Pimlico Plumbers Ltd v Smith
Pimlico Plumbers Ltd v Smith [2017] EWCACiv 51
Facts
The claimant, Mr Smith, carried out plumbing work for Pimlico Plumbers Ltd ("the company") between 2005 and 2011. Initially, he worked under a 2005 contract, described as a "subcontracted employee," with terms detailed in the Company Procedures and Working Practice Manual ("the manual"). The manual stipulated a normal working week of five days and a minimum of 40 hours, required wearing a company uniform and carrying an identification card, and included deductions from "wages" for a company mobile phone and monthly rental for a company van.
In 2009, a more detailed agreement (the "2009 agreement") replaced the initial contract, labelling Mr Smith as a "self-employed operative". This agreement stated that the company was not obliged to provide work, and Mr Smith was not obliged to accept work, though he had to notify the company of unavailability. It also made Mr Smith responsible for his own income tax, VAT, and social security contributions, restricted his ability to work for competitors, and imposed onerous restrictive covenants after termination. He was required to provide his own tools and equipment and bore substantial costs for materials. The contract also stated, "Nothing in this agreement shall render you an employee, agent or partner of the company".
Despite these written terms, the Employment Tribunal (ET) found that the manual obliged Mr Smith to work a normal week of 40 hours (or a minimum of 36 hours as Mr Mullins, the owner, accepted in evidence). While there was flexibility, the company expected engineers to discuss and agree on their working hours. Crucially, the ET found no unfettered right to substitute at will; while operatives could swap jobs among themselves or use external contractors for assistance, this fell short of a contractual right to substitute. The ET also found a high degree of restriction on Mr Smith's ability to work competitively and concluded that the company was not his client but his principal, to which he was subordinate and an integral part of its operations. Mr Smith himself believed he was self-employed and filed tax returns on that basis.
Held
The Employment Tribunal (ET) held that Mr Smith was not an "employee", meaning claims for unfair dismissal were dismissed. However, the ET found him to be a "worker" within the meaning of section 230(3) of the Employment Rights Act 1996 and regulation 2(1) of the Working Time Regulations 1998, and that his situation met the definition of "employment" in section 83(2)(a) of the Equality Act 2010. This allowed his claims for unlawful deduction of wages, holiday pay, and disability discrimination to proceed. The Employment Appeal Tribunal (EAT) dismissed both the company's appeal and Mr Smith's cross-appeal, affirming the ET's decision.
On appeal by the company, the Court of Appeal dismissed the appeal, affirming that Mr Smith was a "worker". The Court found that the question turned on the terms of the contract, specifically whether Mr Smith was required to perform services personally and whether his relationship with the company was not one of business and customer. Key reasons included:
The express wording of the 2009 agreement, which referred to Mr Smith's skills, competence, and personal liability, required personal performance. Neither the 2009 agreement nor the manual contained an express or implied unfettered right of substitution. The evidence of operatives swapping jobs was considered an informal concession, not a contractual right.
The manual's provision for a normal working week of five days and a minimum of 40 hours was considered part of the 2005 agreement and continued to reflect the relationship under the 2009 agreement, despite the clause stating that there was no obligation to offer or accept work. This was interpreted as a right to refuse particular jobs, not all assignments, within an overarching obligation to be generally available.
The financial consequences of the mandatory van rental and mobile phone use, along with the onerous restrictive covenants, were considered relevant factors. These factors, combined with the degree of control and the finding that Mr Smith was an integral, subordinate part of the company's operations, entitled the tribunal to conclude that the company was not a client or customer of Mr Smith's business.
The Court of Appeal emphasised that in determining "worker" status, tribunals must focus on the "actual legal obligations" and the "reality of the situation".
Comment
The Pimlico Plumbers Ltd v Smith judgment from the Court of Appeal reinforces the principle, previously highlighted in Autoclenz Ltd v Belcher, that courts must look beyond the labels and written terms of a contract to ascertain the true working relationship, especially where there is an imbalance of bargaining power.
Key commentary points include:
Personal Performance
The case clarifies that an "unfettered right to substitute" is inconsistent with personal performance, but a "conditional right" may not be. The Court distinguished between the use of assistants or specialist subcontractors (which does not negate personal performance) and the right to pass on an entire job. The express wording of the contract requiring Mr Smith's personal skill and liability, combined with the lack of an explicit substitution clause and the informal nature of job-swapping, was decisive.
Reality vs. Contractual Form
The judgment acknowledges the potential for "window-dressing" in contracts for work and services. Although the Court of Appeal found a way to interpret the contradictory contractual documents (2009 agreement and manual) without directly applying the Autoclenz principle to disregard the terms, it noted that such a route could have been available if the documentation did not correspond to reality. This highlights the ongoing scrutiny that tribunals will apply to lawyer-drafted documents, which may not accurately reflect the true intent or operation of the relationship.
"Client or Customer" Test
The Court's finding that Pimlico Plumbers was Mr Smith's "principal" and that he was "subordinate" and "integral" to its operations, rather than the company being a "client or customer" of his business, was crucial. This was underpinned by factors such as the implied obligation for Mr Smith to be available for a minimum number of hours, the financial commitments (van, phone), and the restrictive covenants, all of which pointed away from genuine self-employment.
Role of Tribunals
The decision affirms the Employment Tribunal's role in performing an "evaluative exercise, with an intense focus on all the relevant facts," giving respect to a specialist tribunal's assessment of the "world of work".
Practical Implications
The judgment reinforces the need for businesses to ensure that their contractual terms genuinely reflect the reality of their working relationships, especially when seeking to classify individuals as self-employed.
Procedural Comment
The Court remarked that conducting a complex and important case solely on written submissions "is an unsatisfactory course, carries considerable risk and should be avoided if at all possible".
