Supreme Court judgment on Pimlico Plumbers case.

What happened?

The Supreme Court has ruled on the case of Pimlico Plumbers Ltd and Mullins v Smith which, according to the Court of Appeal, “puts a spotlight on a business model under which operatives are intended to appear to clients of the business as working for the business, but at the same time the business itself seeks to maintain that, as between itself and its operatives, there is a legal relationship of client or customer and independent contractor rather than employer and employee or worker".

The case is of particular relevance to the so-called “gig economy”.

What is the gig economy?

The gig economy is a labour market characterised by short-term contracts and freelance work in which workers are not paid a regular wage but instead are paid for each ‘gig’ they do, such as item delivery, car journeys and skilled manual or personal services.

Supporters of the gig economy claim that it allows individuals to have flexibility and control over their working hours, with employers having the flexibility and costs savings to only pay when work is available.

However, this approach does mean that such workers have no protection against unfair dismissal, no right to redundancy payments and no right to receive the national minimum wage, paid holiday or sickness pay.

In particular, critics have argued that gig economy work is not as flexible as it may seem and that employers exert a similar level of control over the workers as they do over their employees, without the workers receiving the same level of benefits and protection as their recognised employee counterparts.

Case background

Mr Smith is a plumber who undertook plumbing work for Pimlico Plumbers for six years until 2011 amongst a bank of over 100 plumbers upon which Pimlico could call to carry out jobs for Pimlico customers.

Mr Smith and Pimlico entered into an agreement which referred to him as a sub-contracted employee and later as a self-employed operative. Both parties carried on the relationship on the basis that Mr Smith was self-employed until Mr Smith’s illness resulted in the termination of the contract by Pimlico.

Mr Smith subsequently commenced a claim for unfair dismissal, entitlement to pay (including sickness and holiday pay) and discrimination.

At the Preliminary Hearing, the Tribunal needed to determine whether Mr Smith was an employee, a worker or genuinely self-employed and additionally, whether the working situation met the definition of employment to give rise to a discrimination claim under the Equality Act 2010.

Mr Smith worked exclusively for Pimlico, was contracted to and expected to work 40 hours per week, used a Pimlico branded van, wore Pimlico uniform and represented to customers of Pimlico that he worked for them. Although there was some scope for the bank of plumbers to swap customer jobs, the expectation was that Mr Smith was to personally provide his services with no express right for him to provide a substitute to complete the work.

On the facts, it was found that:

• Mr Smith was not an employee;

• Mr Smith was a worker;

• Mr Smith’s working situation met the definition of employment within section 83 of the Equality Act.

These decisions were held by the Employment Appeal Tribunal, the Court of Appeal and now the Supreme Court.

What does this mean?

The Supreme Court decision is particularly significant as, unlike similar decisions in cases involving Uber and CitySprint, it is binding on all other Courts and will therefore be the key authority followed in future cases in which employment status is questioned.

Each case will of course turn on its facts; however, the precedent set will mean that companies operating in the gig economy may well find that, despite the intent and belief that individuals are engaged on a self-employed basis, they are in fact workers and thus entitled to certain employment rights that true self-employed contractors are not.

These worker rights include:

• receiving the National Minimum Wage;

• protection against unlawful deductions from wages;

• entitlement to paid holiday, statutory minimum length of rest breaks and to not work more than 48 hours on average per week or to opt out of this right if they choose;

• protection against unlawful discrimination;

• protection for ‘whistleblowing’ - reporting wrongdoing in the workplace.

Should the self-employed contractors for your business be found to be workers and therefore entitled to additional employment rights, this may have a significant financial effect on your business.

What should employers do?

The Pimlico decision, and indeed any future decisions made in determining an individual’s employment status, will focus on the facts at hand. The use of terms such as ‘self-employed contractor’ or ‘independent contractor’ to describe the relationship are insufficient, as is the intent of the parties when entering into the contract, to rely upon solely.

This decision does not mean you cannot successfully operate a business in which your labour source is genuinely self-employed. However, care must be taken to consider the reality of the contractual relationship.

The control the company exerts over the individual, the bargaining position of the parties, the right of substitution, the ability to refuse work or a minimum required number of hours, and exclusivity clauses all need to be considered when assessing the contractual relationship.