Raphael Prais, lawyer at LHS Solicitors, highlights what small businesses can learn from the Pimlico Plumbers v Smith case.

With so many businesses coming under scrutiny over the employment rights of their staff, small business owners would be forgiven for feeling overwhelmed and confused by the sheer volume of employer do’s and don’ts.

The recent Pimlico Plumbers v Smith case is yet another interesting development, and will be viewed with much interest by small business owners.

The ruling

The Court of Appeal ruled that plumber Gary Smith was entitled to basic workers’ rights despite his contract with Pimlico Plumbers describing him as self-employed. He was considered to be employed for Equality Act purposes, meaning he was entitled to complain about discrimination towards his disability, and he was considered to be a worker with regards to receiving holiday pay and unauthorised deductions from wages. It was concluded that Mr Smith could not be regarded as an independent business, therefore he could not be classed as self-employed.

The ruling came after it became clear that the firm had significant control over Mr Smith in terms of the number of hours he had to work and the fact that he had to provide the work personally, his requirement to wear a uniform and the firm’s insistence that he drive the company’s vehicles. The judge also paid close attention to the restrictive covenants in his contract, which greatly restricted him from working in competition with Pimlico Plumbers and continued after termination of the agreement.

The ruling was a triumph for Mr Smith, given that his entitlement to workers’ rights meant he could claim unlawful discrimination. This was significant because Mr Smith suffered a heart attack in January 2011, following which he alleged he was dismissed.

Being granted workers’ rights means individuals are entitled to many of the same rights as employees, most notably: minimum wage, working time rights such as paid holiday and rest breaks, whistleblowing rights and, as mentioned, protection against unlawful discrimination.

What this means for small business owners

Small business owners are sure to study this case very carefully to avoid similar disputes from their own employees, with the following points perhaps creating the most intrigue:

  • If an individual is required to work a minimum of 40 hours per week, wear the company uniform and/or drive a company vehicle, they are likely to be classed as a worker or employee.
  • Employment status for employment law purposes and for taxation purposes is governed by different bodies and it is possible for an individual to be classed as self-employed for tax purposes, but still be a worker entitled to workers’ rights for employment law purposes. Some businesses don’t realise that being classed as self-employed under employment law doesn’t necessarily mean that the HMRC or a tax tribunal would reach the same decision for tax purposes.
  • If an individual can always decide to substitute someone else to do the work, they are likely to be viewed as self-employed. However, this is never the sole factor that the court will consider.

It is important to stress that the above points are brief indicators that could help employers in determining staff worker status, and should certainly not be considered as a comprehensive checklist of factors. Following the ruling, Pimlico Plumbers boss Charlie Mullins said there needs to be a clear distinction between self-employment and employment, but sadly it isn’t that simple.

This is due to the fact that each dispute must be settled on a case-by-case basis – it’s all about the relationship between the employer and the individual. It depends very much on the level of control that the employer has over an individual, and the rights and restrictions that the employer has communicated to them – the more control the employer has, the better the case an individual will have for demanding worker status.

Also, it goes without saying that no two business models are the same, so a blanket approach to solving these cases isn’t possible.

No business is safe from scrutiny, so be prepared

Another interesting development from this case was highlighted by Mr Mullins post ruling. He stated that this case was different to those we have seen which are linked to the ‘gig economy’ – such as the high-profile Uber case.

He claimed that because this case related to the employment of a highly-paid and skilled tradesman, it was not correct to characterise it within the narrative of low-paid ‘gig economy’ workers which applied to the Uber case. There was a distinct difference in circumstance between an Uber driver and a plumber – who could demand high earnings and take advantage of tax savings as a consequence of their working arrangement.

The recent scrutiny of employment status, which may have been heralded by the ‘gig economy’, may have lumped together workers whose circumstances, such as earnings, vary greatly. Mr Mullins’ points are worth considering. However, those points are more relevant for considering whether the law should change – if people are concerned with employment status in terms of the law as it currently stands, earnings are not all that relevant.

The key point is to stand back and consider whether it looks like these individuals are operating as independent businesses, or rather are dependent on the employer. This is the key message small business owners can take from this case.

Raphael Prais, lawyer at LHS Solicitors.

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