Pimlico Plumbers: Latest UK gig economy ruling to grant employment rights Pimlico Plumbers: Latest UK gig economy ruling to grant employment rights

Pimlico Plumbers: Latest UK gig economy ruling to grant employment rights
15 Jun 2018

In the long-running case of Pimlico Plumbers v Smith, the UK Supreme Court concluded that Mr Smith, who worked under a contract describing him as an independent contractor, was in fact a ‘worker’.

Despite losing at every specialist tribunal and in the higher English Courts, Pimlico’s owner Charlie Mullins has since made clear his disagreement with the decision and called on the Government to clarify the law, attesting that he feared a “tsunami” of worker claims from those currently considered self-employed.

Certainly, the Supreme Court’s decision will prove costly for Pimlico as Smith will now be able to pursue his claims for backdated holiday pay, unlawful deductions and disability discrimination. Without doubt, the decision also opens the door for other Pimlico plumbers to bring claims for unpaid holiday and any other worker rights that have been infringed.

But the ramifications will likewise be felt for other gig economy businesses operating under similar business models. The case demonstrates that the UK Courts will not look sympathetically on companies that seek to impose significant control over individuals, while at the same time trying to ensure they have limited rights.

The decision was also in line with the Government’s response in February to the Taylor Review into working practices, when it promised that holiday and sick pay rights would be strictly enforced and conditions for gig economy workers improved.

The Pimlico case also provides many lessons for other UK employers though. While all cases have facts specific to them - and Pimlico is no different here - a key feature was simply the level of control the company exercised over Smith. This element mirrors the judicial findings in other gig economy cases such as Uber and CitySprint (see box below).

Multi-factorial approach

When considering an individual’s employment status, the UK Courts adopt a multi-factorial approach. In other words, there is no single key that unlocks the box of whether someone is an “employee, worker or self-employed”.

In the Pimlico case, there were compelling facts in favour of Smith having self-employed status, but the level of control exercised over him outweighed these. For instance, the plumbers were required to wear a “clean” uniform, be of smart appearance, drive liveried vans, work a 40-hour week, give adequate notice of annual leave, report sickness absence and carry company ID cards. They also suffered strict financial penalties if invoices were not paid by Pimlico customers.

Despite this situation, Pimlico wanted to limit its obligations towards its workers. But this latest ruling means that gig economy employers will now need to consider carefully the level of control they exercise over them.

Another area employers may wish to explore more closely is that of “personal service” as it comprises an essential element in a finding of worker status. The Supreme Court made clear that an unfettered right on the part of an individual to send a substitute (because the company just wants the work done and does not care who does it) may take the relationship over the line so they become an ‘independent contractor’. A restricted right to substitute would not.

In the Pimlico case, Smith had a limited right of substitution, provided the substitute was another Pimlico plumber and only if the substitute was being used as Smith was doing a different job for Pimlico. He could not use a substitute in order to carry out his own private work. For example, if Smith quoted for a more lucrative job, he could send another Pimlico plumber to do the other less lucrative one.

But the Court concluded this approach amounted to delegation. The substitution provision was very limited as the substitute had to come from within the ranks of Pimlico operatives who were just as bound to the company by the same suite of heavy obligations.

Determining factors

Another determining factor of whether an individual is ‘self-employed’ or a ‘worker’ is whether they are in “business on their own account”. This means the organisation to whom they are providing services is either a “client or customer”.

The Supreme Court considered whether Pimlico could truly be described as Smith’s client but found it was not the case. While Pimlico was not obliged to offer Smith work (if it had, he would have more likely been considered employed rather than a worker), once it did, he was under an obligation to accept it. The situation was similar in the Uber employment status case.

But the Supreme Court also concluded that there was an “umbrella contract” between Smith and Pimlico, which meant their relationship continued between each assignment as Smith continued to owe obligations toward Pimlico. As such, subordination existed between assignments, which is not a feature of a genuine independent contractor.

