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Tips for employers on ‘employee’ status after EAT decision on Pimlico Plumbers v Smith

The employment status of an individual is a preliminary consideration in many Employment Tribunal claims, as this affects what rights the individual has. It is therefore important that employers always give consideration to whether they need (or want) to employ staff, have workers or self-employed people carrying out work on the company’s behalf.

When the issue of employee status arises, Employment Tribunals consider any written documentation, as well as the reality of the situation; therefore, employers should ensure that both reflect the intended position. The recent Employment Appeal Tribunal case of Pimlico Plumbers v Smith reiterated the importance of this and looked at the principles involved in determining employee status.

The Employment Appeal Tribunal in the above case had to consider whether Mr Smith, a plumber, was an employee of the plumbing and maintenance company, a worker or a self-employed individual in order to determine which, if any, of his claims he was eligible to pursue.

Factors pointing to employee status

Mr Smith wore the company uniform, drove a van displaying the company logo and was only contacted by customers through Pimlico Plumbers. Contracts and estimates for customers were all issued in the name of the company and payments were made to Pimlico Plumbers. The company also monitored their operatives’ movements via GPS in vans. All of these factors suggest that Pimlico Plumbers had control over Mr Smith and that is central to an employee relationship.

What did the contract say?

The written agreement in place between Mr Smith and Pimlico Plumbers described Mr Smith as an independent contractor who was in business on his own account. The agreement clearly stated that he was not an employee of the company. Mr Smith was paid when the company received invoices from him, he was VAT registered and dealt with his own tax and social security contributions. He provided his own tools, materials and equipment and was given an enhanced payment for doing so. He was also required to provide his own insurance. Mr Smith accepted that he had also believed himself to be self-employed.

Mr Smith was personally liable for the work he undertook and had financial risk in rectifying any work that was not up to standard or if a customer did not pay for the work he did. There was no obligation on Pimlico Plumbers to provide Mr Smith with work on any particular day and he was under no obligation to accept any work offered to him. The agreement did give a set number of hours to be worked each week but Mr Smith was able to decide his own working hours within that and could decide when he left a job.

Employment Appeal Tribunal decision

The Employment Appeal Tribunal took all of these facts into account and found that, in the circumstances, Mr Smith was not an employee. The main considerations were that there was insufficient obligation to provide and accept work, the financial risk undertaken by Mr Smith and his taking advantage of what was believed to be his self-employed status in terms of tax and benefits for providing his own tools and equipment.

The written agreement between Mr Smith and Pimlico Plumbers did not contain an express provision regarding his ability to provide a substitute to carry out work if he could not do so himself but the company only allowed him to swap shifts with other Pimlico Plumbers. Importantly, the company’s prior consent was required for any substitution.   This particular point was key in the Employment Appeal Tribunal finding that Mr Smith was a ‘worker’ rather than self-employed. The tribunal’s findings meant that, for instance, Mr Smith was entitled to holiday pay and protection under whistleblowing legislation.

How to determine who is an employee

As Pimlico Plumbers v Smith demonstrates, it is not only a written agreement or the belief of the employer and employee that determines whether someone is an employee, a worker, or self-employed: the Employment Tribunal will look at the situation as a whole. Employers should therefore take care to ensure that their agreements and contracts are drafted appropriately and that the reality of the arrangements reflect the intended status of the person concerned. Getting this wrong could lead to costly Employment Tribunal claims or tax liabilities.

For more information about employee status or to discuss how the issues in this article affect your business, contact Emma Wilson by emailing elwilson@lyonsdavidson.co.uk or calling 0121 683 8368.

Posted on Feb 10th, 2015 by Lyons Davidson