private law,

Employees or Independent Contractors: What Defines a “Worker”?


By Josias Senu Aug 02, 2018

Pimlico Plumbers Limited v Smith [2018] UKSC 29 deals with several important issues concerning an intermediate category of working people falling between an “employee” under a contract of service and those who work for others as independent contractors. The final appeal decision clarifies the meaning of “worker” under section 230(3)(b) of the Employment Rights Act 1996 (‘ERA’), Regulation 2(1) of the Working Time Regulations 1998 (‘the Regulations’) and section 83(2) of the Equality Act 2010 (‘the Equality Act’).

Mr Smith is a plumbing and heating engineer. Pimlico Plumbers (‘Pimlico’) is a London-based plumbing business. For almost six years, Mr Smith carried out work for Pimlico. Under the two agreements he had entered into, Pimlico was not obliged to provide Mr Smith work, and he was not obliged to accept any work provided. Tragically, in 2011, Mr Smith suffered a heart attack. After requesting for a three-day week from Pimlico on his doctor’s advice, he was sacked. Following this, he brought claims against Pimlico in an employment tribunal for unfair dismissal, unlawful wage deductions, unpaid annual leave and disability discrimination. The tribunal concluded that he was not an “employee” within the meaning of section 230(1) of the ERA to bring an unfair dismissal claim. However, he was a “worker” under section 230(3)(b) of the ERA and regulation 2(1) of the Regulations. Further, he had been in “employment” under section 83(2) of Equality Act. Pimlico Plumbers appealed these three decisions at the EAT and Court of Appeal. These attempts were unsuccessful, and their arguments again failed before a unanimous Supreme Court (Lord Wilson, Lady Hale, Lord Hughes, Lady Black and Lord Lloyd-Jones).

Under section 230(3) of the ERA, a “worker” is not only defined as, at (a) an individual who is employed under a contract of service, but also at (b), as:

“an individual who has entered into or works under … any other contract … whereby the individual undertakes to … perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual …”

Reconciling the definition of “workers” against its legislative backdrop, the Supreme Court found that regulation 2(1) of the Regulations defined “worker” in identical terms to section 230(3)(b) of the ERA. At first glance, the definition of “employment” under the Equality Act appears to be different to the concept of “worker” within the meaning of section 230(3)(b) of the ERA and regulation 2(1) of the Regulations. However, following Lady Hale’s observations in Bates van Winkelhof v Clyde & Co LLP [2014] UKSC 32, Lord Wilson noted that this was in fact a distinction without difference. He pointed to Lady Hale’s observations to demonstrate that the operation of section 83(2)(a) of the Equality Act yielded similar economical results to section 230(3)(b) of the ERA and regulation 2(1) of the Regulations, and that this was conceptually legitimate to treat the three decisions as being founded on the question of whether Mr Smith was a “worker” under section 230(3)(b) of the ERA. However, Lord Wilson failed to address how exactly van Winkelhof equated the definition of a “worker” under section 230(3)(b) of the ERA with section 83(2)(a) of the Equality Act. In many ways, this was a lost opportunity, especially with concern to the restrictive approach of Jivraj v Hashwani [2011] UKSC 40 when interpreting “employment” under section 83(2)(a) of the Equality Act.

