When does a self-employed plumber become a company worker? You might think you can tell by looking at the contract, but a spate of legal cases suggest it’s not that simple. For those HR practitioners who find they’ve effectively been employing workers all along, the ramifications for their business model are considerable. Alison Weatherhead, Director at Maclay Murray & Spens LLP.
In the age of the ‘gig economy’, many businesses find it useful to rely on an army of self-employed contractors to complete jobs, as and when contracts are won. But the latest ruling in the Court of Appeal serves as a timely reminder to review not just the letter of these contracts, but the nature of the relationship between contractors and clients in the real world. In Pimlico Plumbers & C. Mullins v Smith, the Court upheld an Employment Tribunal decision that Gary Smith was a worker, not a self-employed contractor, as his contract stipulated. It is the highest level decision yet regarding the practices of the new gig economy and provides a key precedent to all those trying to build a genuinely contractor-based business model. Mr Smith had worked for Pimlico as a plumber for around six years when, following a heart attack, his contract was terminated. He claimed unfair dismissal and disability discrimination. Although the Tribunal found that he was not an employee, rendering him unable to bring the unfair dismissal claim, it held that he was a ‘worker’ for legal purposes and as such that he should receive basic workers’ rights, including national minimum wage, sick pay, holidays and the ability to bring claims of discrimination.
Despite Pimlico arguing that the contract described Mr Smith as being self-employed, highlighting that he was registered for VAT and establishing that his own understanding was that he was self-employed, the Court determined that this did not reflect the reality of the relationship between the parties. In order to be classed as a worker, there are three points to be satisfied: there must be a contract; the contract must require ‘personal service’ by the worker; and the professional relationship between the parties must not be one of a business providing services to a ‘client or customer’.
The latter two points are often tricky to navigate for businesses engaging self-employed contractors, and generate the most litigation. Gary Smith was allowed, and did, swap his jobs with other plumbers, but as there were no explicit terms in his contract giving a right of substitution, Pimlico’s argument that he was not required to provide services personally was unsuccessful. The Court’s useful summary of the personal service issue was that where there is an unrestricted right to provide a substitute, the individual is not a worker. But if a substitute can only be provided with approval by the engaging business, then personal service is normally established.
In determining whether Pimlico could be described as Gary Smith’s ‘client or customer’, the Court found that the degree of control exercised by Pimlico over Mr Smith was inconsistent with this position. Mr Smith wore a company uniform and drove company vans; he was only contacted by customers through Pimlico and all contracts, estimates and payments were in the name of the company. Pimlico even monitored his movements via GPS. The judges highlighted this as a clear situation whereby personnel are intended to appear as working for the business, whilst the business maintains that the legal relationship is that of an independent contractor.
Although none of these points are new law, the case serves as a reminder to HR directors and employers that the structure of any such relationship must be given proper consideration at the outset, and any contract must clearly and accurately set out parties’ intentions and reflect what happens in practice. With an appeal to the Supreme Court likely in the case, a six-month government review of modern working practices underway, and HMRC setting up a new unit to investigate potential ‘fake self-employment’, it is time for companies and, in particular HR, to review their relationships with self-employed contractors and identify any areas of legal risk, before the issue gains even more momentum in the public perception, as this will only heighten the likelihood of claims being made.
