Supreme Court decision deals blow to gig economy employers

August 10, 2018

In the latest in a series of gig economy cases, the Supreme Court has decided that a plumber described in his contract as “self-employed” was a “worker” and therefore entitled to employment rights.

The case against Pimlico Plumbers

Gary Smith is a plumbing and heating engineer who worked for Pimlico Plumbers (PP) for six years before suffering a heart attack. After his heart attack, Mr. Smith asked if he could reduce his hours due to ill health. PP refused and terminated his contract.

Mr. Smith made a claim against PP for unfair dismissal. In addition, he claimed he had been discriminated against on the grounds of his disability, had been denied statutory sick pay and had not been paid for a period of statutory annual leave.

The Employment Tribunal decided that he was not an employee (and could not therefore claim unfair dismissal) but a “worker” and, as a result, could pursue his additional claims. The decision was upheld in the Employment Appeal Tribunal and the Court of Appeal and has now been confirmed by the Supreme Court.

Employment status

At this point it is useful to set out some context and background about status. There are basically three types of engagement an individual can have with an organisation:

  1. An employee: they are committed to work a certain number of hours in return for basic pay, whether they are assigned tasks or not; or
  2. A worker: they must provide personal service, are not promoting themselves to the world and are only paid where work is allocated to them; or
  3. Self-employed: they are promoting themselves to the world, are in business on their own account, deal with clients direct and can substitute their work under certain circumstances.

This may seem straightforward (albeit it has been simplified), however usually the differences are not so clear cut and you would be surprised about the number of grey areas surrounding these three types of engagement. As a result, they have been the subject of extensive law. This is because much depends on the facts of each case and there are purposely no hard and fast rules. It is an area that despite having progressed vastly due to some high-profile cases, has not led to the law been made any clearer.

Employment and engagement rights of Mr. Smith

The big issue for both individuals and employees, is that an individual’s status will affect their employment or engagement rights. Not only that, HMRC will apply different rules depending on whether someone is classed as an employee (or worker) or self-employed – there is no middle ground.

In order to classify Mr. Smith as a worker, the Supreme Court had to determine that:

  1. It was necessary for Mr. Smith to personally perform his work or services for PP, and
  2. The company was neither his client or customer.

On point one, PP sought to rely on the fact that even though Mr. Smith had to work a set number of hours per week, he could send a substitute to carry out work on his behalf. This ability to send a substitute has for some time been considered one of the tests of self-employment.

The court felt that despite this “right to substitute”, the dominant feature of the contract between Mr. Smith and PP was personal performance by Mr. Smith. The court noted in this respect that only someone else who worked for PP could carry out his work.

On the second point, PP argued that it was a client of Mr. Smith as he was free to refuse jobs offered to him, could accept outside work, bore some of the financial risk of the work and his work was not supervised by the company.

The court rejected these arguments. In giving his judgement, Lord Wilson said: “Although the contract did provide him with elements of operational and financial independence, Mr. Smith’s services to the company’s customers were marketed through the company.

“More importantly, its term enabled the company to exercise tight administrative control over him during his periods of work for it; to impose fierce conditions on when and how much it paid to him, which were described at one point as his wages; and to restrict his ability to compete with it for plumbing work following any termination of their relationship.”

Mr. Smith’s legal costs in connection with the appeals have been funded by the Equality and Human Rights Commission. After the decision, its chief executive Rebecca Hilsenrath said: “If you wear the uniform, if you drive the branded vehicle, if you only work for one business, you are employed … thousands of workers like Gary Smith could now find themselves with the added security of benefits like sick pay and holiday pay.”

PP’s owner Charlie Mullins said the decision was “cowardly”. Describing it as “a “missed opportunity to rectify our out of date employment law and bring it into the 21st century”, he called on the government to “do something about it”.

Government action

The government is actively looking at this issue and earlier this year published its response to the 2017 Taylor Review into modern employment practices.

In its response, the government accepts that there is a lack of clarity about employment status and has begun a consultation about how it could be defined in legislation. For the most part, it agrees with the Taylor Review’s recommendations, although it is carrying out further consultation in relation to them. The recommendations include:

  • An assumption that in businesses with a workforce over a certain size, individuals will by default have the status of workers.
  • A requirement for workers to be given a clear statement of their rights within seven days of their engagement.
  • Gig economy businesses with flexible workers being required to guarantee a certain number of hours per week or pay a premium national minimum wage.
  • Punitive fines for businesses that falsely classify workers as self-employed and have already lost a similar case.

The take away from this case is how important it is for companies in the gig economy to understand the true status of their workforce and to take legal advice upon its contracts. As this case (and others recent high-profile ones such as Deliveroo and Uber) show, this issue is only going to gain more prominence as flexible employment practices increase in popularity.

I advise all my clients that where there is any element of uncertainty on status, the big question an employer will ask is what are the tax implications if they get it wrong. If they are a large employer, these implications may be huge. My advice in these circumstances is to obtain legal advice from an employment lawyer. Often, I will rubber stamp this advice with confirmation from a tax lawyer or accountant in order to ensure that my clients do not fall foul of HMRC.

Written by Thalis Vlachos, Employment Law Partner at gunnercooke.

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