Landmark decision for “gig economy” workers

The recent judgment of the Supreme Court in Pimlico Plumbers Ltd v Smith is undoubtedly the most significant decision of the recent employment status cases which impact in particular the so-called “gig economy”.

Almost seven years after bringing his Employment Tribunal claim, the highest Court in the country has now upheld the earlier decisions of the Employment Tribunal, the Employment Appeal Tribunal and Court of Appeal that Gary Smith was a “worker” and not “self-employed” and, as a result, had the right to the national minimum wage and paid holiday.

The case is now the leading authority on how to determine employment status, which is of particular significance to those working in the gig economy. The case will have significant cost implications for organisations in a number of sectors where people have been treated as contractors rather than workers but the decision will be welcomed by many thousands of people who have been missing out on key employment rights because they are classed as self-employed when, in reality, they are workers or employees. That said, the question of whether any given individual is an employee, a worker or self-employed will always depend on the particular circumstances and the facts of each case.

What was the background to the case?

Mr Smith was engaged as an independent contractor by Pimlico Plumbers between August 2005 and April 2011 and signed two agreements to that effect. He was registered for VAT and filed tax returns on the basis that he was self-employed. He wore the company uniform with a logo, drove a Pimlico Plumbers van and had to give notice about taking annual leave. He was expected to work a minimum of 40 hours a week. There were detailed requirements in relation to timesheets, purchasing procedures and invoicing. Following a heart attack in January 2011, Mr Smith wanted to reduce his working days but Pimlico Plumbers ended the agreement in May 2011.

In August 2011, Mr Smith brought Employment Tribunal proceedings for unfair dismissal, unlawful deductions from wages, unpaid statutory annual leave and disability discrimination.

The Employment Tribunal held that Mr Smith was not an “employee” under section 230(1) of the Employment Rights Act 1996 (ERA). However, it held that he was a “worker” as defined in section 230(3)(b) ERA and regulation 2(1) of the Working Time Regulations 1998 (WTR) and had been “in employment” for the purposes of section 83(2) of the Equality Act 2010 (EA). The Tribunal took into account that:

• Mr Smith had to provide his services personally to Pimlico Plumbers and there was no right of “substitution” in the contractual documentation, although there was a limited, informal concession to swap assignments with the other plumbers engaged by Pimlico Plumbers.
• He had to work a minimum number of hours.
• Restrictive covenants applied to Mr Smith following termination of the agreement.
• Rather than Pimlico Plumbers being a client of Mr Smith’s business, he was in fact an integral part of its operations and sub-ordinate to Pimlico Plumbers.

As he was held to be a “worker” and not an “employee”, Mr Smith could not proceed with his unfair dismissal claim but he was able to proceed with the other three claims.

Pimlico Plumbers appealed this decision unsuccessfully to the Employment Appeal Tribunal in 2014 and then to the Court of Appeal, again unsuccessfully, in 2017.

What did the Supreme Court decide?

The Supreme Court unanimously held that, on the facts of Mr Smith’s case, the Employment Tribunal was entitled to conclude that Mr Smith qualified as a “worker” under section 230(3)(b) ERA and the relevant provisions of the WTR and EA. This meant that Pimlico Plumbers’ appeal failed.

The Supreme Court considered two key issues:

• Did Mr Smith have to personally provide his work or service for Pimlico Plumbers? This is because the question of providing work or a service personally is key to establishing whether an individual is an ’employee’ or a ‘worker’ or self-employed.
• Was Pimlico Plumbers Mr Smith’s client or customer?  This is because, if it was, this would have negated Mr Smith’s claim to be a ‘worker’.

Regarding the issue of personal service, the Employment Tribunal had found that Mr Smith only had a limited facility (not set out in his written contracts) to appoint another Pimlico Plumber to do a job if he didn’t do it. The Supreme Court considered whether this was inconsistent with the obligation of personal performance and concluded it was not. It agreed with the Employment Tribunal that the “dominant feature” of Mr Smith’s contracts with Pimlico Plumbers was an obligation of personal performance by him. Although there was a limited right of substitution (i.e. the right to ask someone else to do the job rather than doing it himself), significantly the substitute had to be from Pimlico Plumbers and would be bound to it on similar terms to Mr Smith.

As for the issue of whether or not Pimlico Plumbers was a client or customer of Mr Smith, the contracts provided that Mr Smith could reject a particular offer of work and could accept outside work if none was offered by any of Pimlico Plumbers’ clients.  Mr Smith also bore some of the financial risk of the work. However, other elements of the contracts “strongly militated” against recognition of Pimlico Plumbers as a client or customer of Mr Smith. There was “tight control” over Mr Smith. He had to wear the branded uniform, drive the branded van (which had a tracker) and carry the Pimlico Plumbers’ identity card. He had to follow the administrative instructions of the control room, was subject to restrictive covenants limiting his working activities following termination of his engagement and “fierce conditions” were imposed on when and how much Mr Smith was paid. The contractual documents also contained references to ‘wages’, ‘gross misconduct’ and ‘dismissal’. The Supreme Court held that, “by a reasonable margin”, the Employment Tribunal was entitled to conclude that Pimlico Plumbers could not be regarded as a client or customer of Mr Smith.

What are the implications of the decision?

For Mr Smith, the decision means that the Employment Tribunal can now consider his three claims against Pimlico Plumbers. There is every indication that these will be defended so the merits of his claims are a long way from being resolved.

The principles established by the Supreme Court’s decision have wider implications. There has already been a great deal of high profile litigation about gig economy/employment status involving organisations such as Uber, Addison Lee and CitySprint. In all those cases, the decisions of the lower courts have been in favour of the individuals establishing “worker” status. Uber are appealing to the Court of Appeal and their case will be heard in October 2018. The Supreme Court decision may encourage other individuals to commence proceedings to determine their employment status so that they can ascertain what employment rights, if any, they have. Further litigation appears inevitable and each case will turn on its facts but the Supreme Court’s decision confirms the approach which Tribunals should take in these cases. It’s also consistent with the line of cases in which ‘worker’ status has been held to be established.

Are there any other relevant developments?

It is accepted that there is a lack of clarity regarding whether or not someone has full employment rights because they are an “employee” as opposed to a “worker” or are genuinely “self-employed”.

In July 2017, the Taylor Review set out over 50 recommendations for improving workers’ rights and the Government’s response was published on 7 February 2018 together with four consultation papers. One of these relates specifically to employment status and whether any legal changes should be made, including whether a different category of “worker” should be introduced to reflect the realities of modern work. The consultation period has just ended (1 June 2018).

It is likely to be quite some time before we have any indication from the Government about how it intends to proceed. This is partly because of the range and complexity of the issues covered in the consultation papers and also because of other priorities.

The Government has also agreed to develop an online tool to assist in determining questions of employment status. Whether such a tool will, in fact, be of any use to businesses and workers in seeking to determine this typically complex question remains to be seen and the ultimate decision on an individual’s status will always rest with the Courts or Tribunals.