The Supreme Court has recently given its judgement in the case of Pimlico Plumbers Ltd v Smith. This is an important judgement in determining whether or not persons described as “independent contractors” are in fact in law “workers”, thus enabling them to bring claims for holiday pay, unlawful deduction of wages and discrimination claims. Mr Smith was engaged by Pimlico Plumbers for over five years. His contract stated that he was an independent contractor, that he was in business on his own account, that he was under no obligation to accept work and that the company was under no obligation to offer him work. The contract stated that he would not be paid if a customer failed to pay for the job and he was responsible for ensuring that liability insurance was in place. He was registered for VAT, submitted invoices to Pimlico Plumbers and filed his own tax returns as a self-employed person.
The Court decided that the plumber in question was so much an integral part of Pimlico’s operations and was subordinate to it, that he fell within the definition of a “worker”. Even though the Claimant was allowed to accept work outside Pimlico, there were also features of the contract which strongly militated against recognition of Pimlico as a client or customer of the Claimant. Although he could provide a substitute for his work, the substitute could only come from their list of plumbers.
Other important factors were that he:
- Wore a Pimlico uniform and had to be clean and smart at all times.
- Drove a Pimlico van.
- Carried a Pimlico identification card.
- Agreed to a suite of covenants restricting his working activities after termination.
The subordinate position of Mr Smith to Pimlico was a key indicator that they were not a client of a business run by Mr Smith, but that he was really their worker.
Peter Stanway, our BackupHR™ legal expert comments:
The case sends out a clear warning to all businesses that although an individual may be described as an “independent contractor” they are in fact in law a “worker” and therefore have entitlement to a range of ‘employment’ rights. The ruling is in line with what was expected and with other recent high-profile employment tribunal gig economy cases, such as the Uber decision.
In every case like this, courts will have to grapple with the facts of the particular case; considering whether personal service is required, if there is a genuine right to provide a substitute and looking at questions of control, risk and subordination. This analysis will go beyond the terms of the written documentation. What has emerged from the recent line of cases is that where a business seeks to exercise a significant amount of control over how and by whom the work is done, integrates the individual into its own business, and dictates terms which put them in a subordinate position, they are likely to be found to be a worker (if not an employee).
It remains to be seen whether the Government will take action to help provide more clarity to businesses and their workforces. Whilst they may try to legislate in this area in an attempt to make it clearer how to decide whether an individual is an employee, worker or self-employed, there will always be an element of interpretation and the outcome will turn on the specific facts of the working relationship. This means that this area is likely to continue to cause confusion and uncertainty.
The publicity surrounding the decision is likely to lead to future challenges by ostensibly self employed individuals looking to unpick those arrangements in the event of a dispute.
- Be aware of the possibility that so-called contractors may be found to be employees or workers in a tax or employment tribunal.
- There are consequent risks of employment law claims or demands for PAYE and NICs arrears.
- It is not good enough just to have a cleverly worded contract, the reality must match the wording.
The guidance provided in this article is just that – guidance. Before taking any action make sure that you know what you are doing, or call us for a free initial chat on 01480 677980.