The Court of Appeal judgment on employment status in Pimlico Plumbers v Smith has received a great deal of publicity. Like other recent decisions regarding Uber drivers and CitySprint couriers, a company that created a business model based on using self-employed subcontractors has found itself on the wrong side of a judgment insisting that they are in fact workers with employment rights. Unlike those decisions, which were in the Employment Tribunal and therefore are illustrations only of what might happen in any particular case, Pimlico Plumbers is a decision of the Court of Appeal that must be followed (though Pimlico Plumbers have indicated that they are considering appealing further to the Supreme Court).
Mr Smith was a “self-employed” plumber with Pimlico Plumbers. He paid his own tax and national insurance and was registered for VAT. However, when his contract was terminated after a period of ill health, he made various claims in the Employment Tribunal including for unfair dismissal (for which he needed to be an employee), wages and holiday pay (for which he needed to be a “worker”) and for disability discrimination (which has a qualifying status similar to a “worker”).
An Employment Tribunal found that he was a worker and so able to bring claims for discrimination, wages and holiday pay but that he was not an employee and so unable to claim unfair dismissal. The Employment Appeal Tribunal agreed. The Court of Appeal has now also agreed with the original findings and in so doing provided some helpful clarification, whilst stressing that each case will turn on its own facts.
Mr Smith was held not to be an employee because:
(a) The contract was clear that there was no obligation on Pimlico Plumbers to provide work if there wasn’t any and no obligation on him to accept a particular job
(b) He took financial risk in each job – he was not paid if the customer failed to pay their invoice within 6 months, and was paid a percentage of the fixed price quoted per job (so if it took longer than expected, he was not paid any more); he also bought materials in advance
He was held to be a worker because:
(a) He was integrated into the business – appearing to customers as if he worked for Pimlico Plumbers rather than being in business on his own account
(b) Pimlico Plumbers exercised a great deal of control over things like appearance, uniform, and timesheet procedures
(c) He was unable to compete with Pimlico using their contacts or information during his contract with them and for some time thereafter (there were 8 post termination restrictive covenants)
(d) He was required to work a minimum of 40 hours per week
(e) There was no express right to send a substitute (though in practice plumbers would swap jobs, work together on jobs and some had apprentices) so Mr Smith was required to work personally for Pimlico Plumbers
Looking at all of these factors together, the Court of Appeal found that the Tribunal were correct to classify Mr Smith as a worker. All the factors were important but the lack of effective substitution clause was crucial. Also crucial was the integration into the business: the Court of Appeal distinguished a self-employed person truly in business on their own account from one who provides services as part of someone else’s business. The latter can be a “worker” with employment rights if they are required to work personally for that business.
The Court of Appeal gave some helpful clarification on substitution clauses as follows:
- A complete right to send a substitute without qualification is inconsistent with being required to work personally
- A conditional right of substitution may not be inconsistent with working personally, depending on the condition(s)
- The right to substitute only when unable to carry out the work is generally consistent with working personally
- A right to substitute limited only by the need to show the substitute is as qualified to do the work is generally inconsistent with working personally
- A right to substitute only with consent, where there is absolute unqualified discretion to withhold consent, is consistent with working personally
This is yet another decision that should be a wake-up call to any organisation using “self-employed” contractors as an integrated part of the business. It is important to examine the reality of the relationship and look at the level of control over the “contractor”, the level of integration and whether, in reality, it is possible to accept that the contractor might send a suitably qualified substitute. If you really need that person to represent your business as if they are part of it, the reality might be that they need to be given the status of worker (with the key right to be paid holiday). If not, it is important that the substitution clause is drafted properly in order to exclude worker status.
If you have any questions about employment status, freelance contracts or substitution clauses, contact Louise Taft for a no obligation chat about how she can help.
T: 020 7935 3522
Whatever your personal circumstances the above is only a guide and we would advise you to contact us to obtain definitive advice as you will appreciate that each person’s circumstances are unique to them.