The Court of Appeal has upheld the decision of an employment tribunal that S, a plumber who worked for the company Pimlico Plumbers, was a worker, not a self-employed contractor, and was therefore able to pursue claims for disability discrimination, holiday pay and unlawful deductions from wages. The Court based its judgment on the terms of the contractual arrangements between the parties, so the decision is quite fact-specific. However, it still provides some helpful guidance on the factors that tribunals will take into account when determining whether an individual is a ‘worker’ – and therefore entitled to certain basic employment rights – or is genuinely self-employed.
The Employment Rights Act defines an employee as an individual who has entered into or works under a contract of employment, and a worker as an individual who is either employed under a contract of employment or under any other contract to personally do work or provide a service, except where the recipient of the work or service is a client or customer of the individual. An individual is self-employed if they are in business on their own account and the people to whom they provide work or services are in fact the clients or customers of the individual. An individual’s employment status is important because it determines what employment rights they have, e.g. only an employee can claim unfair dismissal, but both employees and workers are entitled to paid annual leave under the Working Time Regulations. While the test of employment status under the Equality Act is worded differently, case law has shown that it operates in effectively the same way, i.e. it provides protection from discrimination to those individuals who meet the definition of an ‘employee’ or a ‘worker’ under the Employment Rights Act.
Even if an employer has agreed with an individual that they have a particular status, for example that they are a ‘self-employed consultant’, if this is not the practical reality of the situation, a court or employment tribunal could disagree. Indeed, this is a tricky area, and the case law shows that the courts and tribunals often reach different results on apparently similar facts.
Plumber was a worker
S worked as a plumber for Pimlico Plumbers from 2005 until his dismissal in 2011 following a heart attack. When he sought to bring claims in the employment tribunal for unfair and wrongful dismissal, disability discrimination, holiday pay and unlawful deductions from wages, Pimlico Plumbers argued that he was not entitled to bring those claims because he was a self-employed contractor, as opposed to an employee or a worker. The employment tribunal concluded that S was not an employee and therefore could not claim unfair or wrongful dismissal. However, it held that S was a worker, so could pursue his other claims. It considered that the nature of the contractual arrangements between the parties, and the practical operation of those arrangements, showed that S was not in business on his own account with Pimlico Plumbers as his customer or client. Rather, S was providing services as an integral part of Pimlico Plumbers’ operation. After the EAT upheld the tribunal’s decision, Pimlico Plumbers appealed to the Court of Appeal.
Court of Appeal decision
The Court of Appeal held that the employment tribunal had been entitled to conclude that S was a worker, not a self-employed contractor.
One of the key factors the courts and tribunals consider when determining whether an individual is required to do work personally is whether the individual has the contractual right to send a substitute to do the work in his or her place and, if so, what limitations are placed on that right. In this case, the Court considered that, under the terms of the contract between the parties, it was clear that S was required to do the work personally, and there was no express term permitting him to send a substitute to do the work in his place. There was evidence that, in practice, S could get another Pimlico Plumbers’ plumber to assist him on a job if two plumbers were required, or to take over a job for him if a more lucrative job for a Pimlico Plumbers’ customer came up, and that he could get external specialists who had been approved by Pimlico Plumbers to assist on jobs where their expertise was needed. However, this did not mean that a term permitting S to send a substitute should be implied.
Pimlico Plumbers also argued that S could not be a worker because the contract between the parties stated that there was no obligation on them to provide any work, nor on S to accept any work. However, the relationship between the parties was governed not just by the contract, but also by a working practices manual, which provided for normal working hours of 40 per week. Even if that requirement was not strictly enforced, the Court held that the tribunal had been entitled to rely on it to conclude that the contractual arrangements between the parties involved a normal 40 hour working week.
Finally, the Court rejected Pimlico Plumbers’ argument that S was in business on his own account and it was his customer or client. S had to rent a Pimlico Plumbers’ branded van and wear the company’s uniform on all jobs. Moreover, the contract between the parties prohibited S from providing services to Pimlico Plumbers’ customers on his own account and included a non-competition restriction preventing him from working as a plumber within a defined area of London within three months of the termination of his engagement with Pimlico Plumbers. The Court therefore agreed with the tribunal’s conclusion that the degree of control Pimlico Plumbers exercised over S was such that it could not be said to be his client or customer.
As noted in the introduction, the Court’s decision in this case very much turned on the facts and the precise terms of the contract between the parties. Accordingly, employers should be cautious of relying on it to draw too many analogies when assessing the employment status of their own workforce.
However, the Court did provide some helpful guidance regarding the right for an individual to send a substitute to do work in their place and when this will be inconsistent with a requirement for the individual to do work personally. The Court commented that an unfettered right to send a substitute is inconsistent with an undertaking to do work personally. Whether a conditional right to substitute another person is inconsistent with personal performance will depend on the nature and degree of any limit on a right of substitution. The Court gave three examples of this principle:
- a right of substitution only when the contractor is unable to carry out the work will typically be consistent with personal performance
- a right of substitution limited only by the need to show that the substitute is as qualified as the contractor to do the work will typically be inconsistent with personal performance
- a right to substitute only with the consent of another person who has an absolute and unqualified discretion to withhold consent will be consistent with personal performance.
How can EEF help?
It is clear from this case that determining an individual’s employment status – in particular, distinguishing between a worker and a self-employed contractor – is a complex exercise. We will be looking at this issue in our Spring Employment Law Update, considering what principles can be drawn from the recent case law in this area and what the Government is doing to try to simplify the situation. Click here for more details and to book your place.