employment-status

Last week saw the publication of the Supreme Court's judgment in the long-running Smith v Pimlico Plumbers litigation.

Gary Smith had been engaged on a self-employed basis by Pimlico but later sought to challenge his status and claimed that he was a worker. The Supreme Court upheld his claim in a decision which has been labeled by some as a "watershed" moment in workers' rights. However, in reality, the decision adds very little to the existing case law on worker status and it remains a hugely fact sensitive issue, which gives little certainty for businesses, particularly those operating in the gig economy.

The issue in this case was whether Mr Smith was a worker for the purposes of the ERA 1996, the WTR 1998 and the EQA 2010. Mr Smith argued that he was a "worker" under the definition in s. 230(3)(b) ERA 1996 (commonly referred to as a “limb (b) worker”). This meant that he was arguing that he was working under a contract (which could be express or implied, in writing or oral) whereby he had undertaken to do, or perform personally, work or services for Pimlico Plumbers, where Pimlico Plumbers were not a client or customer of a business carried on by Mr Smith. If Mr Smith was correct, he became entitled to workers' rights such as protections under the WTR, including the right to holiday pay.

The key points are therefore:

1. Whether an individual is contracted to personally perform work and;

2. whether the company is the client or customer of the individual.

The Supreme Court held that Mr Smith was a worker. On the issue of being contracted to perform work personally, he did not have an unfettered right to appoint a substitute – something which is a key characteristic of being genuinely self-employed – he could only swap shifts with other people already working for the same company. Although the contract stated that there was no obligation to offer or accept work, there was also a provision that expected him to perform a minimum of 40 hours per week. The Court held that these obligations created an environment of personal service being required. 

On the issue of the company being the client or customer, the Supreme Court found that Mr Smith was not in business on his own account. He did not market himself to the world at large, he in fact did not perform any work elsewhere and he had to wear a branded uniform, drive a branded vehicle, carry an ID card and follow closely the instructions of the company. He was also subject to a series of restrictive covenants regarding his working activities following termination. As such, the company was not the client or customer of Mr Smith.

If your business engages contractors, it would be prudent to review your arrangements. If they do not have an unfettered right of substitution, if they don’t market themselves to the world at large and/or work elsewhere, or if the terms of the contract imply a degree of subordination to the Company, then there is a high risk that these individuals could be considered to be workers and would therefore have entitlements to benefits such as annual holiday entitlement, sick pay and the NMW. You could consider amending your arrangements to reduce or acknowledge the risk, or make financial provision should claims arise in the future.

The Government is consulting on making changes to the law regarding employment status following on from the Taylor Review last year and there could well be developments in this area in coming months.

 


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Author: Lucy Gordon

Senior Solicitor, ESP Law Ltd

Lucy is an employment solicitor who brings to ESP over a decade’s experience at DLA Piper, one of the world’s most prestigious law firms. At DLA Piper, Lucy was involved in a number of global projects for major international customers and handled a varied case-load of employment matters for a range of UK customers, including complex Employment Tribunal cases involving whistleblowing and TUPE.