UK Court of Appeal Provides Important Ruling on Employment Status
In an important decision regarding employment status in the United Kingdom (UK), the Court of Appeal, in Pimlico Plumbers Limited v. Smith, dismissed an appeal by Pimlico Plumbers concerning the employment status of a former worker.
The decision is the latest in a series of recent judgments affecting those working in flexible workforces and is likely to have implications for employers reliant on self-employed contractors in the often-mentioned “gig economy.” Indeed, the court noted that 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.”
As a brief reminder, there are three main categories of staff recognized in the UK: (1) employees; (2) self-employed individuals (often referred to as “contractors” or “consultants”); and (3) workers, a broadly defined statutory concept that includes those who contract to provide work or services personally, even if the individual is not an employee. The distinctions between the three types of staff are important in determining which employment laws apply and employers’ obligations to their workforce.
Gary Smith worked for Pimlico Plumbers as a plumber for almost six years. He was VAT-registered and paid taxes on a self-employed basis but worked solely for the company. Following the termination of his agreement with the company, Mr. Smith presented a claim to the Employment Tribunal claiming, among other things, that he had been unfairly or wrongfully dismissed and discriminated against following the rejection of his request to reduce his hours after he had a heart attack.
The Employment Tribunal found that he was a “worker,” which entitled him to basic employment rights, including the right to holiday pay, the right to bring discrimination claims, and the right to make claims for unauthorized deductions from wages. This decision was upheld by the Employment Appeal Tribunal.
In dismissing Pimlico Plumber’s appeal, the Court of Appeal considered the express wording of Mr. Smith’s contractual documents, which required him to do work personally and did not allow him to send a substitute or delegate. It also took into account the company’s high degree of control over how Mr. Smith performed his work, the obligation that Mr. Smith work at least 40 hours a week for the company, and the onerous restrictive covenants to which he was subject. The Court of Appeal ultimately agreed with the Employment Tribunal’s initial assessment that Mr. Smith was not in business on his own account but rather was an integral part of the company’s operations and subordinate to Pimlico Plumbers.
After the judgment, Pimlico Plumbers confirmed that they have taken more care with their contractual documents since Mr. Smith’s departure. Its founder and owner, Charlie Mullins, commented, “like our plumbing, now our contracts are watertight." Nevertheless, the case serves as another reminder of the risks associated with misclassification and adds to the increasing number of cases being brought before UK employment tribunals on this subject.
Companies that are generally reliant on self-employed contractors will await with keen interest the result of the UK government’s recently commissioned review of workers' rights in the “gig economy.” The review is set to address questions relating to job security, pension rights, holiday and parental leave, and employers’ obligations.