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When is an “employee” not an employee?

The recent Court of Appeal decision in Pimlico Plumbers & Charlie Mullins v Gary Smith sets out important guidance for establishing employment status.

The Pimlico Plumbers case

Gary Smith is a plumber. Between August 2005 and April 2011 he carried out plumbing work for Pimlico Plumbers. In January 2011 he suffered a heart attack and was dismissed in May 2011. Mr Smith claimed that he was unfairly or wrongfully dismissed.

Pimlico Plumbers is a maintenance and plumbing company with around 125 people like Mr Smith carrying out plumbing and maintenance work on its behalf.

In August 2005, Mr Smith signed an agreement with Pimlico Plumbers referring to Mr Smith as a “sub contracted employee” and Pimlico Plumbers as “the Company”. The agreement referred to a manual which had to be read and the contents agreed before the agreement could be signed. The manual contained detailed requirements for timesheet procedures, invoice procedure, estimate procedures and additional labour charges. It also set out information regarding working hours, personal appearance, invoices, Company I.D., how materials should be purchased and collected and prevented people from carrying out private work.

In 2009 a new agreement was signed. This set out detailed information regarding, among other things, notice of termination, Mr Smith’s obligations, fees and expenses, income tax and post termination covenants.

While some of his colleagues carried out private work, Mr Smith worked solely for Pimlico Plumbers. He was able to reject particular jobs, set his own working hours and Mr Smith agreed that Pimlico Plumbers was under no obligation to provide him with work. Mr Smith also accepted that during his time with Pimlico Plumbers he was self-employed.

Following the termination of the 2009 agreement in 2011, Mr Smith made a claim in the Employment Tribunal for unfair dismissal, wrongful dismissal, pay during medical suspension, holiday pay and arrears of pay. Mr Smith also brought claims of direct disability discrimination and discrimination by reason of failure to make reasonable adjustments.

A preliminary hearing was set to consider whether Mr Smith was an employee of Pimlico Plumbers and, therefore, whether the Tribunal had jurisdiction to deal with his claims.

Decision Time

The Tribunal found that Mr Smith was not an employee of Pimlico Plumbers. She stated that “the irreducible minimum obligation…was missing. The first contract was silent about the obligations on Pimlico Plumbers.” She also found that Mr Smith had to carry considerable financial risk and that his reading of the two agreements and the obligations contained within them on part of Mr Smith were inconsistent with him being an employee and a contract of employment.

The Judge did, however, find that Mr Smith was a “worker” under Section 230 of the ERA 1996. The Tribunal, therefore, did not have jurisdiction to deal with Mr Smith’s claims for unfair or wrongful dismissal, entitlement to pay and failure to provide particulars of employment. Pimlico Plumbers appealed and Mr Smith cross-appealed.

The EAT dismissed Mr Smith’s appeal stating that “the relationship simply does not look anything like a contract of employment and the Employment Judge was correct in finding that Mr Smith was not an employee”.

The Judge considered Pimlico Plumbers’ appeal and stated that the ET was entitled to find that the extent of the restrictive covenants in the 2009 agreement were not consistent with Mr Smith being in a business of his own. He agreed that the ET was entitled to find that Mr Smith was not an employee but a “worker”.

Pimlico Plumbers appealed to the Court of Appeal.

The appeal was dismissed and the Court of Appeal held that Mr Smith was a “worker”. The Court of Appeal found that the ET was entitled to conclude that the degree of control exercised over Mr Smith by Pimlico Plumbers by virtue of the 2009 agreement was inconsistent with Pimlico Plumbers being a customer or client of a business run by Mr Smith.

The ET was also entitled to place particular weight on the onerous restrictive covenants in the 2009 agreement which seemed to preclude Mr Smith from working as a plumber in any part of the Greater London area for 3 months after the termination of the agreement. They also considered the fact that Smith wore logoed clothing and drove a logoed van. The Court of Appeal found that the ET correctly “asked and answered the over-arching question” of whether Pimlico Plumbers was a client of Mr Smith’s or whether Mr Smith was an integral part of Pimlico Plumbers’ operations and subordinate to Pimlico Plumbers.

Why is this important?

This is the first Court of Appeal decision on gig economy cases which are having an employment moment. The decision will have an effect of many businesses who operate a similar business model. A company who has staff who are supposedly self-employed or contracted workers but exercises a high degree of control on those staff members’ working hours, uniform, source of work and how that work is performed will likely need to re-evaluate matters. It is clear from this decision that companies will need to take a closer look at agreements which contain obligations for independent contractors or self-employed staff members. Labels are meaningless. It is all about what is actually happening on the ground from day to day.