Employment Team Briefing on the Implications for businesses of the Supreme Court Ruling in Pimlico Plumbers Ltd & anor v Smith.
Between August 2005 and April 2011 Mr Smith, a Plumbing and Heating Engineer by trade, did work for Pimlico Plumbers (Pimlico), which conducts a substantial plumbing business in London and is owned by a Mr Mullins, a self-made, multi-millionaire with an estimated net worth in excess of £120,000,000.
Mr Smith had signed an agreement with Pimlico Plumbers which described him as a self-employed operative. He only worked for Pimlico Plumbers but could reject particular jobs and could make a decision about when to go home on a working day. He decided his working hours and provided his own tools and material. Pimlico Plumbers had no obligation to provide him with work and if there was not enough work he would not be paid. He was responsible for his own tax and NI and was VAT registered. He wore Pimlico’s uniform and drove Pimlico’s branded vans. In 2011 he had a heart attack and was then dismissed apparently after he had sought to reduce his days at work from 5 to 3 because of his health condition.
Mr Smith brought various claims including for unfair dismissal. He also claimed against both Pimlico Plumbers and Mr Mullins for direct disability discrimination, discrimination arising from disability and failure to make reasonable adjustments.
The Employment Tribunal had to decide as a preliminary issue if Mr Smith was genuinely self-employed as Pimlico Plumbers asserted, or whether he was in fact an employee or a worker of Pimlico, or if his working situation met the definition of “employment” in section 83(2) (a) of the Equality Act 2010.
“Employment” for the purposes of discrimination legislation has an extended meaning and includes employment under a contract of employment, a contract of apprenticeship or a contract personally to do work. This extended definition covers employees, workers and some self-employed individuals.
The Tribunal decided he was not an employee of Pimlico, but that he was a worker and that he met the definition of employment within the Equality Act. This meant that while he could not claim unfair dismissal (because that is a right that is available only to employees) he could claim direct disability discrimination, discrimination by reason of failure to make reasonable adjustments and for unpaid holiday, as well as in respect of unauthorised deductions from wages.
Mr Smith has been unable to progress any of these claims further in the Employment Tribunal since 2011 because the decision of the Tribunal has been the subject of an appeal on his behalf against the finding that he was not an employee of Pimlico and therefore entitled to complain that he had been unfairly dismissed, as well as an appeal by Pimlico and Mr Mullins in respect of the Tribunal’s findings that he was entitled to progress with his other claims.
In 2014 the Employment Appeal Tribunal dismissed Mr Smith’s appeal and he has not sought further to challenge that, but Pimlico and Mr Mullins have taken their challenges in respect of the original Tribunal judgment to the Employment Appeal Tribunal, the Court of Appeal and finally to the Supreme Court, which in a ruling published on 13 June 2018, held that the Employment Tribunal had been entitled to conclude as it did that he was a worker as defined in section 230(3)(b) of the Employment Rights Act 1996 and the Working Time Regulations 1998 and in employment for the purposes of the Equality Act 2010. Unless the case is settled, which seems unlikely given the tenacity of both parties, it will now go back to an Employment Tribunal to determine if any of his claims can be upheld and if so what compensation he is entitled too as a result.
Mr Mullins has spoken publicly on a number of occasions to say that it is an injustice to business owners to engage independent contractors who have all the tax benefits available to those in business on their own account, only to then have those persons seek to assert additional rights if the relationship sours and for such rights to be upheld by the courts.
The Supreme Court judgment notes however that as long ago as 1875 Parliament identified an intermediate category of working people falling between those working as employees under a contract of service and those who worked for others as independent contractors. From 1970 onwards Parliament has taken the view that, while only employees under a contract of service should have full statutory protection against various forms of abuse by employers of their stronger economic position in the relationship, there were self-employed people whose services were so largely encompassed within the business of others that they should have also have limited protection, in particular against discrimination, but also certain forms of exploitation on the part of those others. So in 1970 Parliament passed the Equal Pay Act which obliged employers to offer any woman whom they “employed” terms equal to those upon which they “employed” men for the same or equivalent to work and it defined the word “employed” as being under a contract of service, or of apprenticeship, or a contract personally to execute any work or labour. In section 230(3) of the Employment Rights Act “a worker” is defined to include not only an employee under a contract of service, but also an individual who has entered into or works under any other contract where by the individual undertakes to 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 professional or business undertaking carried on by the individual. Regulation 2 (1) of the Working Time Regulations defines a “worker” in terms identical to those in section 230 (3) of the Employment Rights Act.