Furthermore, Smith’s tax status for the time of his six-year engagement with Pimlico was that of being self-employed. As a result, he submitted accounts, set off the cost of purchasing his own material against his earnings, and charged Value Added Tax on each invoice sent to customers through Pimlico.  

The Court perceived this situation to be perfectly legitimate. But given that Smith would not be paid if a customer did not pay Pimlico on time, not even to be reimbursed for material costs, the situation was not wholly beneficial for him.

Moreover, certain provisions in the contracts provided to Smith worked against Pimlico as they were more akin to the kinds of terms usually included in employment contracts rather than agreements with independent contractors. They included references to “gross misconduct”, “dismissal” and “wages”. There were also a “suite of covenants” restricting Mr Smith’s work activities.

So to conclude, in the vast majority of gig economy employment status cases to date, the Courts have come down on the side of individuals, opening the door for many to benefit from worker rights. Because moves are being made to deal with changing work habits within the current legislative framework, it is arguably making the case for reform, which is currently being consulted on by the Government, less urgent.  

Other important employment status cases

Uber lost its appeal relating to worker status in November 2017. This means that all Uber drivers in the UK are now considered ‘workers’ rather than ‘self-employed’, entitling them to sick pay, holiday pay and protection against unlawful discrimination. Determinative factors in favour of worker status included the amount of control exercised over the drivers by Uber. They were unable to establish business relationships with passengers, could not negotiate terms with them other than offering discounts and had to accept Uber’s terms. Unlike previous unsuccessful taxi driver claims for worker status, Uber was doing more than providing drivers with access to potential new clients.

CitySprint, Addison Lee and Deliveroo have also been subject to claims, often union-backed, that self-employed contractors are, in fact, ‘workers’. A key finding in favour of CitySprint, which said it engaged couriers as workers rather than self-employed contractors, was the level of control exercised over them. This included instructions to smile.

 

Emma Bartlett

Emma Bartlett is a partner at Charles Russell Speechlys LLP. She advises on all aspects of employment law and has particular expertise in dispute resolution and litigation, notably discrimination, whistleblowing and trade union issues. With a strong record in negotiating and resolving complex employment disputes, Emma is considered a skilled deal broker.

 

In the long-running case of Pimlico Plumbers v Smith, the UK Supreme Court concluded that Mr Smith, who worked under a contract describing him as an independent contractor, was in fact a ‘worker’.

Despite losing at every specialist tribunal and in the higher English Courts, Pimlico’s owner Charlie Mullins has since made clear his disagreement with the decision and called on the Government to clarify the law, attesting that he feared a “tsunami” of worker claims from those currently considered self-employed.

Certainly, the Supreme Court’s decision will prove costly for Pimlico as Smith will now be able to pursue his claims for backdated holiday pay, unlawful deductions and disability discrimination. Without doubt, the decision also opens the door for other Pimlico plumbers to bring claims for unpaid holiday and any other worker rights that have been infringed.

But the ramifications will likewise be felt for other gig economy businesses operating under similar business models. The case demonstrates that the UK Courts will not look sympathetically on companies that seek to impose significant control over individuals, while at the same time trying to ensure they have limited rights.

The decision was also in line with the Government’s response in February to the Taylor Review into working practices, when it promised that holiday and sick pay rights would be strictly enforced and conditions for gig economy workers improved.

The Pimlico case also provides many lessons for other UK employers though. While all cases have facts specific to them - and Pimlico is no different here - a key feature was simply the level of control the company exercised over Smith. This element mirrors the judicial findings in other gig economy cases such as Uber and CitySprint (see box below).

Multi-factorial approach

When considering an individual’s employment status, the UK Courts adopt a multi-factorial approach. In other words, there is no single key that unlocks the box of whether someone is an “employee, worker or self-employed”.

In the Pimlico case, there were compelling facts in favour of Smith having self-employed status, but the level of control exercised over him outweighed these. For instance, the plumbers were required to wear a “clean” uniform, be of smart appearance, drive liveried vans, work a 40-hour week, give adequate notice of annual leave, report sickness absence and carry company ID cards. They also suffered strict financial penalties if invoices were not paid by Pimlico customers.

