01 March 2017 - Post by:David Palmer
In my blog last month I predicted that 2017 would be the Year of the Worker. February did not let us down, with the Court of Appeal giving its judgment in Pimlico Plumbers & Ors v Smith. This judgment, and a number of other events in February, kept the issue of working status in the spotlight.
A plumb job
Pimlico and Mr Smith had a written agreement which, on its face, said that Mr Smith was a contractor and not a worker/employee. An employment tribunal found that Mr Smith was a worker. Mr Smith therefore had rights to the National Minimum/Living Wage and various rights under the working time legislation, including the right to paid holidays. Pimlico appealed all the way to the Court of Appeal.
Pimlico lost the appeal because the Court was not convinced that the true agreement between the parties was that of client (Pimlico) and contractor (Smith). Rather, the relationship was that of employer (Pimlico) and worker (Smith). The key factors were that:
- Mr Smith provided a personal service to Pimlico.
- Pimlico had a degree of control over Mr Smith.
- Mr Smith was integrated into Pimlico’s business.
- Mr Smith was not running a business on his own account.
Arguably, the outcome of the case was not a surprise.
Flow of travel
Judgments about worker status are always fact-sensitive – the Court itself warned against drawing general conclusions from the case – but I think there are points businesses can take away from the judgment, especially when it is viewed in the wider context of the debate concerning workers’ rights and the gig economy:
- Workers’ rights are headline news (BBC news led with the story on the day of the judgment). For businesses, adverse publicity regarding the treatment of workers/contractors is a real risk, in a way which wouldn’t have been imagined before the gig economy became a hot topic.
- As happened with the widely publicised gig economy cases, the drafting of Pimlico’s contractual documents with its workforce did not prevent the Court from concluding that, in reality, the true relationship was that of employer and worker, not client and contractor. This is a recurring theme in the case law. A business needs to define its relationship properly at the outset to mitigate the risk of worker status claims.
- It seems beyond doubt that unless putative contractors: (a) have an unqualified right to provide a substitute in their place or (b) are genuinely running their own business, then they will have grounds to pursue a claim seeking worker/employee status.
Pimlico might appeal the judgment and the Supreme Court might tackle worker status again. I’m not optimistic that would result in a change to the law.
Two other things happened last week that kept working status in the spotlight and hinted at possible changes to the law later in 2017:
- On 20 February 2017, the Resolution Foundation (an economic think tank) found that the majority of the growth in self-employment since 2009 has been in high-skilled, higher-paying sectors (eg advertising and banking) and noted that, for a worker costing a firm £100,000, a self-employed worker enjoys a tax advantage of around £7,000 over a similarly expensive employee. Does the Taxman have plans to claim this chunk of “lost” revenue?
- On 22 February 2017, MPs on the Work and Pensions Committee questioned bosses of certain companies (some of which are frequently referred to as being part of the gig economy). There was a discussion about worker status and, if the law was changed, whether these companies could offer their contractors more benefits but without the risk of the contractors claiming that they are workers/employees. Perhaps this is something the Government might find an appealing option?A change to the law looks to be in the pipeline.
- In the coming months we should have the outcomes of both the Taylor Review and the DBEIS Committee’s inquiry regarding the future world of work. It’s difficult to imagine Matthew Taylor and the DBEIS Committee are not going to recommend changes to the law given the spotlight on working status and the gig economy.
Gig economy businesses with a model which is heavily reliant on contractors may be waiting to see the outcome of the cases in 2017 and whether any changes to the law will be introduced before they decide to change their contracts with their workforce.
For other businesses, they need to define their relationships with staff properly at the outset to mitigate the risk of worker status claims. The key: someone who has an unqualified right to provide a substitute in his/her place, or is genuinely running their own business, is self-employed.