The Supreme Court noted that Mr Smith made two written agreements with Pimlico Plumbers the first dated 25 August 2005 and the second (which replaced the first) made on 21 September 2009. The Supreme Court found these agreements to be puzzling in places because on the one hand Pimlico wanted to present their operatives to the public as part of its workforce, but on the other it wanted them to render themselves as self- employed and in business on their own account. The contractual documents had been carefully “choreographed” to serve these inconsistent objectives.
The conclusion that was formed was that the main purpose of the contractual documentation was for Mr Smith personally to provide work for Pimlico Plumbers therefore satisfying the key elements of the “worker” definition. Although individual plumbers working for Pimlico were able to swap assignments, that was, at most, an informal concession. Mr Smith was not in business on his own account such as to negate him having worker status under section 230(3) (b) of the Employment Rights Act. He was an integral part of Pimlico’s operation and subordinate to it. Mr Smith was a worker unless it could be said that Pimlico ’s status was that of a client or customer of Mr Smith. On that question the Supreme Court noted the Tribunal had legitimately found that there was an umbrella contract placing a continuing obligation on Mr Smith to make himself available for work. Pimlico Plumbers argued that, despite that obligation, Mr Smith was entitled to reject work and was free to take outside work. It also pointed out that Pimlico did not supervise or otherwise interfere in the manner in which Mr Smith did his work and that he bore some financial risk in taking on work through Pimlico. However the Supreme Court held that the employment judge had been entitled to have regard to a number of factors that strongly militated against recognition of Pimlico as a client or customer of Mr Smith. These included the requirement that he wear a branded uniform, drive a branded van, carry an identity card and closely follow the administrative instructions of Pimlico’s control room; the severe terms as to when and how much Pimlico Plumbers was obliged to pay Mr Smith; the contractual references to “wages”, “gross misconduct and “dismissal” and the extensive restrictive covenants regarding his working activities following termination. The fact that Mr Smith’s contract was terminated after he sought to reduce the number of days he provided his services to Pimlico Plumbers is also a strong indicator that he was not in business on his own account and nor were Pimlico merely a client of his own business.
Unfortunately, whilst underscoring the dangerous and costly territory a business can find itself in if it assumes it can engage independent contractors without any obligations to them under employment legislation, the Supreme Court judgment adds very little to the already extensive body of case law on the meaning of “worker.” The Court focussed on whether the Tribunal was entitled to find on the facts before them that Mr Smith was a worker and was satisfied that it had been. But each case will turn on its own facts and so the uncertainty for all parties will continue until we have legislative change in place but the prospects of this are uncertain at present.
Against the backdrop of this long running case as well as other high profile cases featuring the likes of Uber and Deliveroo the government commissioned a formal review in 2017 of the rights associated with modern employment and announced a consultation on employment status in February 2018.
The Taylor Review in 2017 did not recommend wholesale changes in the current threefold status classification (employee, worker and self-employed). It thought that the current rules for allocating the correct status often failed to provide the clarity that individuals and businesses need which I do not think anyone would disagree with. Therefore the current consultation concentrates principally on the Taylor review’s recommendations for increasing clarity surrounding employment status and focuses amongst other things on whether there should be a single statutory definition of employee and whether a similar approach should also be applied to the definition of workers.
The consultation closed on 1 June 2018. The government has not yet given any indication of when its response to the consultation will be published and it is unclear what changes will be brought in to give businesses and individuals much needed clarity on their respective rights and obligations so as to avoid the type of long running and costly saga we have seen in this case.
If you are seeking to engage individuals to provide services, rather than to directly employ them in your business and require advice on the potential pitfalls of such arrangements, please contact a member of the employment team.