Written and recorded by Ben Amunwa, 36 Group
Hello. Welcome to this Webinar on employment status in the gig economy. My name is Ben. Um, Anwar. I'm a barrister practising in commercial and public law at the 36 Group in London. Our focus in this part is going to be on the case off Pimlico Plumbers and Smith. This is a court of Appeal authority which arguably hasn't received as much attention as other cases that a perhaps more widely circulated in the media on the gig economy, such as the Uber case and so on, which will come to Pimlico plumbers. There's a good reason to focus on it and not to overlook it, because it's effectively the leading authority or most up to date leading authority in the UK on the circumstances in which a self employed individual can bring themselves within the definition off. A worker in the Employment Rights Act 1996 Section 2 30 that subsection three b So we'll tease out what all that means in a moment. But the learning objectives for today's webinar are twofold. Firstly, what we want to do is to get our heads around the legal issue in Pimlico. Plumbers and Smith understand the facts of a case and also what the Court of Appeal reasoned in its conclusion. And then secondly, we're gonna stand back a bit from that. We're gonna think about what are the practical consequences off Pimlico plumbers and Smith? What does it mean for every day, persons who are working for businesses and for those businesses themselves? Plus, what does this case mean for the lawyers advising these individuals and companies? So the jumping off point for this case really is to understand that, in essence, this was about a plumber working for a business who, what self employed. So he did his accounts with Hmrc Andi, painters, accountant every year on and pay taxes accordingly through self assessment. But he did so under the umbrella off a contract with Pimlico plumbers. He wasn't working for any other company. Andi, so Pimlico plumbers was the only business that he works with, and he brought a claim to the Employment tribunal for a number off employment rights, he claimed for unlawful deductions from his wages. He claimed for whole day pay, and he also claimed for discrimination. Now what happened when he made the claim was that Pimlico plumbers turned around as many businesses in the gig economy are doing and said Bangle a second, you're not entitled to these employment rights because you are not a worker under the definition in Section 2 30 subsection three b of the employment rights at 96 just to quickly recap session 2 30 the material parts off it. For the purposes of this, Webinar reads as follows. In this act, worker means an individual who was entered into or works under or where employment deceased worked under subsection B. Any other contracts, whether express or implied and if it is expressed, whether Orel or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract who status is not, by virtue off contract that off a client or customer of any professional business undertaking carried on by the individual. Now that's all a bit of a mouthful. But essentially what this balls down to is the tribunal looking at this claim had to look at the statute and design essentially whether or no the contractual terms under which Mr Smith was working. Andi, the surrounding circumstances that relevant to the interpretation off the contractual terms with such that he was personally obliged are acting under a contract off personal service with Pimlico plumbers or whether he was running a business in his own right. And so the Employment Tribunal pick this up, turned it over and came to these conclusions, first of all, But the Employment Tribunal held that Mr Smith was a worker, so he was essentially entitled to claim the various entitlements that he wants seeking. First of all, the agreement that Mr Smith had with Pimlico plumbers was essentially to provide personal service to the company. There was a minimum obligation to work a certain number of hours per week on Mr Smith had to work on certain agreed days, although that arrangement had some flexibility built into it. As often these arrangements do within the gig economy, essentially there waas a sufficient obligation or an expectation on the plumbers to discuss and agree. Working out was with the company itself, and so there was sufficient obligation on the company itself to provide work for their workers at those times in terms of the contract Then, the tribunal also noted that there was no clause within the contract, saying Mr Smith is 100% entitled to substitute himself with another plumber at the last minute, as he chooses. So essentially, Mr Smith had to do the work within the contract there. Waas, however, a substitution clause. But the issue was that the substitution clause allowed Mr Smith to substitute himself subject to approval and subject to the person that substitute being adequately qualified. And so it wasn't what the court called on unfettered right to substitution. And in practice, what the's plumbers were doing is they would frequently swap jobs as and when it suited them, or they brought in additional labour. If they need it, let's say particular skills or more hands on the deck. But that didn't alter the basic expectation in the contract that the plumbers had to work a minimum number of hours and had to do so personally. And