A self-employed contractor has workers’ rights – The Court of Appeal rules

A self-employed contractor has workers’ rights – The Court of Appeal rules

Following the Court of Appeal decision in Pimlico Plumbers Limited v Smith, employers should be wary of categorising their staff as ‘self-employed’ when they are controlled in such a way as to appear to be an employee. Although the guidance from this case is not definitive, it is important for employers to consider the effects of this judgement which will be binding on all subsequent Tribunal cases.

‘Self-employed’ or ‘worker’?

The case centred on whether individuals engaged as self-employed contractors should be classed as ‘workers’. A ‘worker’ is employed personally to do work, not by virtue of a business and customer relationship. On the other hand, someone who is ‘self-employed’ works in business on their own account. The distinction has an important impact on a person’s employment rights; as ‘workers’ are entitled to rights such as holiday pay, statutory sick pay and to be paid at national minimum wage levels, whereas a ‘self-employed’ person is not.

Although there is a distinction between a ‘worker’ and a ‘self-employed’ person when considering employment rights, this is not the case for tax purposes. There is no ‘worker’ category in the context of tax and therefore a person can have the employment status of a ‘worker’ and be ‘self-employed’ for tax purposes.

Pimlico Plumbers Limited vs Smith

Mr Smith worked as a plumber for Pimlico Plumbers Limited. His employment contract stated he was self-employed, he was VAT registered, and filed tax returns on the basis that he was self-employed. However, Mr Smith drove a company van, wore a uniform with the company logo and had to work a minimum number of hours a week. He provided his own materials and tools and took on the liability and commercial risk of a client not paying. But, Mr Smith was unable to provide his services to other organisations and his contract contained post-termination restrictions on his ability to work freely.

The Court of Appeal decided that Mr Smith was a ‘worker’. The Court centred on two main factors when making this decision: whether Mr Smith had a contract for personal service or not, and whether or not his relationship with Pimlico Plumbers was that of business and client.

Personal Service

‘Personal service’ is largely concerned with a person’s ability to provide a substitute to undertake work that he would have done. The contracts of the self-employed contractor’s at Pimlico Plumbers did not contain a right of substitution, although the plumbers did sometimes swap work between themselves.

Contractual titles

Since the financial crisis, 45% of UK jobs created have engaged people on a self-employed basis. However businesses must be wary of the degree of control executed upon their ‘self-employed’ staff as this may result in them being deemed a ‘worker’ regardless of their contractual title.

It is important to note however that whilst no one factor alone can determine a person’s employment status, the ‘personal service’ assessment is likely to be key to deciding whether an individual is or is not an employee, a worker or an independent contractor.

If you would like further advice on this difficult area, please feel free to contact Richard Keen on 01753 876800 or by email at richard.keen@owenwhite.com.