Written by Martin Pratt
Heating engineer Gary Smith worked for Pimlico Plumbers (‘PP’). He worked solely for PP, had to wear a PP uniform while on duty, his van (which contained a GPS tracker for PP’s benefit) was heavily branded with PP’s livery and he was required to work a 40 hour week. His contract described his payment as “wages” and contained provisions for dealing with “gross misconduct”. However, his contract also described him as an independent contractor, he was registered for VAT, and he did not pay PAYE income tax. So was he an employee, or something else?
The question became critical in January 2011 when Mr Smith suffered a heart attack and, as a result, asked Pimlico Plumbers if he could reduce his hours to three days a week. They refused. Ultimately his contract was ended, his van taken away, and Mr Smith brought claims in the employment tribunal for unfair dismissal, unlawful deductions from his wages, failure to pay him holiday pay, and disability discrimination.
The UK Supreme Court, as did every court below, held against PP on all claims save for unfair dismissal. The sheer level of control exercised by the company over Mr Smith did not appear to indicate a genuinely independent self-employed contractor – the uniform, the branded van, a PP identity card, the contractual references to ‘wages’, ‘gross misconduct’ and ‘dismissal’, and the number of restrictive covenants regarding Mr Smith’s activities following termination made this finding inevitable in my view. I am perhaps more surprised that PP took their appeal this far.
For me, the key take-aways from this case are (1) the utter mess that the UK law of employment status is in and (2) if you exercise close day to day control over your “contractors” don’t be surprised when they successfully claim certain employment protections.
The first point is seemingly intractable. Mr Smith was not found to be an employee of Pimlico Plumbers. He was found to hold, instead, that peculiarly British compromise status of “worker”. Workers are not employees, they don’t work under a contract of “service”, but they do undertake to personally perform work for the other party. “Worker” status reflects the view that some individuals, while not full-blown employees entitled to the whole range of employment rights, are deserving of some protection. Workers don’t normally have the right to claim unfair dismissal (which is why Mr Smith lost this aspect of his claim), or claim a statutory redundancy payment, but many other employment rights do accrue to them. Workers do have the right to paid holiday, the right not to have their wages unlawfully deducted, and the right not to be discriminated against. Mr Smith won those claims. Among much else, as a worker he could also have brought a claim for the national minimum wage had he needed to, and he would have had the right to pension contribution from employer under the auto-enrollment scheme.
It gets worse. While UK employment protection law broadly recognises three categories of worker (employee, worker, self -employed), for tax purposes there are only two – employee or self-employed. Charlie Mullins, the founder of Pimlico Plumbers, described Mr Smith’s win today as a “double pay day” for him and it is hard not to see some merit in the argument that Mr Smith was able to have his cake and eat it – on the one hand he was protected by laws designed to help employees, on the other he was entitled to pay tax on the lower, self-employed basis.
Indeed, Lord Wilson, giving the leading judgment of the Supreme Court, strongly alluded to the confusion when he said –
“…although Mr Smith was not an “employee” under a contract of service, he was an “employee” within the meaning of …the Equality Act. it is regrettable that in this branch of the law the same word can have different meanings in different contexts. But it gets worse. For, as I will explain, different words can have the same meaning”.
The need for change has, to a limited extent, been recognised. The 2017 Taylor Review on working practices in the modern economy recommended that “worker status” be retained (albeit renamed “dependent contractors”) but that everyone pay tax at a standard, employee rate. It also recommended legislation, backed by detailed guidance, clearly and definitively sets out the tests for employment status – for employees, workers and the self-employed.
The Government’s response to even the limited proposals for change in the Taylor Review has been lukewarm. Although it says that it is contemplating “the single largest shift in employment status since …1996”, pointing to the need for “flexibility” in the labour market, such proposals as have been put forward appear to concentrate on clarification of status, rather than substantive reform.
But the modern labour market is very different to that of the 1970s, when most current statutory employment legislation had its genesis. The successful litigation by Uber drivers, and now plumbers working for Pimlico, and the defeat of the claim by Deliveroo riders (which is now subject to appeal) show that the modern economy has a multiplicity of new ways of working that cannot be neatly pigeonholed into the categories of the past. A whole new approach is desperately needed.
In the meantime, if you have contractors who are subject to any form of day-to-day control, such as adherence to your staff handbook, dress codes, or minimum working hours, beware of a tribunal claim that you might not have expected.
Contact the Author
Having previously worked for Sharpe Pritchard, Campbell Hooper (now Charles Russell Speechly), DLA Piper, and Kingsley Napley, I am now a partner in Gordon Dadds employment law team and represent both individuals and employers, but specialise in acting for professionals such as public company directors, lawyers, hedge fund managers, accountants, MDs in investments banks, private equity principals and tech entrepreneurs, both as individuals leaving old employers and setting up or joining new enterprises. I advise senior individuals on new employment contracts and joining LLPs. On the employer side my expertise covers the employment aspects of mergers, acquisitions and outsourcing. My varied employer client base includes professional services firms, hedge funds, publishers, marketing agencies, charities, fitness studios and medical practices. I represent clients in all types of employment related disputes, involving matters like whistleblowing, discrimination, bonus claims, harassment, TUPE, High Court injunctions and unfair dismissal. Qualifications: MA Modern History from Trinity College (University of Oxford) Postgraduate Diploma in Legal Practice/Legal Practice Course (LPC) obtained at College of Law, York LL.M Law and Employment Relations gained at Leicester University