the tribunal also noted that Pimlico plumbers had a very tight control over there workers, including long lasting restrictions after the termination of employment, preventing the plumbers from working for competitors. And so that was essentially inconsistent with the plumbers being genuinely self employed, genuinely independent businesses. If they were independent businesses, why would the company have to restrict their activity afterwards. And finally, the tribunal also noted that Mr Smith Waas integral to Pimlico Plumbers operations. He was part in parcel of the business. He was subordinate to the company rather than being an independent business on relatively equal terms with Pimlico plumbers. So Pimlico Plumbers took the case to the Employment Appeal Tribunal, and the Employment Appeal Tribunal agreed with Mr Smith, essentially for the same reasons outlined by the employment tribunal. The on would appeal, then to the Court of Appeal arrived on the Court of Appeal made the following conclusions. First of all, part off 73. The tribunal noted that whether or not the person undertakes to work for a company and to perform personal service for that company depends entirely upon the contractual terms off their agreement. Now that's an interesting observation, because quite a lot of the tribunal's decision was based not only on the strict black letter of the contract, it was based upon thesis around ING circumstances, the practices within the organization that tended to show that Mr Smith was not genuinely independent as a business or as a self employed sole trader, so that the contractual terms are going to be crucial will come back to that when we discuss later cases. Because although the contractual terms are crucial, there's nothing stopping judges who seem quite enthusiastic about doing so from looking outside of the contract in order to better interpret whether or not the contract is a dead letter and not followed in reality, or whether the contract needs to be interpreted in light of particular circumstances. Later, on a Paragraph 84 the court looked at the previous authorities on the point off personal service what amounts to a contract for personal service. And it reached the following conclusions. First of all, where a contract has what's known as an unfettered right off substitution. So a clause which says Mr Smith or whoever happens to be can substitute someone else for his himself in order to do a task. There's no problem with that. No restrictions on that. It's an unfettered right, but he has, under the contract that won't tend to be inconsistent with a contract for personal service stands to reason. If there's a contract that's so open that effectively anyone could do the work, then you can't pin down one person or the person who signed that contract and say, Well, you have to do the work personally, it's completely incompatible. But if you have a conditional right of substitution that may or may not be consistent with a contract for personal service, it really depends upon the the extent off the condition. Obviously, the light of the condition is all the more easy it is to satisfy the condition, the more that will tend to show that this is not a contract for personal service on the person is not a worker, the harder it is to comply with a condition, the more onerous the more hoops that someone has to jump through in order to bring on alternative person in to perform. The task performed the labor, the more that is consistent with a contract for personal services, and the court gave several examples of how this might work. So, for instance, where you've got a right of substitution, but where that right only operates when the contractor cannot carry out the work that will generally subject to exceptional features, be a consistent will be be consistent with a contract for personal service. So if if the only way a person can get out of the contract will get out of the obligation to perform. The work personally is that they are on their on the sickbed, incredibly ill or prevented by some major accident from performing the work then that will generally subject to exceptional features mean that the contract is one of personal service in the person is a worker when you've got a right of substitution. But this only limited by the requirement to show that a substitute is adequately qualified to do the job adequately qualified equivalent to the contractor themselves. Then, whether or not that that requires some kind of procedure for demonstrating that the substitute is qualified and an adequate substitute generally speaking again, subject to exceptional circumstances that will not be consistent with a contract for personal performance. So those types of limitations limitations on the qualification off a contractor won't in general terms be sufficient to show that back contract is one off personal service. Now, finally, the third example is where you've got a right to substitution, but only with the consent off the other. The business who has complete and unqualified discretion to refuse a request for substitution again that will be consistent with a contract personal service. And if you think about it, if the employer holds all the cards and can say no, we insist that you do the job, not this other super qualifying, adequately qualified contractor. Then you really all the one