There were two key legal tests Mr Smith had to satisfy if he was to qualify as a “worker” under section 230(3)(b) of the ERA. The first was that Mr Smith had undertaken to “perform personally” his work for Pimlico, and the second that Pimlico was not to be regarded as Mr Smith’s client or customer. Under the first test, the Court was concerned as to whether Mr Smith’s right to substitute another Pimlico operative was inconsistent with his obligation of personal performance. Ultimately, the employment tribunal, the EAT and the Court of Appeal did not consider Mr Smith’s right to substitute as negating his obligation of personal performance. Challenging this analysis, Pimlico directed the Court’s attention to Halawi v WDFG UK Ltd (t/a World Duty Free) [2014] EWCA Civ 1387 and Mirror Group Newspapers Ltd v Gunning [1986] ICR 145 but these cases did nothing to assist in determining where the boundary lay between the right to substitute and personal performance. Rather, it was in the analysis of James v Redcats (Brands) Ltd [2007] ICR 1006 and Jivraj where the Court held that it was helpful to assess the significance of Mr Smith’s right to substitute by analysing “whether the dominant feature of the contract remained personal performance on his part”.This is a welcome clarificatory approach by the Supreme Court in the assessment of personal performance as it means the lower courts and tribunals should favour to analyse, not merely the purpose of the contract, but its main substance. On the facts of Pimlico Plumbers, the Court found that the right to substitute was “so insignificant as not to be worthy of recognition”. Mr Smith warranting his competence and skills, the requirement for him to uphold a high standard of conduct and that he must carry his Pimlico ID card at all times when working for the Company cumulatively went to show that he had undertaken to “perform personally” his work for Pimlico. Pimlico’s argument that these requirements were capable of applying to anyone who substituted for him was unpersuasive to the Court because it stretched their “natural meaning beyond breaking-point”. Hence, the fact that the contractual right to substitute was limited to other Pimlico operatives was important, as this type of substitute would have had to equally fulfil Pimlico’s “suite of heavy obligations”. It is worth noting that the Court’s analysis had little to do with the law, but is a reminder that contradictory objectives in contractual drafting only causes confusion, and in this context, concurrently benefits the “worker”.

Under the second test, the question was whether the extent of Pimlico’s contractual obligation to offer Mr Smith work and the extent of his obligation to accept the work offered to him evidenced a lack of subordination consistent with Pimlico being no more than his client or customer (the Court applied Windle v Secretary of State for Justice[2016] ICR 721, at [23], per Underhill LJ). The Supreme Court held that the EAT and Court of Appeal were entitled to find that Pimlico had a contractual obligation to offer Mr Smith work if it was available, whereas Mr Smith’s obligation was to keep himself available for up to 40 hours a week to accept any work Pimlico might offer him (but without prejudice to his right to decline what he is offered). Hence, it was legitimate to find that there was an “umbrella contract” between Pimlico and Mr Smith. This was an understandable approach for the Supreme Court to adopt, however the extension of mutuality of obligation beyond employee status is deeply problematic (see: J Prassl, “Pimlico Plumbers, Uber Drivers, Cycle Couriers, and Court Translators: Who is a Worker?” (2017) 33 LQR (forthcoming)). Pimlico made a number of arguments including that: Mr Smith was entitled to reject any work offered and the financial risks and advantages followed from Mr Smith’s work for Pimlico. However, the Court felt that other features of the contract “strongly mitigated” against recognising Pimlico as a client or customer of Mr Smith. In scathing words, Lord Wilson stated that the “severe terms as to when and how much [Pimlico] was obliged to pay him…betrayed a grip on his economy inconsistent with his being a truly independent contractor”. In consequence, it was the Supreme Court’s view that Pimlico could not be regarded as Mr Smith’s client or customer.

Pimlico Plumbers arrives at a time when the Courts are favouring worker-protective outcomes. Cases such as Windle, and Aslam & Farrar v Uber (2202550/2015) have incrementally played a clarificatory role in the status of a “worker”. Hence, Pimlico Plumbers is uncontroversial in the sense that whether Mr Smith was a “worker” under section 230(3)(b) of the ERA was always a question of fact for the tribunal. However, what will be of interest (especially to the gig economy) is that section 230(3)(b) now means that independent contractors or those engaged in ‘self-employed’ contracts are capable of being recognised as “workers” and can benefit from the legal rights arising from that recognition. Pimlico Plumbers also raises other issues concerning the compatibility between worker status and self-employment under tax law, but this is a question to be answered at another time.

Article by Josias Senu
LLB (London School of Economics and Political Science) '19 and Articles Editor of the LSE Law Review Summer Board 2018