Court of Appeal ruling on employment status


10 February 2017

In the latest in a string of recent cases considering employment status, the Court of Appeal has upheld an Employment Tribunal’s decision that a plumber was entitled to holiday pay and protection from discrimination from the company for which he worked, notwithstanding that he was self-employed for tax purposes.

Although the judgment does not break new legal ground or alter the established law in any way, it serves as a useful reminder that even self-employed contractors can have workplace rights.

 

Background

The claimant, Mr Smith, is a plumber who carried out plumbing work for Pimlico Plumbers Ltd for almost six years. After his relationship with the company came to an end, Mr Smith brought a Tribunal claim alleging, amongst other things, that he had been unfairly dismissed and discriminated against and that he was owed holiday pay.

An Employment Tribunal ruled that Mr Smith was not an employee, so did not qualify for protection against unfair dismissal. He was, however, found to be a ‘worker’ and entitled other holiday pay and protection against discrimination. The Employment Appeal Tribunal upheld those decisions in 2015 and now the Court of Appeal has rejected a further appeal against the decision that Mr Smith was a worker.

 

Court of Appeal’s decision

There were two key issues that the Court of Appeal had to consider:

  1. Whether the Tribunal had been right to say that the claimant was obliged to carry out work personally. It is well established that to qualify as a worker, an individual must be required to carry out work personally and that an unfettered right to appoint someone else to do the work in their place is inconsistent with worker status.
  2. Whether the Tribunal had correctly analysed the facts in deciding that the company was not a client or customer of a business operated by Mr Smith. An individual cannot be a ‘worker’ under the relevant legal definitions if they are operating a business of their own and the organisation they are working with is a client or customer of that business.

On the question of personal service, the Court of Appeal felt that there was clear evidence to support the Tribunal’s decision that Mr Smith was contractually obliged to carry out work himself. In the contractual documents the individual’s obligations were framed as personal obligations on him, saying, for example, ‘You shall provide such building trade services are within your skills’ rather than ‘you or any other operative who substitutes for you shall provide building trade services as are within your or your substitute’s skills’. Furthermore, there was no mention in the written terms of any contractual right to send a substitute. That being the case, the Court of Appeal had little difficulty in rejecting the company’s argument that the evidence showed Mr Smith had an implied power to arrange for someone else to do the work he was provided with.

On the second point, the Court of Appeal decided that the Tribunal had analysed the relationship correctly. Of particular significance were the following factors:

  • the high degree of control exercised by the company over the claimant, which the Tribunal felt was inconsistent with the company being a customer or client of a business run by the claimant; for example a company manual governing the working arrangement binding on operatives included provisions such as a requirement to wear a logo’ed uniform and rent a logo’ed van from the company; and
  • onerous restrictive covenants in the contract, which precluded Mr Smith from working as a plumber in any part of Greater London for three months after the termination of the agreement;
  • the Tribunal’s conclusion that the claimant was contractually obliged to work for at least 40 hours a week. Although the company argued that the Tribunal had been wrong to find Mr Smith was under any obligation to work, the Court of Appeal decided the Tribunal could not be criticised for interpreting the company’s ‘contradictory and ill-thought-out contractual paperwork’ in that way.

Looking at the arrangement as a whole, the Tribunal decided that Mr Smith was an integral part of the company’s operations and subordinate to the company, although not to such an extent that he could be considered an employee. He was not in business on his own account but was a ‘worker’. The Court of Appeal upheld that decision.

 

Comment

Following hard on the heels of the Uber and CitySprint gig economy cases, today’s judgment is a wake-up call for employers reliant on independent contractors as an integral part of their businesses. As the Court of Appeal noted, 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.’

A common confusion is to assume that workers treated as self-employed for tax purposes have no employment rights, such as paid holiday, pensions and the minimum wage. While that is true for those self-employed who genuinely run their own independent businesses, it is incorrect for a growing number of self-employed workers. These workers are typically subject to a greater degree of control by the business, are not allowed to send a replacement to do their work and are integrated into the organisation. For example, they are presented to the outside world as part of the organisation, such as wearing a uniform, and they are told when, where and how to do their work. The law says that this is not a contract between two independent business undertakings and, as such, the worker is entitled to the enhanced protection of some, but not all, employment rights.

Given the growing number of tribunal claims in this area, and the accompanying negative publicity, employers should review the employment status of their freelance and contracting workforce. The risk being that misclassifying a worker as an independent contractor may result in large financial exposure to unpaid holiday, pension and other entitlements, particularly where significant numbers of workers are involved.

 

Martin Warren, Partner
e: martinwarren@eversheds-sutherland.com
t: +44 207 919 4745