Background

Gary Smith carried out plumbing work for Pimlico Plumbers (Pimlico) between 2008 and 2011. He had entered into agreements with Pimlico which provided that he was a “sub contracted employee” and later a “self-employed operative” of the business. He was bound to comply with the rules in a company manual, including a requirement to work a minimum of 40 hours a week, and the payment of rental charges to Pimlico for the use of their work van and mobile phone.

Earlier decisions

This case has been rumbling through the courts for a number of years. In August 2011, Mr Smith attempted to bring claims for unfair dismissal, unlawful deduction of wages, disability discrimination and holiday pay in the employment tribunal. In the original tribunal decision, which was handed down in April 2012, it was decided that Mr Smith was not an employee, but he was found to be a worker. Pimlico appealed. In November 2014, the Employment Appeal Tribunal agreed with the tribunal’s decision.

Pimlico made a further appeal to the Court of Appeal. Our report on the court’s dismissal of that appeal can be found here. Pimlico appealed to the Supreme Court.

Supreme Court

In considering the appeal, the Supreme Court focussed on two questions when deciding whether or not Mr Smith was a worker:

1. Personal performance – was it necessary for Mr Smith to carry out the work for Pimlico himself?
2. Client or customer – was Pimlico Mr Smith’s client or customer rather than his employer?

Personal performance

The court noted that Mr Smith’s contracts with Pimlico gave him a limited right to employ a substitute. He could engage another person to provide assistance if he lacked the specialist skill required for a particular job. The Supreme Court found that assistance in performance was not the same as substitution of performance.

Mr Smith was also permitted to arrange for a job to be carried out by another Pimlico operative if he wished to work on a more lucrative gig himself. However, there was no contractual right underpinning this arrangement. It was merely a concession made by Pimlico.

Taking both of these findings into account, the Supreme Court concluded that the right to use a substitute was of insignificance to Pimlico. In addition, the fact that Mr Smith could only use another Pimlico operative to do jobs on his behalf who would also have been subject to the same heavy obligations as him indicated that the right of substitution was not truly unfettered.

The Supreme Court concluded:

“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. ” Supreme Court

Client or customer?

The second issue for the Supreme Court to decide was whether Pimlico was in reality Mr Smith’s client or customer, which would be the situation if Mr Smith was a self-employed contractor providing services to Pimlico. This turned on whether Pimlico was obliged to give Mr Smith work that he was in turn obliged to carry out.

The Supreme Court noted that the contractual arrangement between Pimlico and Mr Smith contained features that both supported and went against recognition of Pimlico as a client or customer of Mr Smith. However, when considered in the round, the overall impression was that:

“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.” Supreme Court

Based on these findings, the Supreme Court concluded that the tribunal had been correct to decide that Pimlico could not be Mr Smith’s customer or client.

The appeal was therefore dismissed. Mr Smith is now free to take his various claims to an employment tribunal in his status as a worker.

Comment

This long-running case has dealt a definitive blow to the hopes of businesses who take on individuals under what they characterise as freelance contracts believing themselves safe from the need to engage with employment rights. For these organisations, and others operating in the “gig economy”, this decision will likely force them to take a closer look at these contracts to see whether both the contractual terms and the way in which the individuals work for the business in practice support the position that they are self-employed.

Photograph: “Craftsman and toys” from Gratisography used under a free photo licence.