This month’s Chartered Accountants Tax Case Digest looks at what many are hailing as a landmark decision which examined whether someone was self-employed or an employee. The decision in this long running case comes at a time when the UK is consulting on the employment status in the context of changing work patterns and what is known as “the gig economy”.

The Pimlico Supreme Court decision could have far-reaching consequences for others currently considered self-employed as the decision in the case is binding on lower courts meaning it could influence the outcome of other gig economy and workers’ rights cases currently making their way through the UK legal system.

Background

The UK’s highest court considered an appeal brought by Pimlico Plumbers. The case centred on whether Mr Smith, who worked for Pimlico Plumbers as a plumbing and heating engineer between 2005 and 2011, was self-employed, as the company claims, or a worker. The lower courts had also decided that he was a worker rather than self-employed.

Mr Smith was registered for VAT and paid tax on a self-employed basis but he worked solely for Pimlico Plumbers. He also provided his own equipment, accepted personal liability for the work he undertook and provided his own insurance cover.

However, his work was subject to Pimlico’s specific rules. For example, he had to wear the company’s branded uniform, hire a branded van and deliver his services personally as he did not have an “unfettered right” to transfer work given to him to a substitute. He was also expected to work five days a week with a minimum of 40 hours.

Mr Smith suffered a heart attack in January 2011 and thereafter requested to work a three day week instead of the usual five he had done previously. Pimlico Plumbers refused his request and removed his branded van which he had hired from the company.

Mr Smith had worked for the company under two written agreements. According to the Supreme Court, these agreements were drafted in quite confusing terms.

In August 2011, he issued proceedings against the company before the employment tribunal alleging that he had been unfairly dismissed, that an unlawful deduction had been made from his wages, that he had not been paid for a period of statutory annual leave and that he had been discriminated against by virtue of his disability.

The employment tribunal decided that Mr Smith had not been an employee under a contract of employment, and therefore that he was not entitled to complain of unfair dismissal (a finding that Mr Smith does not now challenge), but that Mr Smith:-

• was a ‘worker’ within the meaning of s.230(3) of the Employment Rights Act 1996;
• was a ‘worker’ within the meaning of regulation 2(1) of the Working Time Regulations 1998; and
• had been in ‘employment’ for the purposes of s.83(2) of the Equality Act 2010.

These findings meant that Mr Smith could legitimately proceed with his three complaints; unlawful deduction from his wages, holiday pay and discrimination.

Pimlico Plumbers appealed this decision to an appeal tribunal and then to the Court of Appeal.

The Court of Appeal ruled in February 2017 that Mr Smith was a worker and not self-employed. This meant that he was entitled to bring legal action against Pimlico Plumbers relating to disability discrimination, holiday pay and unauthorised wage deductions.

The Court found he was a worker because he was required to do a certain number of hours’ work per week and to use a Pimlico Plumbers van while doing so. Pimlico Plumbers consequently appealed to the Supreme Court.

Decision

The Supreme Court unanimously dismissed the appeal holding that the tribunal was entitled to conclude that Mr Smith qualified as a ‘worker’ under s.230(3)(b) of the Employment Rights Act 1996 (and by analogy the relevant provisions of the Working Time Regulations 1998 and the Equality Act 2010), and his substantive claims can proceed to be heard.

Regulation 2(1) of the Working Time Regulations defines ‘worker’ in identical terms to s.230(3)(b). Case law has also suggested that the meaning of ‘employment’ in s.83(2) of the Equality Act is essentially the same.

On that basis, if Mr Smith was to qualify as a “‘limb (b)’ worker under s.230(3)(b) then it was necessary for him to have undertaken to personally perform his work or services for Pimlico Plumbers, and that the company be neither his client nor his customer”.

When considering whether Mr Smith had undertaken to provide a personal service, it was relevant that when working for Pimlico, Mr Smith had a limited facility (not found in his written contracts) to appoint another Pimlico operative to do a job he had previously quoted for but no longer wished to undertake.

The significance of this ‘right to substitute’ was assessed by considering whether the dominant feature of the contract remained personal performance on his part. In this case the terms of the contract (which referred to ‘your skills’ etc.) were clearly directed to performance by Mr Smith personally, and any right to substitute was significantly limited by the fact that the substitute had to come from the ranks of those bound to Pimlico in similar terms. Consequently, the tribunal was entitled to hold that the dominant feature of Mr Smith’s contract with the company was an obligation of personal performance.

On the issue of whether Pimlico Plumbers was a client or customer of Mr Smith, the tribunal legitimately found there was an umbrella contract between the parties that cast obligations on Mr Smith even when he was between assignments for Pimlico.

The wording of the written contractual documents was used to determine whether Pimlico was a client or customer of Mr Smith. Mr Smith was free to reject a particular offer of work, and was free to accept outside work if no work was offered by any of Pimlico’s clients. He also bore some of the financial risk of the work, and the manner in which he undertook it was not supervised by Pimlico.

However, there were also features of the contract which strongly rallied against recognition of Pimlico as a client or customer of Mr Smith. These included Pimlico’s close control over Mr Smith’s clothing, the administrative aspects of any job, the severe terms as to when and how much it was obliged to pay him, and the suite of covenants restricting his working activities following termination. Accordingly, the tribunal was entitled to conclude that Pimlico cannot be regarded as a client or customer of Mr Smith and that Mr Smith should be classed as a worker.

The full judgment in this case is available from http://www.bailii.org/uk/cases/UKSC/2018/29.html