The Court of Appeal has delivered an important decision on employment status holding that the plumbers engaged by Pimlico Plumbers were engaged as workers not self employed contractors.
In Pimlico Plumbers Ltd and anor v Smith, the Court of Appeal has upheld the decision of an employment tribunal that a plumber who was self-employed for tax purposes was nevertheless a ‘worker’ within the meaning of S.230(3)(b) of the Employment Rights Act 1996 and the Working Time Regulations 1998 SI 1998/1833 and an ‘employee’ under the extended definition of that term in S.83(2) of the Equality Act 2010.
S was a plumber who carried out work solely for PP Ltd between 25 August 2005 and 28 April 2011. He had signed an agreement that his work would be governed by terms and conditions set out in PP Ltd’s Manual, which included stipulations as to working hours, uniform and appearance; restricted the ability of S to work for himself or other companies; obliged S to use a PP Ltd van for his work; and provided that S could only swap jobs with other PP Ltd operatives. During this period, S filed tax returns on the basis that he was self-employed. He was registered for VAT and submitted regular VAT invoices to PP Ltd. In January 2011, S had a heart attack and PP Ltd subsequently terminated its arrangement with him on 3 May 2011, following which he brought claims in the employment tribunal alleging unfair dismissal, wrongful dismissal, entitlement to pay during the period of a medical suspension and failure to provide particulars of employment. These claims all depended on S being an employee within the meaning of S.230(3)(a) ERA – i.e. employed under a contract of service. At a pre-hearing review, an employment judge held that S was not employed under such a contract, and therefore concluded that the tribunal had no jurisdiction to hear these claims.
However, S had additionally made claims for unpaid holiday pay and unlawful deductions from wages. For these purposes he did not need to show that he was an employee, merely that he was a ‘worker’ within the meaning of S.230(3)(b) ERA and Reg 2 WTR – i.e. he was employed under a contract ‘whereby the individual undertakes to do or perform personally any work or services for another party to the 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’. He also claimed against both PP Ltd and its owner, M, for direct disability discrimination, discrimination arising from disability and failure to make reasonable adjustments. For these purposes, he needed to be an employee within the extended definition in S.83(2) EqA, which includes those employed under ‘a contract personally to do work’.
The employment judge held that S was a worker and an employee in the extended sense. The main purpose of the agreement signed in 2005, and a subsequent agreement containing updated terms which S signed in 2009, was for S to personally provide work for PP Ltd. The Manual obliged him to work 40 hours per week (M’s evidence was that the minimum week in practice was 36 hours per week), and although there was some flexibility, he was required to agree the hours he would work with PP Ltd. There was not an unfettered right to substitute at will: there was no such right given to S by the contractual documents and no evidential basis for such a practice. Even though in practice engineers with PP Ltd 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 S was under an obligation to provide work personally for a minimum number of hours per week or on the days agreed with PP Ltd. S had a degree of autonomy in relation to the estimates and work done, but PP Ltd exercised very tight control in most other respects. These factors led the judge to conclude that PP Ltd could not be considered to be a client or customer of S’s business.
The EAT upheld the employment judge’s decision, leading PP Ltd to appeal further to the Court of Appeal, where the Master of the Rolls (Sir Terence Etherton) gave the lead judgment. He began by observing that ‘the case puts a spotlight on a business model under which operatives are intended to appear to clients of the business as working for the business, but at the same time the business itself seeks to maintain that, as between itself and its operatives, there is a legal relationship of client or customer and independent contractor rather than employer and employee or worker’. Citing the judgment of Lady Hale in the Supreme Court in Clyde and Co LLP and anor v Bates van Winklehof (Brief 1000), he stressed that in the context of S.230(3)(b) ERA, Reg 2 WTR and S.83(2) EqA, ‘a distinction is to be drawn between (1) persons employed under a contract of service; (2) 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; and (3) persons who are self-employed and provide their services as part of a profession or business undertaking carried on by someone else’. The question posed by the appeal was whether the employment judge was correct to hold that S fell in category (3) rather than category (2).
In the Master of the Rolls’ view, the employment judge had been correct to conclude that S was under an obligation to provide his services personally. Unlike earlier decisions of the EAT and Court of Appeal in which it had been held that an express right of substitution or delegation was incompatible with an obligation of personal performance, the facts here indicated that there was no such express right. Nor was there any scope for the Court to imply such a right. Furthermore, having found that S was obliged under the terms of his agreements with PP Ltd to do a minimum number of hours per week, the employment judge concluded, and was entitled to conclude, that the degree of control exercised by PP Ltd over S was also inconsistent with PP Ltd being a customer or client of a business run by S. In particular, the judge was entitled and right to place weight on the onerous restrictive covenants in the agreement, precluding S from working as a plumber in any part of Greater London for three months after termination.