In this week’s feature, we examine the Supreme Court ruling in the case of Pimlico Plumbers Ltd & Anor v Smith  UKSC 29, on employee status. We last reported on the case in edition 173 of BC Disease News (here), when the Court of Appeal decision was handed down.
In the UK, statistics show that employers are changing the nature of their workforces to account for an increasing migrant population and an increasing desire for workforce flexibility. Indeed, agency and temporary workers, independent contractors and self-employed persons, constitute an increasing percentage of the UK labour market. According to the latest Office for National Statistics article on ‘Trends in self-employment in the UK’:[i]
‘The number of self-employed increased from 3.3 million people (12.0% of the labour force) in 2001 to 4.8 million (15.1% of the labour force) in 2017’.
In edition 146 (here) and 147 (here) of BC Disease News, we produced two consecutive features, titled: ‘Agency Workers: Employees For The Purpose of Employer’s Liability?’ and ‘Self-Employed/ Independent Contractors: Employees for the Purpose of Employer’s Liability?’
This two-part series considered the issues that can arise in employers’ liability disease claims where claimants are agency or self-employed workers. Health and safety obligations owed to self-employed and agency workers differ from obligations owed to permanent employees. For example, under the Health and Safety at Work Act 1974, self-employed persons must assess workplace health and safety risks to themselves and others. It is therefore important to distinguish between employees and self-employed persons and agency workers, for the purposes of EL disease claims.
In Pimlico Plumbers, the claimant argued:
- that the claimant had been an ‘employee’ of the defendant under a contract of service within the meaning of section 230(1) of the Employment Rights Act 1996 (“the Act”); and/or
- that the claimant had been a ‘worker’ for the defendant within the meaning of section 230(3)(b) of the Act; and
- that the claimant had been a ‘worker’ for the defendant within the meaning of regulation 2(1) of the Working Time Regulations 1998 [same description as s.230(3)]; and
- that the claimant had been in defendant’s ‘employment’ within the meaning of section 83(2)(a) of the Equality Act 2010.
FACTS OF THE CASE
The claimant was a plumbing and heating engineer, who carried out plumbing and maintenance work on behalf of a plumbing company, between 2005 and 2011. He suffered a heart attack in 2011. Following this incident, he requested to reduce his working timetable from five days per week to three days per week. This request was denied and the claimant was subsequently dismissed. Proceedings were subsequently issued for unfair dismissal, wrongful dismissal, entitlement to pay during medical suspension, holiday pay and arrears of pay, direct disability discrimination, discrimination arising from disability and failure to make reasonable adjustments.
In operation between the parties, were two contracts of employment (the ‘2005 agreement’ and the ‘2009 agreement’) and a working practice manual.
Nonetheless, the defendant contended that the court did not have jurisdiction to consider the claimant’s claim.
EMPLOYMENT TRIBNUNAL DECISION
The case was initially heard before the Employment Tribunal. Employment Judge Corrigan outlined the distinction between ‘employees’, ‘self-employed workers’ and ‘workers’, as follows:
- ‘Employee’ – Persons employed under a ‘contract of service’ (pursuant to s.230(1) of the Employment Rights Act 1996).
- ‘Self-Employed’ – Persons who are self-employed, carrying on a profession or a business undertaking on their own account, and who enter into contracts with clients or customers to provide work or services for them.
- ‘Worker’ – Persons who are self-employed and provide their services as part of a profession or business undertaking carried on by someone else (pursuant to s.230(3)(b) of the Employment Rights Act 1996).
The Employment Tribunal found that the claimant’s status was best described by category c) and was therefore a ‘worker’.
