Our Knowledge

08.Mar.2017

The plumber case: Fresh developments in employment status within the ‘gig economy’

In the first ‘gig economy’ case to reach the Court of Appeal, the trend of individuals establishing workers’ rights is continuing.  

Legal Background
The UK has three types of employment status: employer; worker; and self-employed (otherwise known as a contractor).  An employee will benefit from the full extent of employment protections afforded by UK law whereas a contractor must look after their own interests. A worker has some of the rights granted to employees, such as holiday pay and discrimination, but misses out on others including unfair dismissal.

The line between these three categories is not always easy to determine and is fact sensitive.  There are, however, three key principles which are used to assess which category an individual falls into:

  • Mutuality of obligation – for this to be present then the company must be required to provide the individual with work, and that individual must have to carry out the work given to them;
  • Personal service – the individual must be obliged to carry out the work personally and not be able to substitute someone else; and
  • Control – the company must be able to tell the individual when and where the work is to be carried out, as well as how it is to be done.

To be classed as an employee, all three of the above must be satisfied, whereas workers only need to meet the personal service and mutuality of obligation requirements.

Facts
Mr Smith had been engaged as a plumber for over five years with Pimlico Plumbers but his contract was terminated following a heart attack.  He brought various claims against his employers including for unfair dismissal and disability discrimination, initially arguing that he was an employee.  Pimlico argued that he was a self-employed contractor, as was stated in his contract.  The relevant factors are set out below.

Mutuality of obligation - Mr Smith’s contract stated that he was entitled to refuse work, but the court found that the “practical reality” of the situation was that he could not refuse all assignments. Subject to various elements of flexibility, Mr Smith was obliged to work (or be available for work) essentially on a full-time basis.

Personal service - There was no right of substitution in Mr Smith’s contract, although the plumbers could informally exchange jobs amongst themselves.

Control - Mr Smith had an expected minimum of weekly hours, and the company procedures manual said normal working hours consisted of 5 working days.  He had to drive a branded vehicle and wear a branded uniform while carrying out his duties.  He was also subject to a restrictive covenant. He did, however, have to provide his own tools and materials.

Other factors - Mr Smith was responsible for having liability insurance in place and was VAT registered.  He bore a large amount of the commercial risk – if a customer did not pay then the he would not be paid for that job.  Pimlico would pay Mr Smith gross after he submitted invoices to them and he would then complete tax returns on the basis that he was self-employed.

Decision
The Employment Tribunal, confirmed by the Employment Appeal Tribunal, held that Mr Smith was a worker. The Court of Appeal also agreed.  Pimlico required him to provide personal service and he was an integral and subordinate part of the company’s operations. The requirement to work 40 hours per week was inconsistent with contractor status, despite the contract also stating that Mr Smith was not obliged to accept work.

Although these types of cases are highly circumstantial, the Court of Appeal provided some useful clarity in relation to when substitution will be inconsistent with the personal service requirement. An absolute right to provide a substitute is inconsistent with personal service.  Where the right is conditional then it will depend on the extent to which the right is limited.  If, for example, there was a right to send a substitute only if the individual was otherwise unable to work or if the employer had consented to the substitute, then this is still consistent with personal service.

Pimlico Plumbers have indicated their desire to appeal to the Supreme Court.  Together with the other cases pending on the ‘gig economy’ and the Government’s Independent Taylor Review of Modern Employment Practices, the questions surrounding how the law can best deal with the changing world of employment are guaranteed to continue.

Shepherd and Wedderburn, in conjunction with Hudson Recruitment, are hosting our bi-annual Employment Law Breakfast Update Seminars in Glasgow (23 March) and Edinburgh (28 March), this time discussing the topic of Employment Status and the gig economy. If you would like to attend, please register here for Glasgow or here for Edinburgh.