Despite this situation, Pimlico wanted to limit its obligations towards its workers. But this latest ruling means that gig economy employers will now need to consider carefully the level of control they exercise over them.

Another area employers may wish to explore more closely is that of “personal service” as it comprises an essential element in a finding of worker status. The Supreme Court made clear that an unfettered right on the part of an individual to send a substitute (because the company just wants the work done and does not care who does it) may take the relationship over the line so they become an ‘independent contractor’. A restricted right to substitute would not.

In the Pimlico case, Smith had a limited right of substitution, provided the substitute was another Pimlico plumber and only if the substitute was being used as Smith was doing a different job for Pimlico. He could not use a substitute in order to carry out his own private work. For example, if Smith quoted for a more lucrative job, he could send another Pimlico plumber to do the other less lucrative one.

But the Court concluded this approach amounted to delegation. The substitution provision was very limited as the substitute had to come from within the ranks of Pimlico operatives who were just as bound to the company by the same suite of heavy obligations.

Determining factors

Another determining factor of whether an individual is ‘self-employed’ or a ‘worker’ is whether they are in “business on their own account”. This means the organisation to whom they are providing services is either a “client or customer”.

The Supreme Court considered whether Pimlico could truly be described as Smith’s client but found it was not the case. While Pimlico was not obliged to offer Smith work (if it had, he would have more likely been considered employed rather than a worker), once it did, he was under an obligation to accept it. The situation was similar in the Uber employment status case.

But the Supreme Court also concluded that there was an “umbrella contract” between Smith and Pimlico, which meant their relationship continued between each assignment as Smith continued to owe obligations toward Pimlico. As such, subordination existed between assignments, which is not a feature of a genuine independent contractor.

Furthermore, Smith’s tax status for the time of his six-year engagement with Pimlico was that of being self-employed. As a result, he submitted accounts, set off the cost of purchasing his own material against his earnings, and charged Value Added Tax on each invoice sent to customers through Pimlico.  

The Court perceived this situation to be perfectly legitimate. But given that Smith would not be paid if a customer did not pay Pimlico on time, not even to be reimbursed for material costs, the situation was not wholly beneficial for him.

Moreover, certain provisions in the contracts provided to Smith worked against Pimlico as they were more akin to the kinds of terms usually included in employment contracts rather than agreements with independent contractors. They included references to “gross misconduct”, “dismissal” and “wages”. There were also a “suite of covenants” restricting Mr Smith’s work activities.

So to conclude, in the vast majority of gig economy employment status cases to date, the Courts have come down on the side of individuals, opening the door for many to benefit from worker rights. Because moves are being made to deal with changing work habits within the current legislative framework, it is arguably making the case for reform, which is currently being consulted on by the Government, less urgent.  

Other important employment status cases

Uber lost its appeal relating to worker status in November 2017. This means that all Uber drivers in the UK are now considered ‘workers’ rather than ‘self-employed’, entitling them to sick pay, holiday pay and protection against unlawful discrimination. Determinative factors in favour of worker status included the amount of control exercised over the drivers by Uber. They were unable to establish business relationships with passengers, could not negotiate terms with them other than offering discounts and had to accept Uber’s terms. Unlike previous unsuccessful taxi driver claims for worker status, Uber was doing more than providing drivers with access to potential new clients.

CitySprint, Addison Lee and Deliveroo have also been subject to claims, often union-backed, that self-employed contractors are, in fact, ‘workers’. A key finding in favour of CitySprint, which said it engaged couriers as workers rather than self-employed contractors, was the level of control exercised over them. This included instructions to smile.

 

Emma Bartlett

Emma Bartlett is a partner at Charles Russell Speechlys LLP. She advises on all aspects of employment law and has particular expertise in dispute resolution and litigation, notably discrimination, whistleblowing and trade union issues. With a strong record in negotiating and resolving complex employment disputes, Emma is considered a skilled deal broker.