They think it's all over – but is it now?

What the Supreme Court decision in Pimlico Plumbers means for businesses concerned about employment status

In football, it has been said there are only two kinds of manager: those who have been sacked, and those who will be sacked in the future. In UK employment law, by contrast, we have three types of employment status – and only one of them has any protection from unfair dismissal.

The Supreme Court has held that a supposedly self-employed plumber was in fact a worker, the intermediate status in the UK somewhere between the protections of employment and the freedom of being an independent contractor.

It is the latest case in a long line of cases about employment status. These have become more topical and more frequent (over ten in the last two years) with the emergence of the gig economy. Still going are the London Uber drivers case (where the drivers have also been held to be workers), the Taylor Review into modern working practices, and most recently the UK Government's response to that review with a number of consultations on reforming the law.

It would be wrong, however, to categorise Pimlico Plumbers as a new technology gig economy case. As the judgment makes clear, questions around the intermediate status of 'workmen' have been relevant since 1875.

So, what does it mean?

Background

Gary Smith was a plumbing and heating engineer who worked solely for Pimlico Plumbers from August 2005 under a contract describing him as an independent contractor in business on his own account.

Pimlico Plumbers were not required to offer him any work, and neither was he obliged to accept any work offered to him. However, the company manual said he had to work at least 40 hours per week, he had to wear a Pimlico Plumbers uniform and drive a branded van. While there was no express right of substitution in the contract, plumbers who had contracts with Pimlico Plumbers were able to swap jobs amongst themselves.

Following a heart attack, Mr Smith asked on medical advice to reduce his hours and Pimlico Plumbers terminated his contract in May 2011.

He brought claims for failure to pay holiday pay, unlawful deductions from wages and disability discrimination. In order to proceed, he needed to be a 'worker' under the Employment Rights Act 1996, the Working Time Regulations 1998 and to fall under the relevant definition in the Equality Act 2010. The employment judge agreed that he was. The Employment Appeals Tribunal dismissed Pimlico Plumbers' appeal, and so did the Court of Appeal in February 2017.

The Supreme Court decision

Five judges heard the case, and were unanimous: 5-nil to Mr Smith.

Lord Wilson, who gave the leading judgment, emphasised the clear legal test. Was Mr Smith obliged to perform services under the contract personally? Was Pimlico Plumbers his customer or client?

Whether and how staff can substitute themselves is key. Nothing short of an unrestricted right to substitution will defeat worker status. As Lord Wilson noted, the circumstances of this case were "the converse of a situation where the other party is uninterested in the identity of the substitute, provided only that the work gets done". Pimlico's operating manual and practices indicated they controlled and limited. To put it another way, if you act like a manager of your staff, it's hard to allege they're the ones managing and can substitute themselves.

The Supreme Court held it was helpful to assess the right of substitution by asking whether the dominant feature of Mr Smith's contract was his personal performance. Since his contract referred throughout to "your skills", "you will be competent to perform the work" and rules around his personal appearance and conduct, the court agreed that was the case and that the limited right of substitution (by another Pimlico Plumbers engineer, signed up to the same terms) did not mean Mr Smith was running his own business.

Pimlico Plumbers was not a client or customer of Mr Smith. While the contract said there was no requirement to offer or accept work, the company's rules about marketing, pricing, the branded van and uniform, and the restrictive covenants if he stopped providing services to Pimlico Plumbers as pointing away from a true customer relationship.

The employment tribunal had found that there was an umbrella contract between Mr Smith and Pimlico Plumbers, meaning that contractual obligations continued to apply between the two even when he was not working on a discrete job. The tribunal was entitled to make that finding of fact, and the Supreme Court did not have to consider what Mr Smith's status would be if there were no contractual obligations between specific assignments for the company's clients.

Current lessons for all businesses

Charlie Mullins, the CEO and founder of Pimlico Plumbers, has always been at pains to say that the case has been wrongly labelled as part of the #GigEconomy. The result is bigger than the gig economy, and will impact every type of organisation, whatever the industry, in how they construct and operate their contracts.

• Substitution is key

Play your substitutes wisely. If you want to say staff aren't workers, only giving them complete freedom to ask someone else to fulfil the contract will do. Allowing the individual to bring in an assistant, or a specialist for certain aspects of a job, will not suffice. Here, Pimlico Plumbers wanted control of who did the work and how they did it.

This is different from the situation in the 2017 Deliveroo union decision, where Deliveroo were successful in demonstrating that the delivery of the food was their only concern, and riders were free to use substitutes as they wished. It will be relevant to Uber in the Court of Appeal in October 2018, as Transport for London's rules mean that drivers are subject to regulatory controls and it is difficult to allow them to find substitutes. The vast majority of Uber drivers do not manage fleets and are sole operators according to evidence in the original case.

