Pimlico Plumbers are workers not self-employed

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, holiday pay and protection from discrimination. Genuinely self-employed contractors have fewer legal rights but enjoy the benefit of different tax treatment and the flexibility of working for themselves. It is not enough to look at the label given in an agreement when determining an individual’s employment status, and there are many factors which may need to be considered.

The recent emergence of the “gig economy”, based on apps and other technological platforms, has brought this issue to the fore. The gig economy is typically characterised by a volume of short-term contracts or freelance work, as opposed to permanent employment. It can offer flexibility in terms of working hours but, instead of a regular wage, workers generally get paid for the individual jobs they carry out. 

This type of flexible arrangement is beneficial to businesses as they only pay individuals when there is demand for the service and do not need to incur costs during quiet periods. While gig economy businesses generally deem these service providers to be self-employed, both Uber and Citysprint have recently been in the headlines following Employment Tribunal findings that individual drivers and couriers were “workers”. This rapidly growing industry sector engages individuals in a way that does not sit comfortably within the traditional employment status categories.

Although the latest case involved a plumbing company and not “gig economy” work, it deals with similar issues in the complex area of flexible working and employment status.

Facts of the case

Gary Smith worked exclusively for Pimlico Plumbers, 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 hired a branded van from the company and was registered as self-employed. 

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 Plumbers refused his request, took away the branded van and terminated its agreement with him.

Mr Smith brought claims for unfair dismissal, wrongful dismissal, sick pay, holiday pay, arrears of pay and disability discrimination. The Employment Tribunal found that he was not an employee of Pimlico Plumbers and a number of his claims were dismissed. However, looking at the facts of how Mr Smith worked in practice, the Tribunal found that he was a worker. This meant that he was entitled to pursue his claims for disability discrimination, holiday pay and arrears of pay. The Employment Appeal Tribunal upheld this ruling, and Pimlico Plumbers appealed to the Court of Appeal. 

The Court of Appeal’s judgment

Although Mr Smith had registered as self-employed and paid his own taxes, the Court of Appeal agreed with the previous decisions and ruled that he should be legally classed as a worker. This turned on two issues:

• whether Mr Smith was obliged to provide his services personally
• whether Pimlico Plumbers was a customer of a business operated by Mr Smith.

On the first issue, the Court of Appeal decided that Mr Smith was obliged to provide his services personally. The Court held that to be a genuinely self-employed contractor, an individual would need an unfettered right of substitution; a conditional right of substitution may also suffice depending on the conditionality. This did not, however, happen at Pimlico Plumbers. There was no example of a plumber ever having sub-contracted all of their work to an external plumber and no right to do so was contained in the written agreement or company manual. There was a limited informal right to swap jobs within the pool of other Pimlico plumbers, but this was more akin to the swapping of shifts than an actual right of substitution. 

In relation to whether Pimlico Plumbers was a customer of Mr Smith’s business, the key issue was whether he was obliged to work minimum hours. If so, this would be inconsistent with him running his own business under which he could fully control his own work. The Court of Appeal agreed with the Employment Tribunal’s findings that Mr Smith was required to work a 40-hour week. Although the written agreement stated that he had no obligation to accept work when offered to him, a minimum five-day and 40-hour week was set out in the company manual. The provisions in the agreement that he could reject work did not, in fact, reflect the day-to-day reality because of his minimum contracted hours.  

Implications

This case turned 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. The Court of Appeal’s judgment also confirms that these issues are often problematic, with one of the judges commenting “I have not found the case entirely straightforward”.

Nonetheless, the judgment does confirm that complex contractual drafting designed to avoid worker status will not necessarily be successful if it does not reflect the reality, particularly if the individual spends their whole time working under the control of one company. Pimlico Plumbers encountered particular difficulty here because its written agreement with Mr Smith and the company manual said different things – the Court commented on the “contradictory and ill-thought-out contractual paperwork”. Businesses should heed the warning and be careful when drafting agreements, while also being aware of their practical, day-to-day arrangements with individuals. 

The Court of Appeal expressly noted that this case “puts the spotlight” on a business model under which individuals are intended to appear to clients as working for the business, but at the same time the business itself seeks to maintain that those individuals are independent contractors rather than employees or workers. This is the essence of the problem that has been highlighted by the gig economy cases. 

The Government has commissioned an independent review into modern working practices including the gig economy, led by Matthew Taylor, the chief executive of the RSA (Royal Society for the encouragement of Arts, Manufactures and Commerce). Meanwhile, the Department for Business, Energy and Industrial Strategy has published the outcome of its own 2015 Employment Status Review. This examined various issues but has provided no real solution, concluding that “a great deal more consultation and analysis is required before action can be taken to ensure that in attempting to fix one issue, we don’t inadvertently create another”.

While Charlie Mullins, the managing director of Pimlico Plumbers, has said that he is likely to take the case to the Supreme Court, it is unlikely the company would be given leave to appeal further. Meanwhile, Uber has lodged its appeal against the Employment Tribunal’s finding that one of its drivers was a worker. In particular, the Notice of Appeal criticises the Tribunal’s willingness to set aside the written agreement between the parties and its finding that the drivers were required to work for Uber when logged into the relevant app.

Given the on-going legal challenges to gig economy working, combined with the fact that an estimated five million people in the UK work in this kind of way, the issue of how the law should regulate employment status is certain to remain a hot topic for the foreseeable future. 

Pimlico Plumbers Ltd and another v Smith [2017] EWCA Civ 51 – judgment available here