It’s time for a status check
The distinction between what is classed as employment, what is classed as a worker, what is self-employment, can feel murky and uncertain. Without doubt, this can be a tricky area of the law to grapple with – it feels like a real minefield for many organisations. Hardly surprising when you consider the various definitions to contend with, including employee, worker, casual, freelancer and sub-contractor to name but a few.
These terms all describe different working relationships but in terms of legal interpretation, it is not necessarily what the contract is called by the various parties that counts, but the reality of the pattern of the work that is discharged. In the event of a dispute about employment status, the courts will reach a judgment on how the actual relationship is managed between the parties involved, relevant to the specific facts of the case, rather than relying on what it is described as by the parties.
The recent Supreme Court ruling on the Pimlico Plumbers case is significant in this area of employment law. This case highlights the court’s latest interpretation of employment status. The ruling is particularly important given the wider implications for the so called ‘gig’ economy. The term ‘gig economy’ describes a labour market where self-employed or short-term contracts are more prevalent than permanent jobs.
Status is important therefore, as it determines the legal rights for which individuals qualify.
At Apex HR we’ve spent some time dissecting the ruling so that we can provide some practical advice for employers in this increasingly complex area.
The context for the Pimlico Plumbers case
The case involved Mr Gary Smith, formerly employed by Pimlico Plumbers. His contract was classed as ‘self-employed’ meaning it did not include statutory rights such as holiday pay, flexible working hours and redundancy pay.
Mr Smith paid tax on a self-employed basis, though he worked solely for Pimlico Plumbers, wore their uniform, rented one of their branded vans and was contracted to work a minimum number of hours each week. Following a heart attack, he wanted to reduce his working pattern to three days a week instead of five, but Pimlico did not agree to this and took back his van.
Mr Smith brought claims including a right to paid annual leave (a right only available to workers and employees). When an employment tribunal ruled that Mr Smith was a worker and not self-employed, Pimlico appealed, but the Employment Appeal Tribunal, Court of Appeal and now the Supreme Court have all backed the original finding.
Mr Smith relied on the following arguments as part of his case:
• he was obliged to ‘perform personally’ his work for Pimlico; and
• the nature of their contract meant that Pimlico was not his client or customer.
In assessing the case, the court took account of the obligations on Mr Smith to personally perform the work himself, which dominated the contract with Pimlico. For example, the contract emphasised ‘your skills’, ‘your appearance’ and ‘work which you agree to carry out’. The degree of control that Pimlico Plumbers exercised over the work was a key feature in determining the case. Mr Smith could not provide a substitute to complete the work without permission from Pimlico.
The right of substitution can be one of the factors that is more likely to indicate a genuine self-employment or freelancer relationship exists. This is where a self-employed contractor can substitute a suitable replacement to carry out the work. The contract was silent on substitution in this case, but there was an informal concession that Mr Smith could pass work to another Pimlico operative. Pimlico referred to that right as evidence of this being a self-employer or freelancer relationship. That limited right did not help Pimlico in this case however, as the court determined that any substitute had ‘an identical suite of heavy obligations’. If Pimlico were less interested in the identity of the substitute ‘as long as the work got done’ this would more likely indicate a self-employed or freelance relationship existed.
The court also focussed on another key issue, whether Pimlico was a customer of a business operated by Mr Smith. The key question here appears to be whether Mr Smith was able to actively able to market his services as an independent person to the world in general, or whether he was recruited to work as an integral part of Pimlico’s operations? Analysing the facts of this case, the court determined that Mr Smith was heavily controlled by Pimlico and therefore an integral part of Pimlico’s business.
What does this mean for employers?
It is clear that no one single element determines employment status. In the modern gig economy, the growing trend of flexibility for working patterns is likely to continue and this can bring significant benefits for organisations and individuals. This can allow organisations to adjust their workforce and choose to pay people based on whether work is available, while individuals who wish to fit their work around education, caring or other responsibilities can choose to work when it suits them.
As an employer, if you have relationships with self-employed contractors and they provide services in person, solely to your business, and have done so on a regular ongoing basis, it would be timely to check the arrangements again following this ruling. Completing a basic audit to check the details will enable you to make informed decisions based on the actual relationship that exists and ensure that any risks are appropriately managed.
The nature of working relationships can and do change over time, depending on various factors including the demand and nature of the work to be completed. It is important therefore that the documentation adequately reflects the relationship. If your documentation seeks to exercise tight control over a self-employed contractor who is completing the work, and that work must be personally provided by a specific individual, this is more likely to indicate the relationship is one of a worker or employee.
What does the Pimlico Plumber case mean for the wider gig economy?
The ruling is a sign of the court’s intention to protect workers in the ‘gig’ economy. This continues a trend of the courts being unsympathetic towards employers’ ‘carefully choreographed’ arrangements to give the public the impression that individuals are part of their workforce, but to give the individuals the impression that they are self-employed.
The basis of the facts in this case did not require anything more complicated than an application of the existing law. Although it wasn’t a case specifically about the gig economy, the implications for the gig economy are potentially significant. The Pimlico judgment is reliant on specific terms of the relevant contract and certain fact-specific considerations of how the arrangements operated in practice – there isn’t much we didn’t already know in regard to the legal tests and in that sense, there is nothing new arising from this judgment.
This is likely to remain the situation for the time being, at least until the Government chooses to clarify the whole situation regarding employment status. The Government has said at the present time it is not willing to move forward with some of the more meaningful reforms proposed in Matthew Taylor’s Good Work report last year, there is unlikely to be a substantial change in employment status rules in the UK any time soon.
The Pimlico ruling is only the latest of a list of employment status cases that needed to be argued on their own merits and are fact specific, which is why many are pressing for the Government to intervene with new legislation which helps to categorise the status of individuals in the workforce.
The position as far as existing employment law is concerned essentially remains unchanged. It largely depends on the reality of the relationship between the parties in practice.
The advice for employers at this point is to review existing gig economy relationships that exist within the organisation. It is sensible to review each relationship individually with reference to the current employment status indicator test applied by HMRC in the UK. The table in this article provides some further guidance which may help as part of a review process.
For each sub-contractor, saying yes to these three statements is more likely to indicate there is an employment relationship in place:
• Where personal service is required and there is no right to provide a substitute with the relevant skills and experience be accepted to carry out the work
• Where there is Control as to the manner in which the work is undertaken
• Where there is a mutual obligation for you to offer further work and if offered, for the subcontractor to accept it
If the review leads you to conclude that a sub-contractor is more likely to be employed, then it is recommended that they are moved on to an appropriate contract of employment and provided with the required statutory employment rights and entitlements as you would with any other employee in your workforce.
Please note, this guidance does not constitute legal advice and should not be taken as such. Appropriate legal advice should be sought in relation to specific examples as necessary.