Following recent Tribunal decisions that self-employed minicab drivers and bicycle couriers had worker status, the Court of Appeal has decided that self-employed plumbers were workers and also employees under the extended definition of employment in the Equality Act 2010. This means that the plumbers acquire various employment rights such as the right to the national minimum wage, paid holiday, rest breaks and pension contributions, as well as whistleblowing and discrimination protections (Pimlico Plumbers Ltd and anor v Smith CA).
The test for whether someone is a "worker" is set out in section 230(3) of the Employment Rights Act 1996 (ERA 1996) (and, for working time purposes, in regulation 2(1) of the Working Time Regulations). There are three parts to the test, all of which must be satisfied to achieve worker status:
- There must be a contract.
- The contract must require the individual to perform work personally for another party. This will usually involve consideration of whether the employee has a right to send a substitute to perform the work in his or her place.
- The status of the other party (i.e. the putative employer) is not that of a client or customer of any profession or business undertaking operated by the individual. This is a factual question and involves looking at a range of factors to determine the nature of the relationship between the company and the individual. If the relationship is akin to an employment relationship, for example, with the company exerting control over the individual and the individual being integrated into the company's business, then it is more likely that the individual will be a worker.
Employment status under the Equality Act 2010
Individuals will also be viewed as employees for the purposes of the Equality Act 2010 (EqA 2010) where they are employed under a contract of employment or a "contract personally to do work". A "contract personally to do work" includes workers. This is wider definition of employment than that contained in the ERA 1996 (which confers employment rights such as the right not to be unfairly dismissed).
The Claimant was a plumber engaged by Pimlico Plumbers (PP). During his engagement, the Claimant worked solely for PP. After his engagement was terminated, the Claimant brought various Employment Tribunal claims which depended upon him being an employee for the purposes of the ERA 1996. At a pre-hearing review the Judge held that the Claimant was not an employee under the ERA 1996 definition and, therefore, the related claims could not proceed.
However, the Claimant had brought other Tribunal claims which depended on him being a worker, rather than an employee (i.e. a claim for unpaid holiday and a claim for unlawful deductions from wages). In addition, he had brought discrimination claims which depended on him being an employee under the extended definition of employee contained in the EqA 2010.
In 2012, the Tribunal held that the Claimant was both a worker under the ERA 1996 and an employee under the EqA 2010. On the question of personal service, the Tribunal found that the main purpose of the contract was for the Claimant to provide work personally for PP for a minimum number of hours per week. Although the contract included a substitution clause, it was not unfettered since the Claimant could only substitute other PP plumbers in his place.
On the question of whether PP was a client or customer of the Claimant's business, the Tribunal weighed up a range of factors. On one hand, PP set rules around the wearing of a uniform and appearance, booking holidays, standards of behaviour and performance and the Claimant was obliged to rent a PP van for work. Further, PP imposed onerous post-termination restrictive covenants including one which said he could not work as a plumber in London for a period of 3 months post-termination.
On the other hand, the Claimant provided his own tools and bore a significant proportion of the financial risk (e.g. if a customer didn’t pay then the Claimant would not get paid and he had to procure his own liability insurance). Ultimately, the Tribunal concluded that PP could not be considered to be a client or customer of the Claimant.
The Tribunal's decision was upheld by the EAT and PP appealed to the Court of Appeal.
The Court of Appeal upheld the Tribunal's decision.
On the issue of personal service, the Court noted that a full right of substitution would be inconsistent with there being personal service. However, a limited right of substitution, as in this case, could still be consistent with there being personal service and point towards worker status.
On the issue of whether PP was a client or customer of the Claimant the Court noted that PP wanted the plumbers 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". The Court agreed that the Tribunal had been entitled to find that the degree of control exercised by PP was inconsistent with PP being a client or customer of a business run by the Claimant.
PP has indicated that it may seek permission to appeal to the Supreme Court.
This decision is relevant to all employers who engage independent contractors. It would be wise to take steps to review such relationships to ensure that the contractual documentation and labels used accurately reflect the reality of the relationship on the ground.
There are two key questions to consider:
1. Does the contract imposes an obligation on the individual to work personally?
If the contract contains an unconditional substitution clause then this should defeat the notion of personal service, assuming it is a genuine term. However, if it is a "sham" clause i.e. a clause which misrepresents how things work in practice, then the Courts will disregard it. Therefore, if you wish to use an unconditional substitution clause as a means of defeating personal service, then you have to be comfortable with the possibility that it may be used in practice.
If the contract contains a conditional substitution clause this may not be enough to defeat personal service. If the right of substitution is only limited by the need to demonstrate the substitute is qualified to do the job then this is still consistent with there being no obligation to work personally. However, if the right of substitution is limited to circumstances where: (i) the individual is unable to work and/or (ii) the employer consents (and has an absolute and unqualified right to withhold consent), then this will be viewed as being consistent with an obligation to work personally.
2. Are you a client or customer of the individual's profession or business?
This will involve a factual assessment of how the relationship operates on the ground.
There are various factors to think about here:
What degree of control do you exert over the individual? Do you control when, where and how the work is performed? Do you set standards of behaviour and punish for breaches?
- Does the individual market to the world at large? Are they actively marketing their services to other clients or customers? Do they work for other people or have they been recruited by you to work within your business?
- Is the individual integrated into your business? Does the individual wear a uniform? Do they attend company social events? Do they have a permanent desk? Do they have a business card and a company email address?
- Other factors? Other factors may be relevant, in particular the degree of financial risk assumed by the individual: the higher degree of risk assumed, the more likely they are to be in business on their own account. Another factor is whether the individual is engaged on a per assignment basis or whether there is a continuous "umbrella" contract: worker status is more likely where there is an umbrella contract.
If you carry out this assessment and reach the conclusion that your contractors are workers then you should seek legal advice on the best solution. You may decide to adjust the way in which your contractors are engaged to avoid worker status. Alternatively, you may be prepared to accept that they have worker status and, if so, you should ensure that you comply with relevant laws such as working time, national minimum wage, pensions auto-enrolment and whistleblowing legislation.
Given the importance of this topic at the moment, we would be interested to hear from you about who is working within your business and your views on some of the key issues regarding employment status. If you have a spare couple of minutes, it would be great if you could complete our anonymous Working Practices Survey and we'll get back in touch to share the results.