Plumbing the depths of Employment Law

Post updated 13 June 2018 to reflect the Supreme Court decision

The case of Pimlico Plumbers v Smith  – which has been decided today by the Supreme Court – has attracted a lot of publicity for the hitherto obscure and anoraky topic of Employment Status. As is always the case, much of the media coverage is misinformed and the case is being ‘spun’ by the various parties. Since small businesses need to be clear about their employment responsibilities, it may be helpful to explain the differences.

An employee is someone who works for you under a contract of employment. Most people in most companies are employees, which is why the issue of status doesn’t arise in most organisations. Employees have a number of legal rights (e.g. unfair dismissal, notice periods, right to a redundancy payment etc). Employers pay them through a payroll after deducting tax and national insurance
Self-employed individuals are those who work on their own account – they may do work for a variety of clients (both individuals and companies). They invoice their clients and are responsible for their own tax affairs, and they can make a  profit or a loss. They have very few rights (mainly around health and safety and some limited discrimination rights).

All employees are ‘workers’. But there are also others who can be classified as “workers”. They are those who work for you under some form of agreement where they are required to undertake the work personally. Workers are entitled to fewer rights than an employee but they do still qualify for things like paid holidays, sick pay, and minimum wage. It is this group that form the basis of both the Pimlico Plumbers case and the current debate about Uber taxi drivers, Deliveroo cyclists, couriers for City Sprint etc.

To establish employment status, there are a set of legal tests that have been established. For example, who controls where and how the work is done? Can the work be passed to a ‘substitute’? Is the person ‘integrated’ into the business? Is there an expectation that work is provided and if so that the person will do it? And most importantly, even if there is a written agreement saying one thing, if what actually happens is different then this needs to be taken into account.
And because of an oddity of law, it’s perfectly possible to be a worker for the purpose of employment rights and be self-employed for tax purposes. This is what causes many of the disputes.

In Pimlico Plumbers case, the Company and Mr Smith signed an agreement that he was a self-employed plumber. It saved the company money in Employers’ National insurance and administration time, and Mr Smith paid less tax. Mr Smith however was expected to wear a Pimlico Plumbers uniform, drove to his jobs in a Pimlico van and was required to undertake a certain number of hours per week for the company. Nor could he advertise his own personal plumbing services to Pimlico’s clients. Everyone seemed happy with this arrangement until Mr Smith had a heart attack, had his agreement with Pimlico terminated and received no sick pay.
The courts so far have applied the tests based on the facts presented to them, and concluded that Mr Smith was not an employee, but that he was a worker. The Supreme Court has now confirmed this.

But the real lessons for small businesses are that:
• Trying to fiddle or fudge employment status can come back to bite you
• If the reality of the situation changes over time you need to review your agreements
• Think about why you want someone to work for you and be clear about the intended nature of your working relationship before you start the selection process.

If you want to know more about how employment law affects small businesses, in a simple, easy to read book, just click here

Dear Deliveroo…

An open letter to Will Chu, founder of Deliveroo

Dear Mr Chu

I read with interest your recent comments that you’re unable to offer the riders who work for Deliveroo better terms and conditions because to do so would ‘risk the flexibility’ that they enjoy.

I fully understand that entrepreneurs who have a great business idea aren’t always experts in things like marketing, finance or – in this case – managing people. But most of those who make a success of their business get expert advisers to guide them through these issues and ensure that they support their business aims in a legal and effective way.

I can only assume that you haven’t done so when it comes to employment matters, so I’m happy to correct some misapprehensions you seem to have.

Firstly, you suggest that it’s up to the Government rather than your company to define individual employer status. Actually, it’s not. There are a number of long-established legal tests that can be applied to determine whether someone is an employee, a worker, or self-employed. It may be true that 21st century economy needs 21st century legislation – and certainly the Government are looking at this at the moment – but at the moment the existing legislation does seem to be able to deal with most situations, even in the dynamic ‘gig economy’.

Secondly, employment status doesn’t prevent you offering flexible working arrangements or work patterns.  I’d have thought the data you collect on ordering times for takeaway meals would allow you to identify regular peaks and troughs in demand and schedule your labour requirements accordingly. Using a bank of casual labour, paid through the payroll, would allow you to offer sick pay, holidays and pensions to your regular core workers and supplement these at peak times.  It’s a bit of a 20th century solution, but sometimes old ideas still work effectively

Finally, I have to say that trying to disguise the nature of the working relationship – by using phrases like “invoice” not “timesheet” and “branding guidelines” instead of “uniform” – won’t cut the mustard if you’re challenged. Employment Tribunals will look at what actually happens rather than the words on a page and are pretty adept at seeing through sham arrangements.

I’m always happy to help growing businesses avoid simple employment mistakes and so if you need some further advice please give get in touch, although if you do have 15000 workers I’d probably suggest you need to have some full time in-house expertise. You might find my book helpful though, it sets out clearly and simply what entrepreneurs and small business owners need to know about people management.

Best wishes

Simon