Companies must be proactive in clarifying the employment status of individuals who work for them, legal experts have warned, after the Court of Appeal ruled a plumber was entitled to basic workers’ rights in the latest high-profile legal dispute involving self-employment.
Gary Smith had worked for Pimlico Plumbers for six years as a self-employed plumber. After suffering a heart attack in 2010, he requested to cut back his working hours to three days a week, but the firm refused his request and took away his hired company van. During an employment tribunal, Mr Smith argued he was entitled to basic workers’ rights, including the right to the national minimum wage, paid holiday and the ability to bring discrimination claims.
Pimlico argued that their plumbers were hired as ‘independent contractors’, as opposed to workers or employees – and that although they provided their own materials and did not have workers’ benefits, they were paid significantly more than PAYE employees.
However, the Court of Appeal found in Mr Smith’s favour, upholding an earlier tribunal decision that, although the plumbers were not employees, they were workers, and as such were entitled to holiday pay, sick pay and other benefits despite being technically self-employed.
The ruling follows a number of similar employee rights disputes, including tribunals against bike courier firm CitySprint and taxi service app Uber, that have been found in the workers’ favour.
Jonathan Chamberlain, partner at law firm Gowling WLG, said: "There is a trend here. This case is the latest in a series to examine business models that seek to control people as if they were employees but pay (and tax) them as if they were not. Once again, the so-called 'self employed' have been found to be workers – but those business models are not going to disappear.
“So much depends on the detail: a tweak to contracts here, a change in working arrangements there. As long as there is any disparity in pay, tax and work-related statutory protections, businesses and individuals will look to arbitrage them.”
The Court of Appeal decision is particularly significant at a time when self-employment is estimated to account for 45 per cent of UK jobs created since the 2007-08 financial crisis. The government has launched an inquiry into the rights of gig economy workers, while changes to the IR35 regulations governing the taxation of freelance contractors in the public sector are widely seen as presaging a broader review of tax status among the self-employed.
Naeema Choudry, partner at Eversheds Sutherland International, said organisations that rely on freelancers or independent contractors should treat the judgment as a “wake-up call” for workers’ rights.
“Given the growing number of tribunal claims in this area, and the accompanying negative publicity, employers need to review the employment status of their freelance and contracting workforce,” she said.
“The risk is that misclassifying a worker as an independent contractor may result in large financial exposure to unpaid holiday, pensions and other entitlements, particularly where significant numbers of workers are involved.”