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Pimlico Plumbers v Smith: Clearing a Blockage in the Employment Law Pipe?

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About The Author

Mark O'Neill (Regular Writer)

Mark is a graduate of the Open University, where he recently graduated with a First Class Honours in his BSc (Hons) Open Degree. Mark is currently working full time for the Financial Ombudsman Service as an Adjudicator, while also undertaking an LLM in Sports Law in Practice at De Montford University with the aim of working as a solicitor specialising in sports law.

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©Andy Rogers

Choose a job you love, and you will never have to work a day in your life.

Confucius

More people are in work than ever before. According to figures published by the Office for National Statistics, over 32 million people in the UK were in some form of employment as of June 2018. However, in the modern world, employment has become an ever more fluid concept: as people seek greater flexibility in their work, the idea of the 9-5 job is less prevalent than before.

This has put a strain on some of the fundamental definitions that underpin much of employment law. Increasingly, new working relationships are developing that do not fit neatly into the existing three categories of working relationship. The law has been crying out for an injection of clarity.

It was thus with some excitement that employment lawyers watched Pimlico Plumbers v Smith [2018] make its way up to the Supreme Court: at the heart of this case was the distinction between workers and the self-employed. However, as this article examines, many were left disappointed (if not unsurprised), as the UK’s most senior judges declined to seize upon this valuable chance to clarify the law as it applies to those who fall outside the traditional employee categorisation.

Categories of Employment Relationship

In UK employment law, there are three primary categories of working relationship: employees, independent contractors, and workers. Whether an individual is an employee or is self-employed will have important practical consequences regarding the legal rights and protections afforded to them. However, as Lord Wilson pointed out in Pimlico Plumbers v Smith [2018]:

It is regrettable that in this branch of the law the same word can have different meanings in different contexts. But it gets worse. For, as I will explain, different words can have the same meaning.

Indeed, as the case highlighted, there are various statutory definitions that are not identical. For example, the definition of an ‘employee’ found in the Employment Rights Act 1996 (ERA 1996) and the Working Time Regulations 1998 (WTR 1998) has a different ambit compared to that found in the Equality Act 2010 (EqA 2010).  

The Tripartite Hierarchy

Employees

In the UK employment law hierarchy, employees are afforded the most legal protection. They have important statutory rights accruing from the employment relationship – such as the national minimum wage; the statutory minimum level of 5.6 weeks’ paid holiday; and statutory sick, maternity, and paternity pay – and are also granted all the statutory rights that are bestowed on workers.

Because the statute does not define what constitutes an employee with any great clarity, there are – as Keir Baker has explained for Keep Calm Talk Law – several heuristic devices are used to identify when an individual is an employee. One of the primary devices is the concept of mutuality of obligations. Set out in O'Kelly v Trusthouse Forte plc [1983] ICR 728, this holds that a contract of employment will be found when it can be shown that there has been an exchange of mutual undertakings such that the employee has agreed to be available for work and the employer has agreed to ensure work is made available. Crucially, it is still unclear whether this test is relevant to identifying workers.

Independent Contractors

Independent contractors fall at the other end of the hierarchy. They comprise self-employed persons who run their own business and take responsibility for its success or failure. Rather than being contracted to work for an employer, they are contracted to provide services for a client. As a result, they are not afforded the same statutory rights as employees or workers (only standard health and safety protections apply to them), though are able to organise their income in a more tax advantageous manner and have greater flexibility in their working patterns.

Workers

The final category – workers – is the intermediate category that sits somewhere between employees and independent contractors in the hierarchy. Workers, like employees, are entitled to the national minimum wage, statutory minimum holiday pay and protection against discrimination, but cannot bring unfair dismissal claims.

The statutory definition of a worker in Section 230(3) of the ERA 1996, which is identical to that in Regulation 2(1) of the WTR 1998, describes a worker as:

[A]n individual who has entered into or works under, (or where the employment has ceased, worked under):

(a) a contract of employment; or

(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to that contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.

The intention of Section 230(3) of the ERA 1996 was to provide some protection to individuals other than employees – such as agency workers, casual workers and those under zero-hours contracts – who do not have a formal employment relationship but are sufficiently dependent on another that they cannot be considered self-employed. Thus, the latter part of subparagraph (b) is intended to catch the concept of those who are independent contractors but not carrying on a business, such that the 'employer' is a customer of the business.

However, the situation is made more complex by Section 83(2)(a) of the EqA 2010. This section offers a second statutory definition of employment, described it as where an individual is engaged:

[U]nder a contract of employment, a contract of apprenticeship or a contract to personally do work.

