexibility he liked, he was required to agree the hours he would work with PP Ltd.
There was no unfettered right to substitute another plumber and it appeared that this never happened anyway. Gary was expected to provide work personally for a minimum number of hours per week or on the days agreed with PP Ltd and while Gary had some control over the cost of the work he did, PP Ltd exercised very tight control in most other respects.
At the Court of Appeal, the Master of the Rolls, Sir Terence Etherton, stressed that ‘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’.
The question posed by the appeal was whether Gary fell into category (3) rather than category (2).
In Sir Terence’s view, it was correct to conclude that Gary was under an obligation to provide his services personally. The facts of this case were that there was no express right of substitution or delegation, which in the past has made such arrangements incompatible with an obligation of personal performance. Nor was there any scope for the Court to imply such a right.
Furthermore, having found that Gary had to do a minimum number of hours per week, the degree of control exercised by PP Ltd over him was also inconsistent with PP Ltd being a customer or client of a business run by Gary. In particular, there were onerous restrictive covenants in the agreement, precluding Gary from working as a plumber in any part of Greater London for three months after termination.
So what does all this mean? Well, it shows that the employment tribunals are willing to confirm worker status and that avoidance measures wrapped up in contracts are likely to fail where the reality is that an individual spends all of their working time undertaking work for one company.
In a similar vein, Uber is currently appealing against a landmark employment tribunal ruling that its minicab drivers should be classed as workers with the accompanying benefits that this status brings such as access to the minimum wage, sick pay and paid holidays. Thus, the trend is clearly towards finding in favour of worker status so that people like Barry receive some of the same protection afforded to their employed colleagues.
That said, it is unlikely to spell the end of these contracting business models as so much depends on the detail and a slight difference in the wording of the contract or the working arrangements and the outcome may be completely different.
While it is likely that thousands of plumbers and other tradesmen will continue to work like Gary, such practices will not escape regulation forever as more and more people assert their rights as workers and employees and businesses change to avoid the legal and reputational repercussions.
This decision is a stark warning to businesses to take particular care with written and practical arrangements with staff when seeking to establish the status of their workforce.
It also reinforces the difficulty for businesses wishing to balance a flexible workforce against the need to retain consistent business practice. Whilst definitely a blow for some employers, this decision reinforces the current legal test on the issue of employment status.
For clarity and help with this and any issue on employment rights or self employment rights, please contact the employment team at Clarion on 0113 246 0622.
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