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Home » Latest News » Supreme Court rules on employment status

Supreme Court rules on employment status

Supreme Court rules on employment status

A look at the decision of the Supreme Court in the Pimlico Plumbers case and in particular its affect on the employment relationship

Many readers will be aware of the many recent cases about employment status (you may even have seen our own Lee Whiting discussing this topic on The Sunday Politics show) and in particular the decision of the Supreme Court in the recent case of Mr Smith against Pimlico Plumbers. The owner of Pimlico Plumbers, Charlie Mullins, is well known and the case attracted a lot of media interest. But does this case really make much of a difference?

Background

Firstly it’s worth reminding ourselves of the background to this case.

Mr Smith was a plumber who worked for Pimlico Plumbers on a ‘self-employed’ basis (and filed tax returns on that basis.) However, he was subject to various controls imposed by Pimlico and had to wear the company uniform and use a branded van leased from Pimlico. Mr Smith was entitled to swap shifts with other Pimlico plumbers but he couldn’t send a substitute of his choosing.

Mr Smith had made claims for disability discrimination, unlawful deduction from wages and holiday pay.

In UK employment law there are basically three categories of employment status - employee, worker or genuinely self-employed. Confusingly, the definition of “employee” is wider in certain circumstances (such as TUPE and discrimination claims) and is more akin to the definition of worker. Employment rights only attach to “employees” and “workers” (with workers having more limited rights.)

Pimlico defended the claims on the basis that Mr Smith was genuinely self-employed, and hence had no employment rights. But they lost. Despite the fact he’d enjoyed the benefits of being self-employed for tax purposes.

Since this decision an Employment Tribunal has held that couriers working for Hermes were workers, despite being described as self-employed.

So what?

The Pimlico case is often – wrongly – referred to as a ‘gig economy’ case. It isn’t, but there are parallels with the slew of gig economy cases in recent years (with all bar one of these cases finding individuals to be ‘workers’). Most readers won’t employ or work in the gig economy, nor will they work as or engaged self-employed plumbers.

But in our experience many businesses do engage ‘consultants’ or ‘contractors’, often apparently on a self-employed basis without providing rights such as holiday pay. Often this arrangement has been in place for many years, storing up a potentially significant liability for the business.

What about the tax position?

What is confusing about the law is that there are three categories of employment status for the purposes of employment law (employee, worker and self-employed) but only two for tax purposes (employee and self-employed.) So an individual can quite legitimately be self-employed for tax purposes but a worker for employment law purposes.

What should organisations do now?

If you do engage ‘consultants’ or ‘contractors’ then we’d recommend you review your contractual documentation and working arrangements. Such a review should help you avoid or – depending on what you decide to do – at least be able to quantify the potential risks and costs.

When engaging individuals (even through a limited company) on anything other than an employed basis careful thought should be given as to the likely status of those individuals and the rights this status might attract. It’s not uncommon for casual workers not to be paid holiday pay, and if a number of workers aren’t paid holiday pay the value of the liability can be significant. One option when engaging such workers may be to pay a lower hourly rate (taking into account, of course, the national minimum wage) but pay holiday pay as well.

Care also needs to be taken when ending engagements with such workers. Even if they are not “employees” in the narrow sense, and hence not entitled to bring a claim for unfair dismissal, they may meet the wider definition of “employee” contained in the Equality Act and accordingly be able to bring a claim for discrimination.

If you do employ individuals on an apparently self-employed basis but haven’t taken advice about their employment rights, please speak with Lee Whiting or your usual contact in the employment team.