This broad definition of ‘employment’ catches a broad range of contractual arrangements, thereby enabling more people to benefit from the protections in the EqA 2010 than would otherwise be able to benefit from other statutory employment protections such as paid holiday and statutory sick pay. Indeed, the breadth of this definition causes one of the issues of dual meaning lamented by Lord Wilson in Pimlico Plumbers v Smith [2018]: what constitutes ‘employment’ under the ERA 1996 and WTR 1998 is far more limited than what constitutes ‘employment’ under the EqA 2010, with the EqA 2010 seeming to incorporate into its definition those who would be considered ‘workers’ under the ERA 1996 and WTR 1998.

Indeed, case law has held that there is essentially no difference between the two statutory definitions. Drawing upon the decision of the European Court of Justice (ECJ) in Allonby v Accrington and Rossendale College [2004], Lady Hale in Bates van Winkelhof v Clyde & Co LLP [2014] appeared to suggest that ‘employees’ under the EqA 2010 should be considered equivalent to ‘workers’ under ERA 1996.

Pimlico Plumbers v Smith

The Facts

Pimlico Plumbers (PP) contracted Gary Smith (S), a plumbing and heating engineer, between August 2005 and April 2011. He was registered to pay VAT and paid tax on a self-employed basis, but he worked solely for PP. S suffered a heart attack in January 2011 and, on health grounds, sought to work three days per week instead of five as he had done previously. PP refused to grant S’s request and took away the branded van he had hired from the company.

In May 2011, S brought several claims against PP. These included claims for unfair dismissal (which required S to show he was an employee under the ERA 1996), unlawful deduction of wages and breach of the WTR 1998 (which required S to show he was a worker under the ERA 1996 and the WTR 1998 respectively), and discrimination on the grounds of disability (which required S to show he was an employee under the EqA 2010).

The Decisions of the Lower Courts

The decision of the Employment Tribunal (ET) on 16 April 2012 brought mixed results for S: while they held that he was not an employee of PP and could therefore not bring a claim for unfair dismissal, it also held that he was a ‘worker’ under Section 230(3) of the ERA 1996 and under Regulation 2(1) of the WTR 1998, and an ‘employee’ under Section 83(2)(a) of the EqA 2010. As such, his final three claims could proceed.

PP lost their subsequent appeals to the Employment Appeals Tribunal in Pimlico Plumbers v Smith [2014] and the Court of Appeal, the latter unanimously dismissing their case in Pimlico Plumbers v Smith [2017]. PP, therefore, appealed to the Supreme Court, arguing that the reasoning of the ET was inadequate and that the issues needed to be reconsidered once again.

The Decision of the Supreme Court

In Pimlico Plumbers v Smith [2018], Lord Wilson delivered the sole judgment. It was short by judicial standards, at only 21 pages, but does explain the key issues in detail.

Freedom (On Our Terms): The Written Agreements

Firstly, Lord Wilson analysed the written agreements – one dated 25 August 2005, and its replacement dated 21 September 2009 – under which PP engaged S. It is fair to say that Lord Wilson is not shy with his opinions on the contradictions that these agreements contain:

In places they are puzzling… on the one hand, [PP] 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. [There is also] 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.

Under the 2009 agreement, S was expected to represent the company in the provision of its services and comply with its company manual. However, it later stated that S was an independent contractor in business of his own account and was expected to account for their own tax obligations and provide their own tools. The 2009 agreement also contained a clause that prevented S from working for a competitor for three months following termination of the agreement.

Furthermore, PP’s company manual was incorporated into the 2009 agreement. This stipulated a dress code, minimum working days and hours, and stated that if S were to undertake other private work during their working week, he would be dismissed immediately. Evidently, the agreements showed that PP exerted significant control over S’s working conditions, and there was a clear relationship of subordination between the parties.

Personal Performance

To qualify as a worker’ under Section 230(3)(b) of the ERA 1996, S needed to show that he was required to “perform personally” his work or services for Pimlico. This concept of personal service – which has traditionally placed a heavy focus on whether there is a right of substitution, whereby an individual can send another person to complete the work in their stead – also features in case law that considers whether an individual is an employee under Section 230(1) of the ERA 1996.

As such, Lord Wilson held that ‘decisions in that field can legitimately be mined for guidance as to what, more precisely, personal performance means’ and turned to the classic case of Ready Mixed Concrete v Minister of Pensions [1968]. Here, Mackenna J stated that:

[F]reedom to do a job either by one’s own hands or by another’s is inconsistent with a contract of service, although a limited or occasional power of delegation may not be.

