Gig economy employers and workers have been handed another landmark decision in the UK Supreme Court case of Pimlico Plumbers and another v Smith [2018] UKSC 29, which develops this fast moving area of law. Alongside the recent Tribunal judgment against Hermes, workplace disputes over self-employment remain firmly in the spotlight.

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Background

This case was about whether a self-employed plumber could bring Employment Tribunal claims against his employer for unfair dismissal, wrongful dismissal, unlawful deductions from wages, holiday pay and discrimination.

At Tribunal, a dispute arose over Mr Smith’s employment status.

  • If Mr Smith was an ‘employee‘ hired under a contract of employment, he may have been allowed to bring all of these Tribunal claims subject to certain criteria.
  • If he was a self-employed ‘worker’, as defined in section 230(3)(b) of the Employment Rights Act 1996, he could bring Tribunal claims for discrimination, holiday pay and unauthorised deductions from wages (but not unfair dismissal).
  • If he was genuinely self-employed, he could not bring any claims in the Tribunal at all.

The test for ‘worker‘ status is, in summary, whether the person is personally obliged to perform services under a contract, but not running their own independent business servicing clients. Being a ‘worker‘ brings access to a range of basic employment rights that are denied to genuinely self-employed persons.

The Employment Tribunals’ decisions

At the first-instance, the Employment Tribunal concluded that Mr Smith was a not an ‘employee’ because ‘there was insufficient obligation to provide work or pay for this relationship to be one of employer and employee.’ This was:

consistent with what the parties themselves thought during the duration of the contract as it was the clear and ongoing intention of the parties that the Claimant was self-employed rather than an employee. The Claimant employed an accountant and sought to make full use of the tax advantages of being self-employed.

However, the Tribunal found that Mr Smith was a ‘worker‘ on the basis that:

  1. The agreement was for Mr Smith to provide personal service to Pimlico Plumbers (‘PP’);
  2. There was a minimum number of weekly hours he had to work on certain days;
  3. While the arrangement was flexible, the expectation was that engineers agree their hours with PP, obliging the company to provide work;
  4. There was no free reign for engineers to give away work at will. While engineers swapped jobs or brought in additional labour, this did not change the expectation of a minimum number of hours they had to do themselves;
  5. In most areas, PP had ‘very tight control’ over Mr Smith, including restrictions on working for competitors. That was inconsistent with Mr Smith running an independent business;
  6. Mr Smith was highly integrated into PP’s business and subordinate to them.

PP appealed to the EAT, which upheld the Tribunal’s judgment for essentially the same reasons.

The Court of Appeal decision

PP appealed against the EAT decision and the Court of Appeal dismissed their appeal. In a lengthy 36-page judgment, the Court observed:

  1. whether a person undertakes to perform work or services personally to an employer depends ‘entirely’ on the terms of the contract (§ 73);
  2. As for the effect of substitution clauses (ie. the ability to give away work) on whether the contract was personal to Mr Smith, the Court drew the following principles from the previous case law (at § 84):
    • Free reign to give away work is inconsistent with a personal obligation to do the work;
    • A limited right to give away work may or may not be consistent with a personalobligation to do the work depending on the the limitations being applied.
    • In other words, the harder it is for the person to give away work, the more likely it is that personal service is required and the person is likely to be a ‘worker‘.

The Court upheld the decisions of the ET and EAT. The contract required Mr Smith’s personal service, indeed, the language of the contract stressed this (see § 86). There was no free reign to give away work and the company imposed limits on engineers who swapped work among themselves.

The working relationship could only function if there were a minimum number of hours Mr Smith had to work. There were also heavy penalties in place that prevented Mr Smith from working for PP’s competitors after termination (§ 115).

The UK Supreme Court decision

PP appealed to the UK Supreme Court who unanimously dismissed the company’s appeal.

The main issue before the Court was whether the Court of Appeal and the Tribunals got it wrong in finding that Mr Smith was personally obliged to work for PP, even though his contract allowed him to give away work.

On the question of whether the right to substitute is consistent with personal performance, a key question is ‘what is the dominant feature of the contract?’ (§ 32).

Here, the language and emphasis (‘you must’, ‘you will’, ‘your appearance’, ‘your skills’) leaned heavily on Mr Smith to provide personal service of a particular standard.

The Court agreed with the Court of Appeal below, that there was only a limited contractual right of substitution, which only extended to swapping with other Pimlico plumbers who were bound by the same contract.

Further evidence suggested that PP was an employer, not just one of Mr Smith’s client. PP had ‘tight control’ over Mr Smith, and the Court observed that the company had a ‘grip on his economy’. He had to wear branded uniform and an ID card, he was instructed by a control room and drove a GPS tracked van. All this was inconsistent with Mr Smith being an independent business (§§ 48 – 49), and the ET had been entitled to find he was a ‘worker’.

Conclusion

Those expecting an overhaul of the gig economy are likely to be disappointed at thethe Supreme Court’s refusal to lay down any governing principles in gig economy cases, but the Court’s conclusion uses some new language around the ‘dominant feature’ of contracts, which advisors and employers should take careful note of to avoid / resolve disputes over whether persons are self-employed or not.

The remarkable length of this case (started 7 years ago) highlights the need for the government to step in and implement reforms recommended by the Taylor review, so that individuals can clarify their employment status in the Tribunal in a more speedy and effective manner. The alternative seems to be endless waves of litigation.

Posted by Ben Amunwa

Founder and editor of Lawmostly.com. Ben is a business and public law barrister with the 36 Group. He gives expert legal advice on employment, immigration and commercial disputes to a wide range of clients.

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