• Have clear contractual arrangements, that reflect the reality on the ground

Lord Wilson was scathing of Pimlico Plumbers' contractual arrangements. "So Pimlico there put before the tribunal an irrelevant contract, cast in highly confusing terms, and now complains that the tribunal’s interpretation of them was highly confused."

Incomprehensible and confusing (sometimes, contradictory) contracts aside, this was not a case where the facts were different from what the contracts showed. All contracts must be interpreted in the light of the facts, and broad reference to context can always influence the interpretation – which can make it more likely claimants will be able to show they are workers.

• A worker may still be self-employed for tax purposes

As far as HMRC is concerned, individuals are either employed or not. The Supreme Court rebuffed any suggestion that worker status is incompatible with self-employed status under tax law – even though most commentators think it would be helpful if this were amended.

• Pensions

Once held to be a worker, an individual gets pensions auto-enrolment rights too provided they meet certain criteria (in particular, having sufficient earnings). They will need to be automatically enrolled into a pension scheme or have pension provision made for them. However, because of the wording of the legislation and the typically fluctuating nature of these individuals' work and pay patterns, there are significant payroll and other challenges in actually delivering those rights.

The overall cost for businesses will be significant, even when making only the (increasing) minimum contributions required by the legislation on the rising national minimum wage rates.

• Holiday pay

Mr Smith should be entitled to claim 5.6 weeks holiday pay for each year he worked. Following the King v Sash Windows case, any miscategorised worker who was full time can seek 28 days for each year, going as far back as the start of the relationship. So, six years' service could generate claims of nearly six months' pay. Businesses should analyse their reserves and strategy for enforcement action, especially as the Director for Labour Market Enforcement is becoming more active.

Taylor Review and policy implementation – the long game

You could say that employment status is a political football, and the timing of this case is interesting. In response to the Supreme Court decision, Matthew Taylor commented that the result was "generally a good thing, especially if it leads to more people who are employees in all-but-name securing proper workplace rights." However, he added, "the government must now move to clarify in primary legislation too, as well as allowing for more kinds of flexible working, which must also be reflected in the tax system."

The decision dovetails perfectly with the ongoing government review of employment law and will, no doubt, flow into the government's response to the consultation papers issued following the Taylor Review. Clear guidance from the Supreme Court will make it easier for the government to make informed legislative change, which is likely to include a simplified test of worker status. Businesses should continue to engage with the dialogue on change.

What's next?

It seems from this decision that the Supreme Court wants to manage the numbers of cases relating to employment status, and reinforced the weight of the decision made by the Master of the Rolls in the previous Court of Appeal judgment.

Uber's big day in the Court of Appeal, in October 2018, has been scheduled specifically so that the Master of the Rolls, the most senior judge in the Court of Appeal, is able to hear the case. It was he who gave the lead judgment in Pimlico Plumbers' own Court of Appeal decision. With the support of the Supreme Court behind him, it will make it easier to set out a coherent body of case law that can be applied by people and organisations in their own dealings to determine employment status, and perhaps a little harder for Uber to win.

Deliveroo and the IWGB

A word on the International Workers of Great Britain (IWGB) union's claim for recognition by Deliveroo to collectively bargain on behalf of a group of North London riders. In order to be recognised, the riders had to be workers; in late 2017, the Central Arbitration Committee held that the riders could not be workers because they were able to ask any person to carry out deliveries on their behalf: a free right of substitution, unlike that in the Pimlico Plumbers contract.

Just days after the Supreme Court decision, the IWGB announced that it has successfully applied for permission for a judicial review of the CAC's decision on the ground that it was arguable the CAC should have considered the right of the Deliveroo riders to bargain collectively – as enshrined in Article 11 of the European Convention on Human Rights.

However, the IWGB have not been given any protection against costs. If the union loses, it has warned its crowdfunders, it is potentially exposed to more than £100,000 for Deliveroo's legal costs. At the time of writing, the union has raised £24,050 of a £50,000 target. If it does not reach its target, will the union be prepared to take the risk of continuing the case?

Many – us included – have said there's a market interest in certainty. The Taylor Review recommended that a clear test for platform workers' status should be enshrined, focused on control. It specifically said substitution rights should be de-prioritised and that those go more to whether someone is an employee than a worker. It seems that the Supreme Court is taking an alternative view, but then maybe it had to, on the facts of the case.

In light of these two cases the score now stands at 10-1 to workers. Whatever the score over the next few months, neither side will be playing for a draw.

Back to contents page