who has to do the job. And so these abroad parameters all of them. Caveat IQ by subject to exceptional facts, so there may well be room for argument. But if you find that the case falls into one of these three categories one of these three examples, then it is probably wise to be fully aware off that, and to raise the guidance general guidance. Is it waas in Pimlico so broadly summarizing them? What the court was saying was that the harder that the contract makes it for a person to substitute another in their place to do the job the mawr likely it is that that contract is one of personal service on by extension, that the person will fall into the definition off a worker in section 2 33 B of the Employment Rights Act 1990 six was Mr Smith, a worker well applying ALS this guidance and all the authorities to the facts of this case. The court upheld the decisions off the tribunals and found that Mr Smith was a worker. Now in particular, the court picks up on the following factors. The language of the contract repeatedly referred to Mr Smith or to you, Andi in the context of obligations, things that he had to do, not referring to anyone else but referring specifically to him so that the sort of general gist of the language was about personal service, which is an interesting one to note for those who draft such contracts and agreements, and that was born out at Paragraph 86 there was no unfettered right to substitute at will. And as we know from our previous discussion, that would tend to suggest that this is a contract for personal service. What driving on its do is, it looks, has to look at the whole multitude of factors when assessing whether or not a contractor is an independent business, genuinely or is in fact a worker with the obligations that that entails and factors such as subordination, the the balance of power between the contractor in the business integration the extent to which the person is essential, or a primary cog in the wheels off the businesses machine on also the extent to which the worker or the purported worker is under obligations in between jobs. So, for instance, in Pimlico, the plumbers, even when they weren't working, were under the agreement, whether it was formalised or not, that they would have certain working hours or certain working days. So although they might have rest days, the consensus between the business and the workers was that they would have certain hours. And so another interesting feature or several interesting features in this case is that first of all, under the working relationship, there was this minimum number of hours that Mr Smith was expected toe work and there were these heavy contractual covenants is they're known these restrictions that prevented him from working for competitors working within a certain area, which are actually they're actually annexed to the back off the court of Appeal's judgement because they were seems so significant. So if you includes those types of penalties within a contract, the expectation is that therefore, you're not saying that this person is some kind of independent freelance business. Andi was discussed in paragraph 115 and again check out the annex to the decision because it's really quite revealing very extensive restrictive covenants in there. Finally, the court noted that Paragraph 143 that the situation here in terms of the evidence was not perfect. No every clause and term and expectation was reduced into writing in the Contract of employment contract for work. There was a very wide ranging manual on internal manual, which was highly material to the essentially the conversations and the consensus between the parties. And so the court took took that into account notwithstanding. But my comment earlier in the courts observation at Paragraph 73 that the contract is the prime source is the essential source off determining whether or not there is a contract of personal service and Lord Justice. Underhill, in in his short concurring judgment, highlighted that one for three that lawyers need to be careful in this area about drawing general conclusions from the findings in the case like this precisely because this is intensely fact sensitive area, there are broad guidance, broad parameters, but no general conclusion should be drawn really about the exact circumstances in which a person will or won't be a worker. The best we can do is to go through these judgments one by one. Learn from them, learn the nature of the approach that judges take to it. Andi read the statute in light of all that, so that brings us to the end off Pimlico plumbers. It's It's a long case as of engaging paragraph numbers go up pretty high, well worth a read. But I hope that this has given you a digest off the key legal issues, the courts, key conclusions and why they came to those conclusions. But, as I said, each case will turn on. Its fact is a complex area, lots of gray areas within it. So be careful out there, both in how you draft the contracts, but also in advising clients in this very uncertain area. Always seek specialist advice is what I say. Thanks so much for listening. It's been a pleasure to record this webinar for you. I hope to see you again in the next part of the Siris on employment status in the gig economy on Veneman 1 36 Bedford Road. Thank you very much
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