The case of Smith v Pimlico Plumbers is being considered by the Supreme Court this week – but many commentators have expressed surprise that this case on workers’ status is still ongoing. The fact that Pimlico were granted leave to appeal to the Supreme Court highlights the importance of this issue in our ‘gig economy’ – the Taylor “Good Work” review published at the beginning of the month has highlighted that our current legislation on the issue may need to be re-considered. However in our experience, the main reason that issues regarding employment status arise is simply a lack of awareness amongst businesses as to how best to engage individuals both from a legal and commercial perspective.
Media commentators would have us all believing that there evil, unscrupulous businesses around every corner seeking to exploit vulnerable individuals by tricking them out of employment rights and protections with scary, complex contractual documentation. That is not our experience at all. Most of the time, we find that businesses are trying to do the right thing, to offer more flexible working arrangements, to be a ‘modern employer’ – but they just don’t quite get it right. It is at that point, especially now that tribunal fees have gone, that we find ourselves with another Pimlico Plumbers on our hands (case and point – Uber, CitySprint, Deliveroo, Addison Lee…)
There are 3 categories of employment status – employees, workers and self-employed. Employees benefit from all of the available employment rights and protections, self-employed individuals benefit from none of them, and workers benefit from some of them. Whilst the contract itself is important for determining someone’s employment status, a tribunal will also look at how the relationship is managed on a day to day basis to see if it reflects what the contract says. One of the numerous features that will be looked at is control – simply put, an employee/employer relationship is comparable to the traditional servant/master relationship – the employer controls how the work is done, when it is done, where it is done etc. By contrast, a self-employed contractor should have complete autonomy as to what days he or she works, where the work is carried out, the equipment that is used etc.
A lot of the aforementioned cases (including Pimlico Plumbers) have come about as a result of businesses seeking to engage with an individual as a self-employed contractor, where actually they would have been best engaged as a worker. As a worker, you are entitled to be paid the minimum wage, to adequate rest breaks, to paid holiday – and so if the employer wrongly puts an individual on a self-employed contract, a claim in respect of incorrect status can arise from the individual themselves. The statutory definition of a worker covers anyone who is engaged to do work personally – provided that they are not a customer or a client. Personal service (and how this is identified/defined) is a key issue that it is hoped that the Supreme Court will address in Pimlico Plumbers, and which was given significant attention by the Court of Appeal. In the Court of Appeal, it was held that, despite a right in Mr Smith’s contract for him to arrange for a substitute to carry out work in his place, this right was limited – and as such, he was effectively required to provide personal service (and was therefore a worker).
Sometimes, it is the individual themselves who asks to be engaged on a self-employed basis, even when the reality is they should be engaged as a worker. This is normally for tax purposes. This month, the BBC has come under fire following a HMRC investigation into individuals engaged via personal service companies. This is known as “IR 35 Risk” – IR 35 is a regulation brought in by HMRC to tackle deliberate tax evasion – but it sometimes catches those who are innocently engaging individuals on the wrong contractual basis (as, it seems, may be the case with the BBC). From HMRC’s perspective – this means potential liabilities due from both the BBC and the individuals in respect of e.g. unpaid PAYE tax and NICs. Some businesses (e.g. construction companies) engage the majority of their labour on a contractor basis – getting it wrong can therefore be very expensive.
So what’s the answer? They key take-away from our perspective is that in each instance, you need to make sure that the individual is engaged on the correct terms – that the terms of their engagement correlate with how you actually engage with them on a day-to-day basis. HMRC have said in response to the investigation into the BBC - "employment status is never a matter of choice; it is always dictated by the facts". If you’re not sure that you are engaging with your workforce correctly, or that your contracts are appropriate – you should seek legal support.
Please contact Claire or Rebecca in our employment team if you would like any advice on employment status. We are also covering this topic in our upcoming training events (Cardiff 28 February, Swansea 13 March). Keep an eye on our twitter feed for updates on the Pimlico Plumbers case.
If you have any questions please get in touch with Rebecca Mahon
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