02 Mar 2017
The employment status of individuals who are purported to be self-employed has certainly been in the spotlight over recent times, and shows no signs of stopping.
The case of Pimlico Plumbers v Smith is one of the latest cases to be heard in the Court of Appeal, with the company appealing a decision made at an Employment Tribunal regarding one of their plumber’s employment status.
In this case, Mr Smith was exclusively engaged as a plumber by Pimlico Plumbers between 2005 and 2011. Both parties had a signed agreement that Mr Smith would be bound by the terms and conditions set out in Pimlico Plumbers’ manual. This manual set out requirements regarding working hours, appearance and uniform. In addition, the manual restricted Mr Smith in working for other organisations or for himself, and required him to use a Pimlico Plumbers van. Mr Smith could only swap jobs with other plumbers engaged by Pimlico Plumbers. However, notwithstanding these requirements, Mr Smith was categorised as self-employed and filed his own tax returns, and was registered for VAT. Mr Smith was paid by submitting VAT invoices to Pimlico Plumbers. At the start of 2011, Mr Smith suffered a heart attack and could not work. Following this, in May 2011, Pimlico Plumbers terminated their agreement with Mr Smith.
An employee or not?
Mr Smith issued claims at the Employment Tribunal for unfair dismissal, wrongful dismissal and his salary for the period of medical suspension. In order to bring these claims, Mr Smith had to fall within the definition of an ‘employee’ as provided by the Employment Rights Act 1996. The Employment Tribunal held a preliminary hearing to decide this point, and found that Mr Smith was not an employee. Therefore, they had no jurisdiction to hear his claims. In addition to these claims, Mr Smith also issued claims for unpaid holiday pay and unlawful deductions from wages, which required him to establish that he fell within the different definition of ‘worker’, also contained in the Employment Rights Act 1996 and the Working Time Regulations 1998. Both of these outline, ‘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’. Similarly, Mr Smith issued claims for three types of disability discrimination under the Equality Act 2010, which required him to establish that he fell within the definition of ‘employee’ provided in this Act, which essentially is a contract to work personally for an employer. With regard to these definitions of worker and employee, the Employment Tribunal found that Mr Smith did fall within them, and therefore would be entitled to bring those claims in an Employment Tribunal. The predominate reason for this was due to the level of control Pimlico Plumbers had over Mr Smith, by stipulating his working hours, restricting his ability to work for others, and there was not an unfettered right for him to substitute others for the work that he was given by the plumbing company - he had to complete the work personally. The Masters of Rolls provided the lead judgment, who began with: ‘..The case puts a spotlight on a business model under which operatives are intended to appear to clients of the business as working for the business, but at the same time the business itself seeks to maintain that, as between itself and its operatives, there is a legal relationship of client or customer and independent contractor rather than employer and employee or worker’. The Master of Rolls went on to outline that, in relation to the definitions of worker and employee in the Employment Rights Act 1996, Working Time Regulations 1998 and Equality Act 2010, there were three types of working: 1) An individual who is employed under a contract of service; 2) An individual who is self-employed and carries out a profession or business undertaking on their own account who provides their service or work to clients or customers; 3) Individuals who are self-employed and are providing their services as part of a profession or business undertaking which is operated by someone else. The Judge concluded that the issue in the appeal was whether the Employment Tribunal was correct in finding that Mr Smith fell into the third category, rather than the second. The Master of Rolls concluded that the Employment Judge was correct in finding that Pimlico Plumbers exercised a significant level of control over Mr Smith, therefore, this was inconsistent with Pimlico Plumbers being a customer or client of Mr Smith. Further, the Employment Judge was correct in placing weight on the restrictions over Mr Smith’s work, by requiring him to not work for himself or other organisations and precluding Mr Smith from working as a plumber in any part of Greater London for three months after termination.
Advice to Employers
This case affirms the recent cases such as Uber taxi drivers, which essentially outlines that the Employment Tribunal will scrutinise the reality of the agreement between the parties, looking specifically at the level of control an employer has over an individual and the right an individual has to substitute or delegate to an another. It is hoped that, after the recent consultation by a Commons Select Committee in relation to the definition of ‘worker’ provided by legislation, recommendations will be made to amend the current definitions of worker to make it clearer for all to ascertain the employment statuses of individuals working in different working practices.
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