Further, the court deemed that the claimant’s working situation met the definition of ‘employment’ in the Equality Act 2010. The reasons for this were as follows:
- The agreement, and its main purpose, was for Mr Smith personally to provide work for Pimlico Plumbers;
- The working manual practice obliged Mr Smith to work a normal week of 40 hours on the days agreed with Pimlico Plumbers;
- Although there was some flexibility, Pimlico Plumbers expected engineers to discuss their working hours with, and to agree them with Pimlico Plumbers. Mr Smith had sufficient obligation to provide his work personally to be a worker;
- There was not an unfettered right to substitute at will. There was no such right given to MR Smith by the contractual documents and no evidential basis for such a practice. Even though in practice engineers with Pimlico Plumbers swapped jobs around between each other, and also used each other to provide additional help where more than one person was required for a job or to do a job more quickly, and there was evidence that external contractors were sometimes required to assist a job due to the need for further assistance or to conduct specialist work, the fact was that Mr Smith was under an obligation to provide work personally for a minimum number of hours per week or on the days agreed with Pimlico Plumbers;
- Although Mr Smith had autonomy in relation to the estimates and work done, Pimlico Plumbers exercised very tight control in most other respects. That included a high degree of restriction on Mr Smith’s ability to work in a competitive situation, which suggested that he was not in business on his own account and was certainly inconsistent with Pimlico Plumbers being a customer or client if any such business;
- Pimlico Plumbers could not be considered to be a client or customer of Mr Smith’s business but is better regarded as a principal. Mr Smith was an integral part of Pimlico Plumbers operations and subordinate to Pimlico Plumbers. He was not in business on his own account.
The claimant was not considered to be an ‘employee’, for the purposes of the Employment Rights Act 1996. As a result, the Tribunal did not have jurisdiction to consider the claims for unfair dismissal, wrongful dismissal, entitlement to pay during the period of a medical suspension and failure to provide particulars of employment.
However, since the claimant was considered to be a ‘worker’, for the purposes of the 1996 Act and this the claimant had undertaken ‘employment’, for the purposes of the Equality Act 2010, the court did have jurisdiction to consider the claims for direct disability discrimination, discrimination by reason of failure to make reasonable adjustments, holiday pay and unauthorised deductions from wages.
EMPLOYMENT APPEAL TRIBUNAL DECISION
The defendant unsuccessfully appealed the Employment Tribunal decision. Judge Serota QC also found that the claimant was not an ‘employee’, but a ‘worker’ i.e. a person who is self-employed but provides their services as part of a business undertaking carried on by someone else.
COURT OF APPEAL DECISION
The Court of Appeal, in the case of Pimlico Plumbers Ltd v Smith  EWCA Civ 51, found that the claimant was a ‘worker’ and not a ‘self-employed’ contractor.
Sir Terence Etherton MR, Underhill LJ and Davis LJ agreed with the reasoning given by the lower Employment Tribunals and dismissed the appeal. There was a clear focus on the claimant's obligation to perform the contracts personally; work 40 hours per week; hire a van with a Pimlico Plumbers’ logo; and use a mobile phone, the cost of which was deducted from his salary.
SUPREME COURT DECISION
Lord Wilson handed down judgment, with whom Lady Hale, Lord Hughes, Lady Black and Lord Lloyd-Jones agreed.
Before providing his unanimous ruling, Lord Wilson, at paragraph 16, highlighted the decision of the appeal tribunal Judge, to convey the ‘puzzling’ effect of the agreements between the claimant and the defendant:
‘... on the one hand, Pimlico wanted to present their operatives to the public as part of its workforce but that, on the other, it wanted to render them self-employed in business on their own account; and that the contractual documents had been “carefully choreographed” to serve these inconsistent objectives. But the judge rightly proceeded to identify a third objective, linked to the first, namely to enable Pimlico to exert a substantial measure of control over its operatives; and this clearly made development of the choreography even more of a challenge’.
Had the Claimant Undertaken Personal Performance in His Role?
To qualify as a ‘worker’, under s.230(b), the claimant had to show that he had ‘performed personally’ his work or services for the defendant. Personal performance is also a necessary constituent of a ‘contract of service’.
The Court of Appeal found that the claimant was permitted, albeit by informal concession with the defendant, to appoint a substitute Pimlico operative to do his work. The question for the court was whether this was inconsistent with, or negatives, an obligation of personal performance.
On this issue, Lord Wilson stated, at paragraph 33:
‘The terms of the contract made in 2009 are clearly directed to performance by Mr Smith personally. The right to substitute appears to have been regarded as so insignificant as not to be worthy of recognition in the terms deployed. Pimlico accepts that it would not be usual for an operative to estimate for a job and thereby to take responsibility for performing it but then to substitute another of its operatives to effect the performance’.
