Flushed with Success

Self-employed plumber secures employment rights

In another case of a self-employed person being classified as a “limb” worker, the Court of Appeal recently confirmed that Gary Smith, a self-employed plumber, was entitled to sick pay.

Gary Smith carried out plumbing work for Pimlico Plumbers Ltd during the period August 2005 – April 2011. He claimed that, following a heart attack in January 2011, he was unfairly or wrongfully dismissed in May of that same year. Both the Employment Tribunal and the Employment Appeal Tribunal agreed that whilst Mr Smith was self-employed, his relationship with Pimlico Plumbers was rather that of a “limb” worker.

2005 Agreement

In August 2005, Smith signed an agreement with Pimlico Plumbers (“2005 Agreement”), which was Pimlico Plumbers standard form. It stated that the terms of the agreement were detailed in the Company Procedures and Working Practice Manual which Smith had to read and agree to comply with before signing.

The Manual

The Company Procedures and Working Practice Manual (“the Manual”) contained the following relevant provisions:

• Pimlico Plumbers logo’ed uniform must always be clean and worn at all times.
• Normal working hours consist of a five day week, with a minimum of 40 hours.
• Adequate notice to be given to Control Room for any annual leave required, time off or period of unavailability. Any leave or time off had to be taken in full days.
• Engineers had to be available during their shift to take on-call work.
• Detailed requirements as to timesheet procedures, invoice procedures, estimate procedures and additional labour charges.
• Engineers were not paid until the customer paid their invoice to Pimlico Plumbers in full. Where the debt was paid later than one month after completion of the job, then the plumber would suffer a 50% reduction from their cut.
• Every engineer was supplied with a Pimlico Plumber I.D. card and mobile phone. A deduction from “wages” was made for mobile phone charges on a monthly basis.
• Engineers were required to collect and order materials for jobs and charge the customer at cost plus 20% trade mark-up plus VAT.
• Undertaking private work for a Pimlico Plumber customer would result in instant dismissal, as would failure to observe the rules outlined in the manual.
• Wage slips would be provided following payment to an engineer.
• Rental charges of £120 + VAT for use of a logo’ed van were payable by engineers monthly in advance, which “allows Operatives to work on a self-employed basis”.
• Engineers had to follow ten personal conduct guidelines.

2009 Agreement

The 2005 Agreement was replaced by a longer and more detailed agreement in the form of a letter, titled “Agreement – Self-Employed Operative”, dated September 2009. This provided for:

• Termination upon not less than one week notice by either party.
• Pimlico Plumbers could terminate the agreement if Smith was to commit an act of gross misconduct, failed to remedy any fault or his work was either of a poor quality or not up to a satisfactory standard.
• Days worked would be agreed by the two parties but Pimlico Plumbers would be under no obligation to offer work nor for Smith to accept such work, if offered it. Smith was required to notify the company, in good time, of days on which he was unavailable for work.
• Faulty workmanship would be corrected promptly and at Smith’s expense.
• Smith would represent the company in the provision of the services and would maintain a high standard of conduct and appearance at all times. He would also comply with all reasonable rules and policies of the company, where appropriate.
• Once Pimlico Plumbers had been paid by the customer and there were no complaints, Smith would be paid a fee equal to 50% of the cost charged by Pimlico Plumbers. Payment would be made against an invoice which was to be submitted weekly in arrears. Where a customer did not pay within six months, then Smith would receive no fee.
• Smith had to provide all his own tools and equipment. Where he provided his own materials costing at least £3,000 (exc. VAT) he was entitled to up to 20% trade mark-up. Materials costing less than £3,000, entitled him to a mark-up of 12.5%.
• Pimlico Plumbers were not obliged to reimburse Smith expenses he incurred in the provision of the services.
• Smith had to take out Professional Indemnity insurance for a limit of £2 million.
• Smith had to tell Pimlico Plumbers of his other activities and was not permitted to work for any other customer.

The facts

Smith worked solely for Pimlico Plumbers although other engineers did at times do private work and by arrangement left for a period to do other jobs and then returned. He could reject particular jobs and could decide his own working hours. It was agreed by Smith that Pimlico Plumbers had no obligation to provide him with work on any particular day.

In carrying out a particular plumbing job, Smith could exercise his discretion in what needed doing and whether to negotiate on price. He was unsupervised and decided when and how to do the job. On average, Smith worked about 20 hours a week in the last weeks of his relationship with Pimlico Plumbers.

Smith registered with the Construction Industry Scheme and was registered for VAT.

The income and expenditure accounts of Smith demonstrated that he had to cover substantial costs of materials himself. In the last full year he worked for Pimlico Plumbers he spent nearly £53,000 on materials. In addition, he provided his own protective clothing and paid for tool and equipment hire. Receipts of nearly £131,000 were offset by expenditure of £82,500.

Following termination of the 2009 Agreement, Smith presented a claim form in August 2011, in which he complained of unfair dismissal, wrongful dismissal, entitlement to pay during medical suspension, holiday pay and arrears of pay. He also claimed against both Pimlico Plumbers and its owner, Charilie Mullins, direct disability discrimination, discrimination arising from disability and failure to make reasonable adjustments.

Not an employee

Following a hearing in 2012, the Employment Tribunal concluded that Smith was not an employee as there was an absence of mutuality of obligation, he bore a financial risk, had the opportunity to profit on marking-up the cost of materials and both parties intended the relationship to be one of self-employment.

But was a “limb” worker

In the context of employment legislation a distinction is drawn between:

1. Persons employed under a contract of service;
2. Persons who are self-employed, carrying on a profession or a business undertaking on their own account, and who enters into contracts with clients or customers to provide work or services for them; and
3. Persons who are self-employed and provide their services as part of a profession or business undertaking carried on by someone else (“limb” worker).

The Employment Tribunal found that, despite being self-employed, Smith was nevertheless a “limb” worker and therefore entitled to certain employment rights such as holiday pay and unauthorised deductions from wages, for the following reasons:

1. The main purpose of the agreement was for Smith to provide work for Pimlico Plumbers.
2. The manual obliged Smith to work a normal week of 40 hours. Despite Mr Mullins claiming there was a minimum obligation to work 36 hours a week, the contract required Smith to provide work on the days agreed with Pimlico Plumbers.
3. Although there was some flexibility, Pimlico Plumbers expected engineers to discuss and agree their working hours with them.
4. There was not an unfettered right to substitute at will. Even though in practice engineers swapped jobs around between each other, and also used each other to provide additional help where more than one person was required for the job or to do a job more quickly, and there was evidence that external contractors were sometimes used to assist with a job or conduct specialist work, the fact was that Smith was under an obligation to provide work personally for a minimum number of hours per week or on the days agreed.
5. Although Smith had autonomy in relation to the estimates and work done, Pimlico Plumbers exercised very tight control in most other respects. That included a high degree of restriction on Mr Smith’s ability to work in a competitive situation, which suggested that he was not in business on his own account and was inconsistent with Pimlico Plumbers being a customer or client of his.
6. Smith was an integral part of Pimlico Plumbers operations and subordinate to them.

This ruling is unlikely to have any bearing when considering employment status for tax. After all the Employment Tribunal found that Mr Smith was self-employed and that is all that needs to be considered when approaching status from a tax perspective, ie employed or self-employed? It is not concerned with the various categories of worker. Well not yet but I know of a few status inspectors who would like to make it that way.