March 19, 2017
Why Terminology Matters on Employment Status
Employment status is always a tricky area for employers and the recent Employment Appeal Tribunal (EAT) case of Pimlico Plumbers & Charlie Mullins v Gary Smith highlights the importance of describing the relationship correctly in contractual documentation and ensuring that the description is representative of what actually happens in practice.
Why is the correct employment status so important?
There are three main types of employment status: Employee, Worker and Self-Employed (you can read more on different employment status types on the blog here), and the employment rights given depend on the person’s employment status.
In this case the statuses in questions was worker and self-employed, defined in the Employment Rights Act 1996 as:
“an individual who has entered into or works under a contract of employment or any other contract whereby the individual undertakes to do or personally perform 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.”
A worker gets some employment rights where an employee would get full employment rights, including the National Minimum Wage, protection against unlawful deductions from wages, holiday pay, statutory minimum length of rest breaks, 48 hour average per week (unless they choose to opt out), protection against unlawful discrimination, protection for whistleblowing, and the right not to be treated less favourably if they work part-time.
A self-employed person runs their own business, they are not paid through PAYE and don’t have any of the employment rights or responsibilities of employees or workers.
They also don’t have to personally perform the work in the agreement and could choose to send someone else.
With such differences in rights it is important to correctly document the relationship from the start, and not leave it open to future challenge as the following case highlights.
Pimlico Plumbers & Charlie Mullins v Gary Smith
Gary Smith claimed that he was unfairly or wrongfully dismissed by Pimlico Plumbers in May 2011. Mr Smith had worked exclusively for Pimlico Plumbers between August 2005 and April 2011 but was dismissed following a heart attack he had in January 2011. When he wanted to reduce his hours, a request that the company rejected, Pimlico Plumbers took back his company van.
The 2005 agreement between Pimlico Plumbers and Gary Smith also stated that he would need to wear a uniform and drive a hired van which had the company logo on it. He would also need to work five days a week which would be a minimum of 40 hours, and he also had to agree any time off or annual leave with Pimlico Plumbers.
In February 2017 the EAT dismissed an appeal by Pimlico Plumbers, upholding the employment tribunal decision in 2012 that Gary Smith was a worker rather than a self-employed contractor.
Pimlico Plumbers argued this fact, stating that their plumbers were self-employed, but lost.
Gary Smith was therefore entitled to the worker employment rights including holiday pay and, importantly for this case, protection against unlawful discrimination.
What the Pimlico case means for employers
The EAT considered the facts of the case when reaching a decision which included the degree of control Pimlico Plumbers had over the plumbers and the restrictive covenants contained in the contract between the parties.
The restrictive covenant prevented the individual from working as a plumber in the Greater London area for a period of three months after the self-employed agreement ended, and Mr. Smith also had to personally provide the work for Pimlico Plumbers.
The case is a prime example and warning to employers that even if they use self-employed individuals and therefore avoid employment rights, if there is ever a challenge an employment tribunal will examine the fine detail of what is really happening in practice.
Impact on the ‘Gig Economy’
In the gig economy individuals do not receive a wage but get paid for the ‘gigs’ they carry out – a car journey (Uber), or delivery (CitySprint, Deliveroo) for example.
The setup provides a very flexible business model for operators and those taking on the gigs.
However, the term ‘gig economy’ is now linked with employment disputes.
Charlie Mullins at Pimlico Plumbers disputed that this case was in line with the other high profile ‘gig economy’ cases, however some argue this case could have a positive impact on other workers where, often, companies say the individuals carrying out the work are self-employed but this isn’t the reality of the situation.
One trend is very clear: working practices are being scrutinised by the courts closer than ever before, so please make sure your contractual documentation reflects exactly what is happening in practice. Tell it like it is!