Landmark ruling on employment status

The Supreme Court has finally delivered its long-awaited ruling in the ongoing disputed employment status case of Pimlico Plumbers Ltd & Anor v Smith [2018] UKSC.

What happened?

Between August 2005 and April 2011, Mr Gary Smith worked for Pimlico Plumbers Ltd as a plumbing and heating engineer on a self-employed basis. Two consecutive agreements detailed how that relationship would work. Following a disagreement between the parties regarding Smith’s request to reduce his working week, Smith alleged he was required to return the branded van he hired from Pimlico and dismissed.

On the basis of the dismissal and Smith’s concerns that his working arrangement with Pimlico had been incorrectly categorised as self-employment, he decided to file an employment tribunal (ET) claim against Pimlico. In that claim he alleged that Pimlico had made unlawful deductions from his wages, failed to pay him annual leave, discriminated against him because of his disability (i.e. his heart condition) and unfairly dismissed him.

What did the ET and appellate courts say?

At a preliminary hearing of the facts, an ET decided that Smith:

  • Was not an employee under a contract of employment,
  • Was not entitled to claim unfair dismissal (because he was not an employee),
  • Met the definition of a ‘worker’ within the meaning of section 230(3)(b) of the Employment Rights Act 1996,
  • Met the definition of a ‘worker’ within the meaning of regulation 2(1) of the Working Time Regulations 1998, and
  • Was in ‘employment’ for the purposes of section 83(2) of the Equality Act 2010.

These findings meant that whilst the ET did not agree that Smith was an employee and entitled to claim unfair dismissal, it did accept that he was a worker and could proceed to a full ET hearing in respect of his other claims. Pimlico appealed this decision without success to an appeal tribunal and then to the Court of Appeal. Pimlico then raised a further challenge of the findings before the Supreme Court.

What did the Supreme Court say?

The key issue for the Supreme Court was to determine whether the Court of Appeal’s decision to uphold the tribunal’s preliminary findings was wrong.  In order to arrive at a conclusion the Supreme Justices carefully considered the following key issues:

  • What was the reality of Smith’s two agreements with Pimlico?
  • Was personal performance of the contract required?
  • Was Pimlico a customer or client?

What was the reality of Smith’s two agreements with Pimlico?

The Supreme Court found that the detail of the agreements were quite puzzling. It appeared that the agreement contained terms consistent with a relationship of employment but oddly, these sat alongside other terms that usually would appear in an agreement with a party who was self-employed. It noted that the Court of Appeal had reasoned that the agreements were drafted in this manner to enable Pimlico to retain control over its operatives. Notably, control is one of the features used to identify whether an individual has employment status.

Was personal performance of the contract required?

For Smith to qualify as a worker under section 230 (3)(b), it was necessary for him to have undertaken to personally perform his work or services for Pimlico. The Supreme Court found that Smith, in very limited circumstances, had the right to substitute his personal service  for another individual who hailed from the pool of operatives bound to Pimlico in similar terms to himself. However, because this right was very limited, the Supreme Court held it was not a dominant feature of the contractual arrangement and consequently there was an obligation for Smith to provide personal services for Pimlico’s clients.

Was Pimlico a customer or client?

In order to determine whether Pimlico was a client or customer of Smith, the Supreme Court referred again to the wording of the written contractual documents to ascertain the objective of the relationship. Their examination revealed factors that veered towards the existence of either a client or a customer relationship. The following factors were noted:

  • Smith was free to reject a particular offer of work,
  • If no work was offered by Pimlico he was free to accept work from third parties,
  • He also bore some of the financial risk of the work, and
  • The manner in how he worked was unsupervised by Pimlico.

In contrast, there were other features within the contract which strongly suggested there was neither a client or a customer relationship. These of which included:

  • Pimlico’s stringent control over Smith’s appearance,
  • The administration required after each job,
  • The severe terms as to when and how much it was obliged to pay him, and
  • The restrictive covenants curtailing his ability to work once the relationship ended.

The Supreme Court agreed with the tribunal’s finding that even when Smith was in between assignments for Pimlico, there was an umbrella contract between the parties. In view of these findings, the Supreme Court found that the ET was entitled to rule that Pimlico couldn’t be regarded as a client or a customer of Smith.

Overall conclusion of the Supreme Court

The Supreme Court unanimously dismissed the appeal. In summary, it ruled that the ET was entitled to conclude that Smith qualified as a ‘worker’ within the identified provisions of the Employment Rights Act 1996, the Working Time Regulations 1998 and the Equality Act 2010. Consequently, Smith’s case was remitted to the ET for a full hearing on his substantive claims.

Why is this case important?

There are around 4.8 million subcontractors in the UK who may have similar working arrangements in place..  Some of these individuals may now also seek to claim that they too should be categorised as workers and benefit from the employment rights associated with this status, such as paid holidays, national minimum wage and sick pay. Businesses across the UK, and in particular those operating within the gig economy, may now consider they should review their subcontractor arrangements to check whether these could withstand an employment status challenge.