Why is this particular plumber important? The Supreme Court’s earlier decision in Autoclenz v Belcher gave the green light for Tribunals to look behind the strict words of the contract, where they did not match the reality of the situation. The issue now is whether the classic tests for employment status are relevant and applicable in the light of challenges posed by new ways and means of working.
Mr Smith worked for Pimlico. He was one of 125 contracted plumbers. His relationship was governed by an initial contract in which he agreed to undertake work for Pimlico.
A later agreement was more detailed and provided that he was a “self-employed operative”. It provided for summary termination if, for example, he failed to remedy any fault in providing the Services. There was no obligation to offer or accept work, but there was an obligation to “notify...in good time” unavailability. He was obliged to correct errors or pay the cost of correcting errors. He was obliged to notify the company if he was ill on a day when he was due to provide services and had to comply with the Company’s rules and policies. He was obliged to use his own materials and where he did so to receive a mark-up.
Mr Smith was registered for VAT, made some small payments to his wife, engaged an accountant to produce his accounts and filed tax returns on the basis he was self-employed. His evidence was that he rarely refused work because he would be “parked up” and not allocated work for a period of time. However, the evidence was that he before work could be done by a substitute approval had to be given, there was significant restriction on the ability to work in a competitive situation.
Although there was no express provision for personal service it was noted that personal service appeared to be the purpose of the agreement. He was obliged to wear a company logo’ed uniform. The manual required him to give adequate notice of holiday and to notify the control room if he wished to start or finish late.
Given the need for personal service and the restrictions imposed on Mr Smith the Tribunal found that he was a worker. Both parties appealed. Mr Smith argued that he was an employee and Pimlico argued that he was an independent contractor.
The EAT noted the tension that existed between wanting to present the plumbers as part of Pimlico’s workforce and having them work on a self-employed basis. The EAT upheld the Tribunal’s finding that the plumbers were workers. There were three main issues; (i) personal service and the extent to which that right was unfettered; (ii) the right to work for others, and (iii) the impact of the restrictive covenants in the contract.
Although there was an element of “job swapping” the ability to substitute was subject to agreement. It was not therefore unfettered.
Whilst some did work for others, Mr Smith did not exercise that right and the evidence was that those who did, did so by arrangement.
The restrictive covenants were said to be inconsistent with being in business on one’s own account.
The Court of Appeal heard an appeal by Pimlico against the finding that Mr Smith was a worker. It was unsuccessful. The issue again was personal service.
The Court of Appeal carefully and clearly expounded the law on when the right to substitute is and is not unfettered (para 84). Where the right was unfettered then there was no obligation of personal service. It found that although there was a right to substitute it was fettered and therefore Mr Smith was a worker.
In handing down its judgment the Supreme Court focussed on two key issues (i) the obligation to provide personal service and noted that although Mr Smith could send someone else to do the work, that right was limited and the dominant purpose of his agreement with Pimlico was that he would do the work himself. The second feature considered was whether Pimlico were a client or customer of a business run by Mr Smith. In considering this it noted that whilst there was some limited independence marketing was done by Pimlico and there were tight controls on what he could do and how he could compete with Pimlico after his contract ended.
Is anything really new? The gig economy has become a trendy catch phrase to suggest that there is a different method of working. What it does not really tell you is what has changed. Mr Smith worked for Pimlico for six years, he had the benefits of being self-employed and took advantage of them – but then so did Pimlico.
Employers have known the risks associated with engaging directly with “independent contractors” as a result of a spate of cases in the late 90s and early noughties, and have, as a result, drafted agreements in an endeavour to avoid the risks. The business model adopted here left the power of control with the “employer”. Pimlico needed to ensure that the work would be carried out when they had agreed it would be. Without control there was the risk of reputational damage; not to Mr Smith but to Pimlico’s business which would quickly be blamed if a plumber did not arrive at the agreed time.
Limiting an individual’s ability to substitute is entirely understandable in the context of projecting a corporate image and brand. The need to retain control of who is available and encouraging the “independents” to accept work is also understandable in the context of having the resource to meet demand. The flaw in the model is the need to retain control.
What does this decision mean for the gig economy?
It would have been possible for Mr Smith to have been an independent contractor but it would have needed a different framework, which might have been unattractive to Pimlico. Employers want to control risks to their business. It is only by letting go and letting the contractor take responsibility to get the work done that arguments about status are likely to be defeated. Where the “employer” controls who undertakes the work and imposes restrictive covenants there is always a serious risk that individuals will be found to be workers.
The Pimlico Plumbers decision does nothing to undermine the gig economy, the standard employment tests on status are still relevant in the modern world. The Taylor Review’s recommendation of re-styling workers as “dependent contractors” would, properly defined, clarify the position, but then again whatever the definition there will always be a struggle to avoid the implications of worker status and seek the wide open spaces inhabited by truly independent contractors.
The gig economy is thriving. This decision will not stop it, but for those choosing to enter the gig economy, they need to assess the risks and decide how to tackle, minimise them or understand what the financial consequences might be. It is entirely possible for the gig economy to work with truly independent contractors on this occasion the structures adopted did not satisfy the applied tests.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.