Background

An individual’s employment status is important because it governs the legal rights for which they qualify. An “employee” is entitled to the full range of rights, including unfair dismissal protection, maternity/paternity leave and sick pay, whereas a “worker” has a more limited set of rights such as the national minimum wage and holiday pay. Genuinely self-employed contractors have fewer legal rights, but enjoy the benefit of different tax treatment and the flexibility of working for themselves. To add to the confusion, a wider definition of “employment” applies for the purposes of protection from discrimination, which is essentially the same as the definition of a worker.

There are various tests for deciding into which of these categories an individual falls. This depends on the facts of the relationship in practice, and it can be difficult for companies to know for sure whether an individual has been categorised correctly. The recent emergence of the “gig economy”, based on apps and other technological platforms, has brought this issue to the fore. While gig economy businesses generally deem these service-providers to be self-employed, Uber, Citysprint and Addison Lee have all been on the wrong end of decisions that individuals were “workers” and so entitled to additional rights. The vexed question of employment status was also one of the main issues considered in the Taylor Review.

Facts of the case

Gary Smith worked exclusively for Pimlico Plumbers (“Pimlico”), having signed an agreement which stated that he was “an independent contractor of the Company, in business on your own account”. There was also a company manual which referred to a 40-hour working week, although the agreement itself stated that there was no obligation to provide or accept work. Mr Smith was registered as self-employed, but his contract imposed various requirements on him. These included that he should drive a branded van with a tracker, wear a branded uniform, carry a Pimlico ID card, and follow administrative instructions from the control room.

Six years after having started work, Mr Smith suffered a heart attack and decided that he wanted to reduce his working days from five to three. Pimlico refused his request, took away the branded van and terminated its agreement with him.

Mr Smith brought various claims before the Employment Tribunal (“ET”). It found that he did not fall within the narrower definition of “employee”, but he was both a worker and in employment for the purposes of discrimination law, based on the facts of how he worked in practice. This meant that he was entitled to pursue claims for disability discrimination, holiday pay and arrears of pay. The Employment Appeal Tribunal upheld this ruling, as did the Court of Appeal (“CA”). 

The CA focused on two key issues - whether Mr Smith was obliged to provide his services personally, and whether Pimlico was a customer of a business operated by Mr Smith. It decided that Mr Smith was obliged to provide his services personally, as he had no unfettered right of substitution if he could not or did not want to carry out the work. The CA also concluded that Pimlico was not a customer of Mr Smith’s business, as in practice he was obliged to work minimum hours.

Pimlico appealed to the Supreme Court (“SC”). This ruling has been eagerly awaited, as it was an opportunity for the highest court in the land to clarify the confusing issue of employment status.

The Supreme Court’s judgment

In a unanimous judgment, the SC upheld the previous decisions. It ruled that the ET had been entitled to find that Mr Smith was a worker, and that he was in employment for the purposes of protection from discrimination.

The SC focused on the two main tests that had been considered throughout the case – whether Mr Smith was obliged to carry out his services personally, and whether Pimlico was a client or customer of Mr Smith’s business.

• In relation to personal service, the SC said that the ET had been entitled to conclude that Mr Smith’s contract involved an obligation of personal performance. Although there was a right to appoint a substitute, this was limited. In particular, any substitute had to be another Pimlico operative, and Mr Smith was not free to use any substitute he wished. The contract was also directed at performance by Mr Smith personally - referring to his skills, a warranty that he was competent to carry out the work, and requirements to have a high standard of conduct and appearance. As any substitute had to be another Pimlico operative, they would also be bound by these conditions.
• In relation to whether Pimlico was a client or customer of a business operated by Mr Smith, the SC decided that the ET had been entitled to conclude that this was not the correct analysis of the situation. On the facts, there was a finding that Pimlico was obliged to offer work if it was available, and Mr Smith was obliged to keep himself available to work up to 40 hours a week. The SC noted the tight control that Pimlico had over Mr Smith, including the requirements about branding, the van tracker, ID card and following instructions. In addition, the SC referred to “severe” terms about when and how much Pimlico were obliged to pay him, including no payment at all until the client had paid Pimlico, as well as references in the contract to terms such as “wages”, “gross misconduct” and “dismissal”.

Implications

Anyone who was hoping that the SC would radically change the approach towards employment status in this judgment will be disappointed. A succinct summary of the decision could be: “the ET was entitled to reach this decision on the facts, applying the existing law on this topic”. 

As with so many employment status cases, the outcome turns on the facts of how the working relationship between the parties operated in practice, which makes it difficult to draw general conclusions. Similar facts might lead to a different result in another case. Nonetheless, there are some interesting features of the SC’s judgment which may help to guide the outcome in other cases:

• In relation to personal service, the SC suggested that in some cases it may be appropriate to consider whether the “dominant feature of the contract” was personal performance. This confirms that some factors (such as limited substitution rights to colleagues) may suggest self-employment, but an individual will still be a worker if the facts overall weigh more heavily in favour of the obligation to do the work personally.
• On the topic of substitution, the SC focused on whether the other party was “uninterested” in the identity of the substitute. It was fatal to Pimlico’s case that the right to substitute only applied to other Pimlico operatives. The implication is that this type of limited right of substitution will not be enough to defeat an obligation of personal service, particularly where other wording in the contract places clear personal obligations on the individual. This suggests that only a right of substitution that is both genuine and unfettered is likely to count towards self-employment – essentially, where the company does not care who does the work, so long as it gets done. Indeed, this lack of control over substitutes was key to the success of Deliveroo in resisting a union application for its riders.
• The SC referred to various previous cases on the question of whether a company is a client or customer of an individual’s business. The key focus is whether the individual actively markets his or her services as an independent person to the world in general, or whether he or she is recruited to work as an integral part of the principal’s operations. As noted above, the SC relied on various factors as showing that Mr Smith was in practice controlled by Pimlico and so an integral part of Pimlico’s business.
• The SC was also critical of the unclear contractual arrangements, noting that Pimlico “put before the tribunal an irrelevant contract, cast in highly confusing terms, and now complains that the tribunal’s interpretation of them was highly confused”. This acts as a reminder that courts and tribunals will be deeply unimpressed by unclear contracts, and the onus is always on the company to set out clear and coherent terms if it wishes to rely on them as supporting genuine self-employment.
• One final legal point: the SC did confirm that the tests for a “worker” and for “employment” under the Equality Act are the same under current interpretation of the law, even though the actual wording of the legislation in question is different.

Overall, the SC declined to take the opportunity to clarify or change this confusing area of law any further. It does note the problems caused by definitions of employment status, at one point commenting: “It is regrettable that in this branch of the law the same word can have different meanings in different contexts. But it gets worse. For, as I shall explain, different words can have the same meaning”. Confusing indeed!  On its facts, however, this case did not require anything more complicated than an application of the existing law.

Although this was not a case about the gig economy, it will have some implications for those cases as well as more general issues around employment status. The position essentially remains the same, in that it all depends on the reality of the relationship in practice. This means that it will continue to be difficult for parties to be sure about the correct categorisation of status in the more borderline cases.

This somewhat unsatisfactory situation is likely to continue unless the Government acts on the recommendations of the Taylor Review and carries out an overhaul of the legislation on employment status (but don’t hold your breath…)

Pimlico Plumbers Ltd and another v Smith [2018] UKSC 29 – judgment available here