Employment Status - the floodgates are still open

30 March 2017

It can be advantageous for businesses to engage people on a self-employed basis, but to control them in a way which may make it appear to the outside world that they are employees. The recent case involving Pimlico Plumbers Limited (“PP”) should be on the radar of any such organisation. Although there has of late been a string of cases on the currently hot topic of employment status, this latest case focuses predominantly on the right of substitution, and to what extent you can fetter that right, whilst still maintaining the desired “self-employed” status. Although the guidance is not definitive, it is still useful for any organisation currently using or considering such a set up. Furthermore, as a Court of Appeal case, it will be binding on all subsequent Tribunal cases.

Mr Smith worked for PP as a plumber, and the appeal in question was concerned solely with claims which required him to be a “worker”. Unlike someone who is self-employed, a worker is employed personally to do work, not by virtue of a business and customer relationship. This is in contrast to someone who is genuinely self-employed, who works in business on their own account.   The Court of Appeal confirmed that Mr Smith was a “worker”.

Mr Smith was working under the impression that he was an independent contractor. He was VAT registered, and filed tax returns on the basis that he was self-employed. However, the category of worker, which sits in between employment and self-employment, does not exist in the context of tax, and so it is, theoretically, possible to be both a worker (in terms of employment rights) and self-employed (for tax purposes). 

Despite the arrangement being positioned as self-employment by PP, Mr Smith was not permitted to provide his services to any other organisation, and was also subject to post-termination restrictions. He was required to drive a branded van and wear a branded uniform, but he provided his own materials and tools, and took on both the liability for the job and the commercial risk of a client not paying. On its face, Mr Smith’s contract also required him to work a minimum number of hours per week.

Most importantly, whether Mr Smith was a worker depended on two major factors: whether his was a contract for personal service, and whether or not his relationship with PP was that of business and client. His right to provide a substitute person to do his work formed a major part of the discussion surrounding those requirements.

Personal Service

“Personal service” usually turns largely on whether or not there is a genuine right of substitution. The argument in this particular case turned on the PP plumbers’ rights to swap work between themselves, and to bring in external contractors and/or apprentices. As was rightly pointed out, bringing in an external specialist, or taking on an apprentice to assist you, does not mean that you are not also still personally carrying out the work. However it was accepted that, although none of the relevant contractual documents contained a right of substitution, the plumbers did sometimes swap work between themselves.

Upholding the Tribunal’s decision that an obligation of personal service could exist here, the Court decided that an obligation of personal performance should be determined solely by the terms of the contract, and in doing so set out some useful guidance on the issue. A completely unfettered right of substitution will be inconsistent with an undertaking to do the work personally. A conditional right of substitution however, will depend on its conditionality, including the extent to which the right is limited or occasional, as it was held to be in this case. For example, if the only limit is the need to show that your replacement is as qualified as you, then that will usually be inconsistent with personal performance. On the other hand, a right of substitution only when you are unable to carry out the work, or only with the consent of another person who has an absolute and unqualified discretion whether or not to grant consent, will usually be consistent with a requirement of personal performance.

Relationship between the parties

In terms of the nature of the relationship between Mr Smith and PP, the principal argument on this concerned whether or not Mr Smith was contractually required to work a minimum number of hours per week. Mr Smith’s contractual documentation contained contradicting statements on this, which prompted the Court to warn that Tribunals will generally look “narrowly” at documents which are clearly drafted by lawyers to mask the reality of the relationship.

Having concluded that there was some element of a minimum hours requirement, the Court concluded that the degree of control between the two parties made their relationship inconsistent with that of a genuinely self-employed person. On top of the minimum hours requirement, the court highlighted in particular the existence of restrictive covenants in Mr Smith’s contract. Though it remains the case that no one factor is determinative when ascertaining employment status.

Final comments

It is noteworthy that the two leading judgements were concluded by way of a caution against Tribunals relying on written, as opposed to oral, closing submissions. It is of course not uncommon for parties to run out of time for closing submissions; but both judges were of the opinion that the importance of strict case management to ensure that this does not occur should not be underestimated. It was even suggested that, in such circumstances, it would be preferable to list a further date to hear closing submissions. From the parties’ point of view however, an additional day incurs further counsel and solicitor’s fees, and may well serve only to lengthen the amount of time they have to wait to receive their judgement. It remains to be seen whether such comments will be heeded in the Tribunals.

Tickings off on time management aside however, this case does provide helpful guidance on the two particular factors which were the focus of this case. In particular, it would appear that the right of substitution can be fettered at least to a minor extent, without the obligation becoming one of personal performance. However, as with all cases in this area, this case is heavily fact specific, and the judgement contained an express warned against drawing any general conclusions from it. In this modern age of the gig economy, and in the wake of the Uber and Citysprint decisions (see our recent blog), this is unlikely to be the final word on most of what is contained within this judgement.

Pimlico Plumbers Ltd and Mullins v Smith [2017] EWCA Civ 51 

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