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 1^st 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?