The case centred around plumber, Gary Smith, who was working on a self-employed contract at Pimlico Plumbers, but following illness was refused a request to work part-time on a contract basis., which has now been overridden. Going forward, this raises issues for employers who opt for self-employed contracts, thereby not paying holiday or sick pay, as well as the benefit of not paying employers' national insurance contributions for self-employed workers, unlike traditional hired PAYE employees.

The judges in ruling said: ‘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.’

The Court of Appeal case was between Pimlico Plumbers along with its founder and owner, Charlie Mullins, and Smith, who worked for the firm between 25 August 2005 and 28 April 2011. He claimed that, following a heart attack in January 2011, he was unfairly or wrongfully dismissed on 3 May 2011 (Pimlico Plumbers Ltd, Charlie Mullins appellants, and Gary Smith, [2017] EWCA Civ 51).

Pimlico Plumber’s contract with Smith defined his position as a ‘self employed operative’. He provided his own tools, was VAT registered and responsible for handling his own tax and national insurance contributions.

However, the contract also required him to wear a Pimlico Plumbers uniform, drive a branded van leased from Pimlico (fitted with a GPS device) and he could only be contacted by customers through the company.

Smith could swap shifts with other operatives but could not send a substitute of his own choosing without written permission from Pimlico Plumbers. Provided Smith worked a minimum number of hours a week he could choose when he worked and which jobs he wished to accept.

After having a heart attack, Smith wanted to reduce his hours from five days to three, and his employment with Pimlico Plumbers was subsequently terminated.

Claim

Smith went on to take claims to an employment tribunal in 2012 for unfair dismissal, wrongful dismissal, entitlement to pay during the period of a medical suspension and failure to provide particulars of employment.

The employment tribunal said its ability to consider the claims rested on whether or not Smith was judged to be an employee of Pimlico. It held that he was not an employee, so he could not bring an unfair dismissal case, but he was found to be a worker.

This meant the employment tribunal had jurisdiction to consider complaints of direct disability discrimination, discrimination by reason of failure to make reasonable adjustments, and in respect of holiday pay as well as in respect of unauthorised deductions from wages.

The issue was referred to an employment appeal tribunal. At this hearing, the judge said that the contract terms and the Pimlico Plumbers manual for its operatives clearly envisaged that Smith would be providing his services personally. He concluded that there was not an unfettered right to provide services through a substitute.

The judge said that, at most, Pimlico Plumbers was willing to tolerate a form of job-sharing or shift swapping between the operatives but without any legal obligation to do so, and argued that was in itself sufficient to determine Smith was a ‘worker’. In addition, the extent of the restrictive covenants limiting Smith’s right to work were also inconsistent with Smith being in a business on his own account.

In the latest hearing, at the Court of Appeal, the company and its founder argued the employment tribunal had erred in law over the issue of whether Smith was under an obligation personally to perform the jobs he contracted to carry out, and had failed to consider whether the relevant contract under which Smith was a ‘worker’ was one single contract or a series of successive separate contracts.

Findings

In its findings, the Court of Appeal has agreed with the tribunal that Smith was entitled to basic workers' rights although he was technically self-employed. These include the national minimum wage and paid holiday and the ability to bring discrimination claims.

In their discussions, the judges said the issue hinged on the distinction to be drawn between persons employed under a contract of service; 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 persons who are self-employed and provide their services as part of a profession or business undertaking carried on by someone else.

They said the contract Smith signed with Pimlico Plumbers made clear that he undertook to provide his services personally, and the operatives’ manual did not contain an express right of substitution or delegation.

Pimlico Plumbers sought to argue that when the contract and manual said ‘you’ it actually meant ‘you or any other PP operative who substitutes for you’. The judges regarded this as an ‘impossible interpretation’, because it was inconsistent with the language of the agreement which referred to Smith’s skills, competence and personal liability, and also because there was no evidence of a plumbing engineer substituting work to an external plumber of his choice on a day when he preferred not to work or to conduct work independent to Pimlico Plumbers.

The second element of Pimlico Plumbers’ argument rested on the view that the company was not offering an ‘overarching’ or umbrella contract but rather than a series of separate engagements, which meant Smith was classed as self employed.

However the judges disagreed, stating that the company’s manual and contract cited that plumbers were obliged to work a normal 40 hour week. The relationship between Pimlico Plumbers and its operatives would only work if the operative was given and undertook a minimum number of hours’ work.

Smith, like the other operatives, was required to use the logoed van for work assignments and also a mobile phone issued to him by the company. The operative had to earn sufficient from work assignments to be able to pay those expenses and provide an income. Smith’s argument that would have to be a minimum of 36 hours a week was accepted.

In conclusion the judges said they agreed with the employment tribunal’s decision and dismissed the appeal by Pimlico Plumbers, saying there had been no errs in law in its rulings.

They stated: ‘Having rejected Pimlico Plumbing’s case that Mr Smith had an unfettered right of substitution and did not have to do the work personally, and having found that Mr Smith was contractually obliged to do a minimum number of hours work a week, the ET concluded and was entitled to conclude in paragraph 52 of its decision, that the degree of control exercised by Pimlico Plumbing over Mr Smith by virtue of the 2009 agreement was also inconsistent with Pimlico Plumbing being a customer or client of a business run by Mr Smith.’

The ruling has implications for other businesses which operate similar contracts, hiring staff on self-employed contracts as opposed to PAYE.

The Court of Appeal judgment is here.

Employment appeal tribunal, Pimlico Plumbers, Mr C Mullins and Mr G Smith, ruling is here.

Report by Pat Sweet, additional reporting by Sara White