On 13th June 2018, the Supreme Court ruled that Gary Smith, a plumber of Pimlico Plumbers, was entitled employment rights that are usually reserved for individuals who are considered to be workers.
Prior to this landmark ruling, Gary Smith was considered “self-employed” as per the terms of his contract. As a self-employed individual, Mr Smith did not have working rights such as holiday pay entitlement, but he did benefit from self-employment tax advantages.
This Court ruling caused debate over whether self-employed contractors should be entitled to workers’ employment rights, and the implications this could have for individuals and businesses in respect of employment law disputes.
In this article, our Commercial and Employment litigation expert, Roy Daby, discusses the entitlements of different employment statuses and what it means to be self-employed, a worker or an employee.
What's the difference between self-employed, workers and employees?
An individual’s employment contract or status will currently fall within one of three categories:
- Employee - An employee will benefit from a full set of employment rights, including the right to complain to a tribunal for claims such as unfair dismissal.
- Self-employed - A self-employed individual will have very few rights, limited to health and safety protection and, in certain circumstances, protection from discrimination.
- Worker – A worker falls in between both of these categories and is afforded slightly more rights than a self-employed individual but not as many as an employee.
The key test for self-employed status
For an individual to be considered self-employed, most of the following will apply to them:
- they put in bids or give quotes to get work;
- they are not under direct supervision when working;
- they submit invoices for the work they’ve done;
- they are able to substitute an individual to do their work;
- they provide their own equipment;
- they’re responsible for paying their own National Insurance and self-employment tax;
- they don’t get holiday entitlement or statutory sick pay when they’re not working;
- they operate under an employment contract for services of a consultancy agreement.
It is important to be aware that while the employment contract may state that it is a services contract, the wording is not the decisive factor that the Court or tribunal will use to determine whether an individual is self-employed. They will instead look to the facts of each case and how the individual performs their role under the contract. This can be known as a “sham contract”.
The key test for a worker
The Supreme Court held that Gary Smith met the test for a worker, despite his employment contract being labelled as self-employed. The test is a two-fold; the first part is whether Mr Smith was required to undertake the work personally or whether he could send in a substitute.
The Court held that while there was the option of sending a substitute, this was overridden by the fact that the substitute had to already be under contract with the company. This suggests that personal performance by Mr Smith was the primary requirement of Pimlico Plumbers.
The second element that the Court considered was the level of control the company had over Mr Smith in relation to the provision of his services. Pimlico Plumbers marketed the services of Mr Smith and when undertaking these jobs, Mr Smith was required to comply with the company’s policies in respect of the uniform, van and ID card.
In light of this, it was held that Pimlico Plumbers were neither a client nor customer of Mr Smith, engaging the use of his services, and therefore Mr Smith was deemed to be a worker.
The key test for an employee
The test for whether somebody is an employee is almost opposite to that of a self-employed individual. To be an employee, most of the following will apply:
- they are required to work unless on annual leave and cannot send a substitute in their place;
- the business will deduct tax and National Insurance;
- there is a strong level of control and supervision;
- they benefit from statutory protection such as statutory sick pay, maternity pay or paternity pay;
- they benefit from holiday entitlement and can join the business pension scheme;
- the business provides the equipment;
- there is a disciplinary and grievance procedure in place;
- they have an employment contract that provides for the level of remuneration they will receive and contractual hours to be performed.
How will the case of Pimlico Plumbers affect self-employed individuals?
Mr Smith will now benefit from being able to proceed with his original claim that he brought to the employment tribunal seven years ago, in respect of holiday pay and other workers’ rights. However, this will do little to provide clarity to other individuals who are working under potential sham contracts.
As can be seen with the case of Mr Smith, the Court have provided their ruling having considered the facts of his particular case and his daily work. Therefore, the Court will continue to assess the status of an individual on a case by case basis in relation to their employment rights, looking at the reality of the situation as opposed to the name of the contract.
Do you need an employment law solicitor?
If you are unsure of your employment status, or an employer seeking advice on service and employment contracts, our solicitors based in Essex are experts in employment law and will be able to provide you with the dedicated legal advice that you require.
Whether you need an employment contract drafted, a workplace dispute solved, or representation in an employment tribunal claim, Giles Wilson Solicitors are experienced in finding appropriate and relevant solutions.
If you would like to arrange a consultation, please call us on 01702 477 106 or email email@example.com. You can also visit our employment solicitors in one of three offices near Southend-on-Sea.
Alternatively, visit our website to find out more about our employment law services.