His lordship referred to the consistent use of the 2nd person (singular) possessive pronoun, ‘your’, in the terms of the contract between the parties. He went on, to connote:
‘The vocative words clearly show that these requirements are addressed to Mr Smith personally; and Pimlico’s contention that the requirements are capable also of applying to anyone who substitutes for him stretches their natural meaning beyond breaking-point’.
As such, the judge upheld the decision of the tribunal, at paragraph 34:
‘The tribunal was clearly entitled to hold, albeit in different words, that the dominant feature of Mr Smith’s contracts with Pimlico was an obligation of personal performance. To the extent that his facility to appoint a substitute was the product of a contractual right, the limitation of it was significant: the substitute had to come from the ranks of Pimlico operatives, in other words from those bound to Pimlico by an identical suite of heavy obligations. It was the converse of a situation in which the other party is uninterested in the identity of the substitute, provided only that the work gets done. The tribunal was entitled to conclude that Mr Smith had established that he was a limb (b) worker - unless the status of Pimlico by virtue of the contract was that of a client or customer of his’.
Was Pimlico Plumbers a Client or a Customer?
From Lord Wilson’s concluding remarks on the ‘personal performance’ issue, the judge identified that the claimant could benefit from ‘limb (b) worker’ status, unless the defendant was considered to be a ‘client’ or ‘customer’.
The defendant submitted the following, in support of its contention that it was a ‘customer’ or ‘client’ of the claimant:
‘(a) Without prejudice to his overall obligation (which Pimlico has to accept for this purpose) to make himself available to accept work, if offered, for up to 40 hours each week, Mr Smith was entitled to reject any particular offer of work, whether because of the location or timing of it or for any other reason.
(b) Subject to that overall obligation, Mr Smith was free to take outside work albeit not if offered by Pimlico’s clients. In a concluding paragraph the tribunal observed that he did not elect to take outside work; but, as Pimlico rightly objects, the analysis must be of his contractual entitlement rather than of his election not to exercise it.
(c) Pimlico reserved no right to supervise, or otherwise interfere with, the manner in which Mr Smith did his work.
(d) There were financial risks, as well as advantages, consequent upon Mr Smith’s work for Pimlico. He was bound by the estimate for the price of the work which he had given to the client. Pimlico did not pay him, not even for any materials which he had supplied, until the client had paid it; if a client paid more than one month late, its payment to him was halved; and, if a client failed to pay within six months, it paid him nothing, not even for his materials, and irrespective of whether the client made payment thereafter. If a client complained about his work, even about work done by another Pimlico operative whom he had substituted to do it, it was Mr Smith who was responsible for remedying it and who received no payment referable to it until he had done so’.
The Supreme Court dismissed the defendant’s appeal, however. The tribunal was entitled, ‘by a reasonable margin’, to conclude that the claimant was not an independent contractor.
Lord Wilson highlighted features of the contract which ‘strongly militated against recognition’ of the defendant as a ‘client’ or ‘customer’ of the claimant.
‘Its tight control over him was reflected in its requirements that he should wear the branded Pimlico uniform; drive its branded van, to which Pimlico applied a tracker; carry its identity card; and closely follow the administrative instructions of its control room. The severe terms as to when and how much it was obliged to pay him, on which it relied, betrayed a grip on his economy inconsistent with his being a truly independent contractor. The contract made references to “wages”, “gross misconduct” and “dismissal”’.
The claimant’s substantive claims, brought in the capacity of a s.230(b) worker, could therefore proceed to be heard in the tribunal.
The full text judgment can be found here.
IMPACT OF THE CASE
The central theme in determining who is responsible for any diseases, or injuries, suffered by alleged ‘self-employed’ workers, is that of control. Although the legal position has not been altered by the latest Supreme Court ruling, it is clear that the courts will not simply rely on express contractual agreements between parties to interpret employment status. Instead judges will look closely at the working relationship between parties, on a case by case basis. Until the Government devises new employment legislation which accurately reflects the ever-diversifying dynamic of UK workforces, in cases where contractors work exclusively for one company, the line between ‘self-employed’ and ‘worker’ status will remain a grey area, affecting breach of duty in EL personal injury claims.
[i] Sunny Sidhu et al., ‘Trends in self-employment in the UK’ (February 2018 ONS) <https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/articles/trendsinselfemploymentintheuk/2018-02-07> accessed 13 June 2018.