When is a worker not a worker?
The tax treatment of workers is a current and often controversial theme in UK tax law. Now, a recent decision of the Supreme Court in Pimlico Plumbers Ltd and another (Appellants) v Smith (Respondent)  UKSC 29 has shed some light on this difficult area.
The respondent Mr Smith was a plumbing and heating engineer and between August 2005 and April 2011 worked for the First Appellant, Pimlico Plumbers Ltd, owned by the Second Appellant Mr Charlie Mullins. Mr Smith had worked for the company under two written agreements (the second of which replaced the first in 2009) that were found by the Supreme Court to be ‘’drafted in quite confusing terms.’
In August 2011 Mr Smith issued proceedings against the Appellants before the employment tribunal alleging that:
- He had been unfairly dismissed;
- An unlawful deduction had been made from his wages;
- He had not been paid for a period of statutory annual leave; and
- He had been discriminated against by virtue of his disability.
The employment tribunal decided that Mr Smith had not been an employee under a contract of employment, and therefore that he was not entitled to complain of unfair dismissal, but that Mr Smith (i) was a ‘worker’ within the meaning of s.230(3) of the Employment Rights Act 1996, (ii) was a ‘worker’ within the meaning of regulation 2(1) of the Working Time Regulations 1998, and (iii) had been in ‘employment’ for the purposes of s.83(2) of the Equality Act 2010. These findings meant that Mr Smith could legitimately proceed with his latter three complaints. The Appellants appealed this decision to an appeal tribunal and then to the Court of Appeal, but were unsuccessful. They consequently appealed to the Supreme Court.
In the Supreme Court
The Supreme Court unanimously dismisses the appeal. The tribunal was entitled to conclude that Mr Smith qualified as a ‘worker’ under s.230(3)(b) of the Employment Rights Act 1996 (and by analogy the relevant provisions of the Working Time Regulations 1998 and the Equality Act 2010), and his substantive claims could proceed to be heard.
The key issue for the Court was the construction of the term ‘worker’ within the meaning of s.230(3)(b) of the Employment Rights Act 1996 (otherwise known as a ‘limb (b) worker’). This was because regulation 2(1) of the Working Time Regulations defines ‘worker’ in identical terms to s.230(3)(b), and case law has suggested that the meaning of ‘employment’ in s.83(2) of the Equality Act is also essentially the same. S.230(3)(b) provides:
In this Act “worker” (except in the phrases “shop worker” and “betting worker”) means an individual who has entered into or works under (or, where the employment has ceased, worked under)—
(a)a contract of employment, or
(b)any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally 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 of any profession or business undertaking carried on by the individual; and any reference to a worker’s contract shall be construed accordingly.
Proceeding on that basis, if Mr Smith was to qualify as a ‘limb (b)’ worker under s.230(3)(b) then it was necessary for him to have undertaken to personally perform his work or services for Pimlico Plumbers, and that the company be neither his client nor his customer.
The Supreme Court took into account that, when working for Pimlico Mr Smith had a limited facility (not found in his written contracts) to appoint another Pimlico operative to do a job he had previously quoted for but no longer wished to undertake. However, the Court found that in this case the terms of the contract (which referred to ‘your skills’ etc.) were clearly directed to performance by Mr Smith personally, and any right to substitute was significantly limited by the fact that the substitute had to come from the ranks of those bound to Pimlico in similar terms. Consequently, the tribunal was entitled to hold that the dominant feature of Mr Smith’s contract with the company was an obligation of personal performance.
On the issue of whether Pimlico Plumbers was a client or customer of Mr Smith, the tribunal had legitimately found that there was an umbrella contract between the parties, i.e. one which cast obligations on Mr Smith even when he was between assignments for Pimlico. On the one hand, Mr Smith was free to reject a particular offer of work, and was free to accept outside work if no work was offered by any of Pimlico’s clients. He also bore some of the financial risk of the work, and the manner in which he undertook it was not supervised by Pimlico. However, there were also features of the contract which strongly militated against recognition of Pimlico as a client or customer of Mr Smith. These included Pimlico’s tight control over Mr Smith’s attire and the administrative aspects of any job, the severe terms as to when and how much it was obliged to pay him, and the suite of covenants restricting his working activities following termination. Accordingly, the tribunal was entitled to conclude that Pimlico cannot be regarded as a client or customer of Mr Smith.
Smith’s case is the first time the UK’s highest court has been required to consider employment rights in the context of the so-called ‘gig economy’. In November 2017, the Employment Appeal Tribunal had ruled that two drivers engaged by Uber should be classed as ‘workers’ and be entitled to paid rest breaks. holidays and the National Minimum Wage. Uber has appealed to the Court of Appeal, which will hear the case later this year. Issues of status and how such individuals are treated from an employment law and tax perspective are high on employers’ agendas. The case sends out a warning note to firms ‘employing’ gig workers that the Courts may be sympathetic to cases brought by such workers. HMRC will also no doubt be studying the judgement carefully.