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What is employment status?

Employment Status

There have been a number of high profile cases in the media in recent months which have raised the question of, what is employment status? The cases in the spotlight, and those which you are likely to be aware of include, the Uber case and most recently the Court of Appeal’s landmark ruling in the case of ‘Pimlico Plumbers & Charlie Mullins -v- Gary Smith’.

The significance of the recent Pimlico Plumbers (Pimlico) case is relevant for those employers who employ workers in the gig economy, which can be defined as a, labour market characterised by the prevalence of short-term contracts or freelance work, as opposed to permanent jobs. Or, more simply put, instead of earning a regular wage, individuals get paid for the “gigs” they do, such as a car journey or a food delivery.

The ruling in the Pimlico case saw a self-employed contractor qualify as a worker, meaning that he was entitled to certain employment rights, which include the minimum wage, sick pay and holiday pay.

The background
In the Pimlico case, the Claimant, Mr Gary Smith was a self-employed operative, described as, ‘an independent contractor of the Company’. He worked as a plumber and his normal working hours consisted of a 5-day week, and a minimum of 40 hours per week. The Claimant was liable to account for his own income tax, VAT and social security contributions. Further, he was required to provide all his own tools, equipment and material, and he was required to provide insurance, and to accept personal liability for all work he had undertaken, and he undertook financial risk of non-payment by clients. Pimlico provided the Claimant with a uniform, which he was required to wear and a branded van for work use.

The Claimant worked for Pimlico between August 2005 and April 2011, but suffered a heart attack in January 2011 and requested to reduce his working week from five days to three days, this however, was refused. The Claimant presented a number of claims at the Employment Tribunal including unfair dismissal, wrongful dismissal, entitlement to pay during the period of a medical suspension, and a failure to provide particulars of employment.

The Outcome
The Claimant’s entitlement to present these claims at the Tribunal was dependent on his being an employee of Pimlico. The Employment Tribunal held that he was not an employee so it had no jurisdiction to hear these claims. In reaching this decision the Tribunal considered all of the circumstances, including the fact that the Claimant took advantage of his self-employed status, that there was insufficient obligation to provide work or pay, and the Claimant undertook the financial risk of non-payment by clients, for this relationship to be one of employer and employee. This part of the decision was upheld by the EAT. The Claimant was successfully challenged Pimlico’s assertion that he was self-employed, and the Tribunal found that the Claimant was in fact a worker and therefore, he was entitled to certain employment rights.

Pimlico appealed this decision at the Court of Appeal however, this was rejected. It now very likely that Pimlico will seek to take this case further, to the Supreme Court.

This decision, as with the Uber decision, which we previously reported on is likely to affect employers of self-employed contractors. Some individuals will now fall within the definition of worker and therefore, they will be entitled to rights such as the minimum wage, holiday and sick pay. This decision will assist employees who are incorrectly labelled as contractors and therefore, miss out on certain employment benefits.

How do you assess employee status?
Determining an employee’s status is not always a straightforward matter, generally there are the following types of individuals working in a business:
i.) Employees
ii.) Workers
iii.) Self-employed/Contractors
iv.) Directors
v.) Office Holder

It is important to be able to distinguish between the above categories in order to clarify what employment rights each one is entitled to, however, this is not always clear cut.

When the Employment Tribunal has considered employee status previously, it has focused on working relationships, and the reality of how such relationships work in practice.

The main tests to consider when determining whether an employment relationship exists are:
• Mutuality of Obligation – there is an obligation for the employer to offer work to the employee and similar obligation on the employee to accept the work.
• Control – the employer controls when the work is done and how it is done, the employee must follow Company rules and procedures.
• Personal Service – the employee cannot send in a substitute to carry out the work for him i.e. he is required to complete the work himself.

In the Pimlico case the Claimant appeared to be a self-employed contractor, for example when considering tax, National Insurance contributions and VAT, however, the Court of Appeal considered the reality of the working relationship between the parties when considering the appeal, and used its discretion to determine whether the contractual relationship Pimlico asserted they had was legally correct.

In the Pimlico case the Claimant was required to work for the business and to wear its uniform, therefore, to the clients of the business the Claimant appeared as an employee, however, whilst wanting the Claimant to appear as an employee, Pimlico sought to also assert that the relationship was actually one of a self-employed contractor, rather than employer and employee. We envisage that both the Uber and Pimlico cases will be pursued further to the Supreme Court, and the implications for employers of contractors could be far reaching. Companies with a large self-employed workforce should be vigilant as they may be subject to closer scrutiny.

Should you have any questions in respect of this, or if you have any concerns with regards to the clarity of your contracts of employment/or the status of any of your employees, please contact one of our experienced employment lawyers to discuss this further on 0161 478 3800 or email us at hello@peachlaw.co.uk

What is employment status?

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