S’s contract gave him no express right of substitution, but the company’s manual made passing references to a limited right to do so when he needed ‘assistance’, provided that the substitute was also a PP operative. Both the ET and the Court of Appeal agreed that this was not an unfettered right of substitution; it was highly limited and conditional, as well as being only an informal concession rather than an express contractual right. As such, both had held that S was under a substantial obligation of personal performance.

In Pimlico Plumbers v Smith [2018], Lord Wilson agreed with the conclusion that personal service was present. However, he moved away from the five-point analysis used by Sir Terence Etherton MR in Pimlico Plumbers v Smith [2017] – which focused on the conditionality of the substitution rights, and on when a substitution would displace personal service – and adopted a slightly different approach. Approving Elias J’s decision in James v Redcats [2007], he suggested that while in some cases it may be ’helpful to assess the significance of the right to substitute’ in some cases, it must not be forgotten that:

The sole test is, of course, the obligation of personal performance; any other so-called sole test would be an inappropriate usurpation of the sole test.

This is effectively a question of fact and degree that sees the focus shift away from the conditions of the substitution requirements, and instead onto the result. In this respect, a conclusion about the impact of a substitution mechanism is not determinative: its influence is but one factor that should be taken into account during a holistic examination of all the circumstances of the case.

Client or Customer?

Thirdly, Lord Wilson considered whether PP could be considered S’s client or customer, or whether the relationship between the parties was more akin to an employer-worker relationship. In examining this question, he had regard to guidance from three past decisions:

In Pimlico Plumbers v Smith [2018], Lord Wilson was firmly of the view that there were many factors showing that S was not an independent contractor. He did not market his services to the world and worked only for PP. Numerous terms of the contract showed elements of subordination such as wearing the branded Pimlico uniform; driving its branded van, to which Pimlico applied a tracker; carrying its identity card; and closely following the administrative instructions of its control room. There were also several payment terms as to when and how much Pimlico was obliged to pay him that were inconsistent with him being a truly independent contractor, including restrictions on who he could work for following the termination of the relationship. Finally, there were also references to wages and dismissal that alluded to a relationship more akin to employer and worker.

Analysis: Plugging a Hole or Replacing the System?

Many employment lawyers hoped that the Supreme Court in Pimlico Plumbers v Smith [2018] would provide long-awaited certainty and clarity as to the proper distinctions between the self-employed, workers, and employees. It was also hoped it might provide answers to  two other big questions: whether Lady Hale was right in Bates van Winkelhof [2014] to suggest an ‘employee’ under Section 83(2)(a) of the EqA 2010 is the same as a worker under Section 230(3)(b) of the ERA 1996, and whether the concept of ‘mutuality of obligations’ is relevant to worker status.

Sadly, the Supreme Court did not take the opportunity to clarify any of these issues to any great degree. Some have argued that this was to have been expected, with Darren Newman noting how he was:

[S]urprised that the Supreme Court even agreed to hear this case.  Whether or not someone is a worker or an employee is largely a matter of fact for the Tribunal to decide. Once the Tribunal had found that Mr Smith was not running an independent plumbing business and had agreed to work ‘for’ Pimlico Plumbers, the result was really inevitable.  

This does not mean that there were not any incremental steps forward in the progression of the law: the judgment did provide new authoritative guidance on personal substitution and whether someone is a client or customer. Nonetheless, it appears that the onus is now on Parliament to step up and provide some clarity.

There are some signs that this may be on its way: as Keir Baker has examined for Keep Calm Talk Law, the government-commissioned 2017 Taylor Review suggested the adoption of a new category of ‘Dependent Contractors’ to operate a replacement for the worker category. This new category would provide a more definitive separation from independent contractors, which may be a way forward.

Conclusion

The decision in Pimlico Plumbers v Smith [2018] represents a clear warning to employers to be more straightforward in their contractual arrangements with employees and workers. Therefore, in a sense, this is a ‘win’ of sorts for workers, who may in future gain greater contractual clarity.

However, from the perspective of employment lawyers who were hoping for a landmark decision providing the certainty on the law, this was a disappointment. It is not clear where this decision will lead; whether it bring wholesale changes will likely rise or fall on the applicability of its facts to future cases. At best, it is an incremental step forward in the narrow area of personal service.

Ultimately, this is an area that is ripe for legislative action that provides a firm definition of what rights attach to each category. If Pimlico Plumbers v Smith [2018] suggests anything, it will be down to Parliament to take action and plug the holes in the employment law pipework.

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Tagged: Commercial Law, Contract Law, Dispute Resolution, Employment Law, Supreme Court, Technology

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