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UK HR ebriefing - Supreme Court ruling on employment status

  • United Kingdom
  • Employment law - HR E-Brief

13-06-2018

In the latest in a string of recent cases considering employment status, the Supreme Court has upheld an Employment Tribunal’s decision that a plumber was entitled to holiday pay and protection from discrimination from the company for which he worked, notwithstanding that he was self-employed for tax purposes.

Although the judgment does not break new legal ground it does clarify, to a degree, some particularly tricky legal points. Perhaps more significantly, the press interest in this case and the publicity it will generate will serve to highlight the fact that even self-employed contractors can have workplace rights.

Background

The claimant, Mr Smith, is a plumber who carried out plumbing work for Pimlico Plumbers Ltd for almost six years. After his relationship with the company came to an end, Mr Smith brought a Tribunal claim alleging, amongst other things, that he had been unfairly dismissed and discriminated against and that he was owed holiday pay.

An Employment Tribunal ruled that Mr Smith was not an employee, so did not qualify for protection against unfair dismissal. He was, however, found to be a ‘worker’ and entitled to holiday pay and protection against discrimination. The Employment Appeal Tribunal and the Court of Appeal upheld those decisions and the Supreme Court has now rejected a further appeal by the company.

Supreme Court's decision

There were two key issues that the Supreme Court had to consider:

1. Whether the Tribunal had been right to say that the claimant was obliged to carry out work personally.

2. Whether the Tribunal had correctly analysed the facts in deciding that the company was not a client or customer of a business operated by Mr Smith.

On the question of personal service, the Supreme Court noted that the Tribunal had legitimately found that Mr Smith could arrange at any time for another Pimlico Plumbers operative to do assignments he had accepted, but that his right of substitution went no wider than that.

It is well established that to qualify as a worker for holiday pay purposes or for discrimination protection, an individual must be required to carry out work personally and that an unfettered right to appoint someone else to do the work in their place is inconsistent with worker status. What is less clear is what the legal effect is of a right to substitute from a limited range of individuals. On this issue the Court said it is helpful to assess whether the dominant feature of the contract remained personal performance on the part of Mr Smith. On the particular facts of the case the Court felt that the Tribunal was justified in concluding that it was, particularly as the contractual documentation focused on personal performance, referring to ‘your skills’ and ‘you will be competent to perform the work…’ for example.

On the second point, it is clear that an individual cannot be a ‘worker’ under the relevant legal definitions if they are operating a business of their own and the organisation they are working with is a client or customer of that business. The Supreme Court proceeded on the basis that someone within this category would not qualify for protection against discrimination either. Looking at the original decision, the Court was satisfied that the Tribunal had analysed the relationship correctly. Of particular significance were the following factors:

  • the tight control exercised by the company over the claimant, which the Tribunal felt was inconsistent with the company being a customer or client of a business run by the claimant; for example a company manual governing the working arrangement binding on operatives included provisions such as a requirement to wear a logo-ed uniform and drive a branded van, to which the company applied a tracker;
  • onerous restrictive covenants in the contract, which precluded Mr Smith from working as a plumber in any part of Greater London for three months after the termination of the agreement; and
  • the Tribunal’s conclusions that the claimant was contractually obliged to keep himself available for work for up to 40 hours a week and the company was obliged to offer him work if it was available. Although the company argued that the Tribunal had been wrong to find that the company was obliged to offer work and that Mr Smith was under any obligation to accept work offered, the Supreme Court decided the Tribunal could not be criticised for interpreting the company’s apparently inconsistent contractual provisions in that way; and
  • the fact that the contract between the parties made references to ‘wages’, ‘gross misconduct’ and ‘dismissal’ and contained payment terms which, the Supreme Court said, ‘betrayed a grip on [the claimant’s] economy inconsistent with his being a truly independent contractor.’

Looking at the arrangement as a whole, the Tribunal had decided that Mr Smith was an integral part of the company’s operations and subordinate to the company, although not to such an extent that he could be considered an employee. He was not in business on his own account but was a ‘worker’. The Supreme Court upheld that conclusion.

Comment

A common confusion amongst employers is to assume that workers treated as self-employed for tax purposes have no employment rights, such as paid holiday, pensions and the minimum wage. While that is true for those self-employed who genuinely run their own independent businesses, it is incorrect for a growing number of self-employed workers. Many such workers are subject to a greater degree of control by the business, are not allowed free rein to send a replacement of their choice to do their work, are presented to the outside world as part of the organisation, perhaps having to wear a uniform, and are told when, where and how to do their work.

Given the growing number of tribunal claims in this area, and the accompanying publicity, employers should review the employment status of their freelance and contracting workforce. The risk is that misclassifying a worker as an independent contractor may result in large financial exposure to unpaid holiday, auto-enrolment pension and other entitlements, particularly where significant numbers of workers are involved.

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