Background
Last month we issued an article on employment status, and mentioned that Pimlico was heard by the Supreme Court (SC) in February 2018. The SC has now delivered its judgment.
As a brief recap of the case, Mr Smith was engaged by Pimlico as a plumber. His contract with Pimlico stated him to be self-employed, but there were elements of the contract that called into question whether he actually was self-employed.
In some regards the contract supported that contention, such as him bearing an element of financial risk, having to account for his own tax and providing his own tools and equipment.
However, other parts of the contract pointed away from self-employment. For example, it referred to words such as ‘employment’ and ‘dismissal’ and contained post-termination restrictions on his ability to work for others. In addition, there were strict rules in relation to when and how much the company had to pay Mr Smith.
Mr Smith was also required to wear a Pimlico uniform, drive a van (tracked by the company) with the Pimlico logo and carry a Pimlico ID badge with him at all times.
The arrangement between Mr Smith and Pimlico allowed him to provide a substitute to carry out the work on his behalf, but this right was more an informal agreement between the parties and was not enshrined in the contract. In any event, it became clear that any substitute had to be another Pimlico operative, as opposed to anyone of Mr Smith’s choosing.
The SC’s decision
The SC’s job, as was the job of the court and tribunals hearing the case before it, was to weigh up the various factors in both the contract and the practical arrangements between the parties, and determine whether Mr Smith was a worker or a self-employed contractor.
In a unanimous verdict, the SC has agreed with the previous decisions, namely that Mr Smith was a worker. The SC based its decision on two main questions: was Mr Smith obliged to perform the services himself, and could Pimlico reasonably be said to be his client or customer?
In answering the first question, the focus of the SC’s thinking was on the right of substitution. In general terms, an individual having free rein to send anyone in their place to carry out the work might be an indicator of self-employment, although even then it is helpful if such a right has been exercised in practice.
However, the right in this case was significantly qualified by the substitute having to be another person engaged by Pimlico. As such, the SC stated that Pimlico could not be said to be interested only in the work being done, as opposed to who did it. The SC interpreted that in the same way as had been done previously, namely that there was an obligation on Mr Smith to provide the services to Pimlico personally.
In answering the second question, the SC considered a number of factors. For example, it looked at the obligation on Pimlico to offer work to Mr Smith and on his obligation to accept it. It noted a contradiction in the contractual documentation, as one document stated that there was no obligation on Pimlico to provide work but another document stipulated a 40-hour working week.
Again the SC favoured the previous judges’ interpretation of the documents, namely that if work were available then Pimlico would have to offer it, but wouldn’t have to do so otherwise. On that basis the SC found that there was an ‘umbrella’ contract between the parties, i.e. continuing obligations between them even when Mr Smith was not actually carrying out jobs.
Pimlico made several points in an attempt to show that they were a client or customer of Mr Smith, including his ability to turn down work, his ability to take on outside work (for non-Pimlico clients), the lack of supervision over how he carried out the work and the fact that he bore some of the financial risk.
However, the SC also noted many factors pointing to Pimlico having a substantial level of control over Mr Smith, including the need to wear a uniform, drive a Pimlico van and carry an ID badge. The SC also described the contractual terms regarding pay as ‘severe’, stating that they were inconsistent with the contention that he was a self-employed contractor.
Taking everything into account, the SC dismissed Pimlico’s appeal and found Mr Smith to be a worker. As such, his original claims in relation to unlawful deductions from wages, holiday pay and discrimination can now go ahead.
What does this mean?
Pimlico is in line with the vast majority of the other cases that we’ve seen in this area, such as those related to Uber, Addison Lee and CitySprint. The cases follow a theme, namely that in deciding employment status the Employment Tribunal will have to weigh up a number of factors.
The contract in place between the parties will continue to be an important piece of the puzzle, but in many cases will by no means be the deciding factor. In any event, the contract in this case was not of much help to Pimlico, as the language within it and the post-termination restrictions (rarely a feature of self-employment) cast doubt on Mr Smith’s employment status.
Issues such as the ability to provide a substitute, the amount of control enjoyed by each party and whether work has to be offered and accepted in the first place will also inform the decision.
Much of Pimlico’s loss in this case could arguably be attributed to the level of control exerted over Mr Smith, in relation to the uniform, van etc. We therefore advise against employers imposing similar requirements on their own contractors.
Similarly, an unqualified right of substitution will generally be a pointer towards self-employment, but the more that right is limited, the less support it gives to self-employed status. For example, a requirement that the employer give consent to any request to provide a substitute, or setting a ‘pool’ of potential substitutes to choose from, will be unhelpful to an argument of self-employment.
Of course, substitution is not always going to be appropriate, particularly where you engage an individual for their particular skill set. Not allowing substitution will not necessarily be fatal to an argument that an individual is self-employed, and it is still just one factor to be considered.
The main lesson for employers is therefore to look at the wider picture, and the practical arrangements in place with contractors, to determine whether the individual could argue that their status is not as described in their contract. If so, employers may wish to make changes to reduce that risk, or instead consider engaging individuals in a different way.
In the meantime, if you have any questions on any of the issues raised in the above article, such as the employment status of individuals carrying out work for you, please contact Seanpaul McCahill.