UK Supreme Court provides useful guidance on the distinction between employees and contractors
Pimlico Plumbers Ltd & Anor v Smith [2018] UKSC 29 (13 June 2018)
Summary
The UK Supreme Court (“Court”) found in favour of the respondent, Mr Smith, who argued that he was a “worker” for Pimlico Plumbers Ltd (“Pimlico”) under the relevant employment legislation. The Court rejected Pimlico’s argument that Mr Smith was a “self-employed operative” and upheld the previous decisions of the Employment Tribunal (“Tribunal”), Employment Appeal Tribunal and Court of Appeal.
Facts
Mr Smith worked as a plumbing and heating engineer for London-based plumbing business, Pimlico, between August 2005 and April 2011. Two successive written agreements governed Mr Smith’s work (“Employment Contract”). Mr Smith made several claims against Pimlico, including unlawful deductions from wages, failure to pay statutory annual leave and disability discrimination.
Decision
The Supreme Court unanimously upheld the Tribunal’s conclusion that Mr Smith was able to make his claims because he was:
a “worker” for Pimlico within the meaning of section 230(3) of the Employment Rights Act 1996 (UK) (“Act”);
a “worker” for Pimlico within the meaning of regulation 2(1) of the Working Time Regulations 1998 (SI 1998/1833) (UK) (“Regulations”); and
in Pimlico’s employment within the meaning of section 83(2)(a) of the Equality Act 2010 (UK) (“Equality Act”).
The Court found it legitimate and convenient to consider only whether Mr Smith was a “limb (b) worker” within the meaning of the Act, as “worker” is defined on identical terms in the Regulations, and the case law suggests that the meaning of employment in the Equality Act is essentially the same.
To be considered a “limb (b) worker”, Mr Smith had to be under an obligation to personally perform his work for Pimlico, and Pimlico could not be considered Mr Smith’s client or customer.
Mr Smith had personally performed his work for Pimlico
Mr Smith qualified as a limb (b) worker because he undertook to personally perform his work for Pimlico. In reaching this conclusion, the Court found Mr Smith’s limited right under the Employment Contract to appoint a substitute to do his work was not inconsistent with personal performance. The significance of the contractual right to appoint a substitute should be determined by asking whether the dominant feature of the contract remained a requirement of personal performance, though this approach does not usurp the sole test of whether there is an obligation of personal performance.
The terms of the Employment Contract were found to clearly direct personal performance by Mr Smith for the following reasons:
the right to substitute appeared so insignificant that it was not worthy of explicit recognition in the Employment Contract;
the Employment Contract’s wording, which included references to “your skills” and requirements as to “your appearance...” (among others), suggested personal performance. Pimlico’s argument that these requirements could also apply to substitutes was rejected as stretching their natural meaning “beyond breaking point”;
the substitute had to come from Pimlico which meant the substitute was equally bound by an identical suite of heavy obligations; and
Pimlico was found to be interested in the identity of the substitute.
Pimlico was not a client or customer of Mr Smith
After considering a number of factors, the Court upheld the Tribunal’s finding that Pimlico should not be regarded as a client or customer of Mr Smith.
In arguing it was Mr Smith’s client or customer, Pimlico made the following points:
Mr Smith was entitled to reject a particular offer of work, whether because of location, timing or any other reason.
Mr Smith was free to take outside work so long as it was not offered by Pimlico’s clients.
Pimlico reserved no right to supervise or interfere with how Mr Smith did his work.
Mr Smith bore some financial risk of his work for Pimlico because he was bound by the estimate he had given the client and Pimlico did not pay him until the client had paid.
However, the Court determined that the following features of the Employment Contract supported an alternative finding:
Pimlico’s tight control over Mr Smith’s attire and administrative aspects of his work such as its requirement for Mr Smith to wear a Pimlico branded uniform, to use a Pimlico branded van leased from Pimlico, carry a Pimlico identity card and follow administrative instructions of Pimlico’s control room;
the “severe” terms governing how and when Pimlico was obliged to pay Mr Smith. The contract referred to “wages”, “gross misconduct” and “dismissal” and was found to be inconsistent with an independent contractor arrangement; and
an array of restrictive covenants concerning Mr Smith’s work following termination.
Other factors
In line with previous decisions, the Court also found that Mr Smith’s Employment Contract was an umbrella contract in which Pimlico was obliged to offer Mr Smith work if it was available and Mr Smith was to keep himself available to work in accordance with the contract.
The Court noted that Mr Smith’s filing of tax returns on the basis that he was self-employed and his VAT registration did not preclude the conclusion he was a limb (b) worker.
Therefore the Tribunal was entitled to conclude that Mr Smith was a limb (b) worker as he was to personally perform his work for Pimlico, which was neither his client nor customer.
Commentary
This decision confirms that despite the terminology used in employment contracts and tax structures, a worker’s legal employment status is determined by the substance or nature of the employment relationship. Considerations such as the degree of control or supervision an organisation exercises over a person’s work, the extent to which the agreement requires personal performance and the rights of the worker to substitute, are salient.
In the era of the gig economy, this decision is particularly important in adding further guidance in determining the true nature of a person’s employment and their corresponding rights and obligations.
The full text of the decision can be found here.
Paula Mucha is a Solicitor and Rachel Collins is a Seasonal Clerk at King & Wood Mallesons.