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Pimlico Plumbers appeal goes down the pan

Self-employed plumber employment rights confirmed by Supreme Court

After failing to persuade the Tribunal and the Court of Appeal, Charlie Mullins, founder of Pimlico Plumbers Ltd, also failed in his company’s appeal to convince the Supreme Court that Gary Smith, an ex-Pimlico self-employed operative, was not entitled to certain employment rights.

Background

Gary Smith carried out plumbing work for Pimlico Plumbers Ltd (Pimlico) 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, Employment Appeal Tribunal and the Court of Appeal agreed that whilst Mr Smith was self-employed, his relationship with Pimlico Plumbers was rather that of a “limb” worker.

Mr Smith had worked for Pimlico under two written agreements, the second of which replaced the first in 2009, and which were drafted in confusing terms.

“Limb” worker

Unlike employment status for tax which is black and white insofar that an individual is either employed or self-employed, employment law also acknowledges a third possibility – that of “limb” worker. To qualify as a “limb worker” and grab a number of employment rights, it is necessary to demonstrate the personal service of the worker and that they are providing their services as part of a business carried on by someone else.

What was Mr Smith claiming?

Gary Smith originally claimed that he had been:

  1. an “employee” under a contract of service and that he had been unfairly dismissed; and/or
  2. a “worker” and that Pimlico had made unlawful deductions from his wages and he was entitled to holiday pay; and
  3. discriminated against by both Mullins and Pimlico by reason of disability.

The issue of Smith being an employee had been previously regarded as a non-starter, so it was only necessary for the Court to consider if he was a “limb worker”.

Personal performance

If he was to qualify as a “limb” worker then Smith would have to show that it was necessary for him to undertake to personally perform his work or services for Pimlico.

Smith had a limited facility, and one not found in his written contracts, to appoint another Pimlico operative to do a job he had previously quoted for but no longer wished to undertake. Instead, there were three passing references in the Pimlico manual to engagement of other people, of which the most explicit was the reference to requiring “assistance”. Assistance in the performance however was not the substitution of performance.

However, the Court examined the significance of this right of substitution by considering whether the dominant feature of the contract remained the personal performance of Smith. In this case the terms of the contract which referred to ‘your skills’ etc, were clearly directed to Smith’s personal performance, and any right of substitution was significantly limited by the fact that the substitute had to come from within the ranks of Pimlico, ie another Pimlico worker bound by similar terms. The court therefore agreed with the Tribunal that the dominant feature of Smith’s contract was an obligation of personal performance.

HMRC already limit the right of substitution in their CEST tool by defining a replacement worker as someone who isn’t from a pool or bank of workers regularly engaged by the end client. It is therefore reasonable to expect that the department will look to further diminish the substitute argument in future enquiries by throwing this into the mix.

Client or customer?

On the issue of whether Pimlico was Smith’s client or customer, the Tribunal had legitimately found that there was an umbrella contract between the parties, ie one which cast obligations on Smith even when he was between assignments. It was therefore necessary to look at the wording of the written contractual documents to determine whether Pimlico was a client or customer of Smith.

There were a number of factors that supported the notion of Pimlico being the client/customer, those being that Smith:

  • was free to reject a particular offer of work, although normal working hours consisted of a 5 day week, in which a minimum of 40 hours was expected to be completed;
  • was free to work for others if no work was offered by any one of Pimlico’s clients;
  • was not supervised in the manner he carried out the work; and
  • bore some of the financial risk. He paid for materials, was bound by the estimated price that he gave for a job and suffered the risk of his fees being halved if a customer paid more than one month late and nothing whatsoever if the customer failed to pay within 6 months. He remained responsible for rectifying any work that a customer complained about and was not paid for the job until all remedial work was completed.

Features which the court concluded strongly outweighed these points were:

  • Pimlico’s tight control over Smith’s working attire and the administrative aspects of any job;
  • The severe terms as to when and how much it was obliged to pay Smith; and
  • The suite of covenants restricting Smith’s working activities following termination.

Once again, the Court backed the Tribunal’s findings that Pimlico was not a client or customer of Smith and Pimlico’s appeal was dismissed.

How does this ruling affect contractors?

This saga will probably have more impact in the ‘gig’ economy where workers are much more likely to be aligned with the working arrangements that were prevalent in this case. Gig economy engagers will now be waiting nervously to see if floods of similar claims for holiday pay etc will be made by workers encouraged to do so by unions and lawyers alike.

HMRC may well draw on some aspects of this case, ie view of substitution, but overall, had this been a tax case, Smith would be regarded as self-employed. The fact that he experienced and was exposed to a very real financial risk and that the manner of his work was not controlled by Pimlico would be sufficient to break the trinity of status as established by the Ready Mixed Concrete case of 1968. Indeed, the Court said that Smith “correctly presented himself as self-employed for the purposes of income tax and VAT.”

The Government is currently looking at the employment status recommendations that were made in the recent Taylor Review and a consultation that closed on 1st June, and this case may well serve to encourage them to unite the employment status tests for tax and employment law.

Aggrieved contractors, placed into the lap of IR35 by the testimony of their end clients, may see this ruling as an opportunity to redress some of their losses and why not?

By Andy Vessey

Comments

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4 thoughts on “Pimlico Plumbers appeal goes down the pan”

  1. Necro

    Just shows how stupid and misaligned tax and employment law in this country is. For tax he was clearly self employed but as for status, he was effectively classed as employed. How are mere mortals supposed to navigate this nonesense?

    • Andy Dring

      The two sides of the same coin need to be combined. If clients of contractors were made to provide sick/holiday pay and associated employment rights to contractors that they deemed to be inside of IR35, there would be an impetus for those clients to ensure contracts were caried out in a manner that is outside of IR35.

      HMRC’s reliance on this point is untenable. If a test case were to come to court, I believe that ultimately, the Supreme Court, if it went that far, would agree that a person can’t be decreed inside for tax but outside for benefit purposes – it has to be one or the other.

  2. J Farrugia

    Agree above comment – how can tax law class a person as ‘self-employed’, but employment law class the same person as ’employed’?

    This situation is a circus…..the relevant Acts need to be aligned.

    • Andy Dring

      It’s the other way around. HMRC’s interest is that everybody is classed as an employee. Every employer’s interest is that everybody is classed as self-employed.

      It will come to a head eventually, we just have to hope that the Courts rule sensibly on this.

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