Pimlico Plumbers Limited & another v Smith [2017] EWCA Civ 51
“Status” is a hot issue in Employment Law right now. In recent years the courts and tribunals have considered a number of high profile claims where individuals have sought to argue that they were an employee or a worker in order to qualify for rights or protections not otherwise available to them. The Pimlico Plumbers judgment reflects the latest of these.
Determining status ultimately involves the court establishing the existence (or not) of a statutory contractual relationship. I refer to “status” as opposed to “employment status” for clarity as the Pimlico Plumbers case concerned whether Mr Smith was a worker or genuinely self-employed, although reading the recent Department for Business Innovation and Skills (BIS) “Employment Status Review” alongside the judgment you would be forgiven for speculating that there may have been at least a slim prospect of a successful outcome had Mr Smith chanced his arm and further appealed the Employment Appeal Tribunal’s decision that he was not employed.
At present, and for the foreseeable future based on the BIS Review, we have three main statuses: Employee, Worker and Self-Employed. The principles by which status is determined are laid down in case law but open to interpretation, largely because of the importance attached to focusing on the reality of the relationship rather than solely the contractual terms between the parties.
Mr Smith worked for Pimlico Plumbers between August 2005 and May 2011 under an agreement which described him as a self-employed employee, later changed to self-employed operative. The agreement expressly provided that the company was under no obligation to offer Mr Smith work nor was he obliged to accept any work, although he was required to notify the company when he would be unavailable for work. Mr Smith was contractually obliged to observe the company’s Manual which required him to wear a uniform, work a minimum number of hours and rent a company van amongst other things, and made provision for him to invoice the company for his fees. Before the employment tribunal there was a finding of fact that Mr Smith worked solely for the company although he decided his own working hours; tellingly, Mr Smith accepted in evidence that, in practice, the company had no obligation to provide him with work (reflecting the contractual terms).
The employment tribunal decided on the issue of whether Mr Smith was an employee that there was no mutuality of obligation (to provide and perform work), one of three essential conditions required for a contract of employment (along with personal service by the employee and control by the employer – the ‘irreducible minimum’). Mr Smith was, however, found to be a worker rather than genuinely self-employed, irrespective of his contractual description. This decision was principally based on the requirement for Mr Smith to provide personal service, and upheld by the EAT.
Before the Court of Appeal, the extent to which Mr Smith was required to provide personal service was again under the spotlight, although the company also appealed the finding that Mr Smith was obliged to work a minimum number of hours each week, criticising the employment tribunal’s failure to consider whether Mr Smith was engaged on a single contract or a succession of separate contracts.
After a comprehensive analysis of the relevant case law, the Master of the Rolls summarised five key principles in relation to personal service or performance (paragraph 84 of the judgment), including the premise that a conditional right to substitute another person may or may not be inconsistent with personal performance, however a right of substitution which arises only when the subcontractor is unable to carry out the work will, subject to exceptional facts, be consistent with personal performance. Ultimately, the Court found that the language of the agreement, which did not include any express right of substitution, was inconsistent with the existence of a right to substitute (and, by analogy, consistent with the obligation to provide personal service), further it was not necessary to imply such a right – the fact that some, infrequent substitution did occur was no more than an informal practice.
In considering the second limb of the appeal, the Court issued a reminder that when considering status as between workers and the genuinely self-employed, the employment tribunal is required to carry out an evaluative exercise, focussed on the facts and with no single touchstone, such as the subordination of one party to another (which, from individual to the principle, would point to worker rather than self-employment status). In this case, the words of the Manual, which had contractual effect, created an obligation to work a minimum number of hours; the finding was not inconsistent with the lack of mutuality of obligation as Mr Smith was free to refuse particular assignments in a week notwithstanding that he was not free to refuse all of them (which would not have made sense commercially in any event). The minimum hours arrangement did however illustrate a sufficient degree of control as to be consistent with worker rather than self-employment status. In addition, restrictive covenants in the agreement precluding Mr Smith from working as a plumber in Greater London for three months after termination of the agreement undermined the company’s argument that Mr Smith was engaged on a succession of separate contracts.
Whilst status disputes will only become more common as we move in the direction of alternative working arrangements fuelled by the desire for increased flexibility, from employers and individuals alike, in light of this decision and the recent BIS Review all signs are that the battleground will be the employee/worker boundary.
The above case, then, is decisive and a warning for businesses engaging self-employed contractors, particularly where individuals are spending all or the vast majority of their time providing services to one organisation or under one agreement. A properly drafted consultancy agreement is essential and it is imperative to keep the relationship under review – as Lord Justice Underhill observed “tribunals will look narrowly at lawyer-drafted documentation which does not appear to correspond to the reality of the relationship”.
Please contact the Paul Clark or another member of the Employment Team at Jacksons Law Firm for advice and assistance with drafting, reviewing or amending all forms or employment documents, as well as training on implementing and using policies and procedures effectively.
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