Mr Smith was a plumbing and heating engineer for Pimlico Plumbers between August 2005 and April 2011. Written agreements covered the terms of the work and were drafted in "quite confusing terms" according to the Supreme Court. The terms stated that Mr Smith was an independent contractor in business on his own account.
In August 2011 Mr Smith brought a number of claims against Pimlico Plumbers including: unfair dismissal, unlawful deductions from wages, a failure to pay holiday pay and disability discrimination. The Employment Tribunal rejected the unfair dismissal claim as it was decided that Mr Smith had not been an employee under a contract of employment and therefore had no entitlement to bring such a claim.
The Tribunal found that Mr Smith was a "worker" within the meaning of the Employment Rights Act and the Working Time Regulations 1998 and had been "in employment" for the purpose of the Equality Act 2010. This finding allowed Mr Smith to proceed with his latter three claims.
Pimlico Plumbers unsuccessfully appealed to the Employment Appeal Tribunal and the Court of Appeal. Pimlico Plumbers appealed to the Supreme Court.
The Supreme Court
The Supreme court dismissed the appeal and found that the Employment Tribunal was entitled to find that Mr Smith was a "worker" under the relevant legislation and his substantive claims can now proceed.
In the 21 page judgment the Supreme Court considered the extent of Mr Smith's right to substitute, a key component of a truly self-employed contractor. Although the Tribunal found that there was a limited facility to appoint another operative to do a job , this did not weaken the personal performance requirement of Mr Smith. The dominant feature of the contract remained personal performance. The right to substitute was of such little importance it was not referred to in the terms deployed. Terms such as "your skills" and you must have "a high standard of conduct and appearance" reaffirm the personal service requirement. In light of this the Tribunal was entitled to make a finding that there was an obligation of personal performance.
The Supreme Court then turned to the question of whether Pimlico Plumbers was a client or customer of Mr Smith's. If this was the scenario Mr Smith would not fall within the "worker" definition.The Tribunal had legitimately found that there was an umbrella contract putting an obligation on Mr Smith between assignments. The Supreme Court focused on the written contractual documents to determine this issue. Some elements of the contract were indicative of a client/customer relationship such as: entitlement to reject certain work, a degree of financial risk and the lack of supervision. However, overall the contract was not symptomatic of such a relationship. Pimlico Plumbers had tight control over Mr Smith's branded uniform (and the much talked about branded van) and administration aspects of the work. There were clear obligations over when and how much to pay Mr Smith and a suite of restrictive covenants covering his working activities post-termination. Considering the factual findings of the Tribunal it was clear there was not a client or customer relationship.
It is unsurprising that the Supreme Court has dismissed the appeal. Such clear findings of fact by the Tribunal were likely to outweigh the less than watertight contractual provisions. Although the decision is consistent with the direction of travel in recent cases, this case provides valuable authority from the Supreme Court. The flurry of employment status cases has been significant in recent years and looks set to continue with Uber B.V v Aslam due in the Court of Appeal on 30 October 2018. This case and those in the pipeline serve as useful reminders that clarification over this complex area of law is desperately needed. We are currently awaiting the outcome from the Government consultations on the Taylor Review into Modern Working Practices. We will keep you updated.
A Tax Perspective
The technical tests for determining an individual's employment status and their tax status are different and unaffected by this decision. For tax purposes, there is no separate "worker" category: the tax liability is assessed on either an employed or a self-employed basis.
Following the Taylor Review, the Government has been consulting on the relationship between employment status and tax status. Employers must be alive to the fact that this is an area of law which is under active review. With IR35 reforms ahead in the private sector, this will remain a technically complex area.
Where there is any doubt as to the tax status of an individual, professional advice should be sought as early as possible to avoid payroll compliance challenges, penalties and interest.