LAU KevinIn what is expected to be the most significant decision to date on worker status, the Supreme Court (SC) in Pimlico Plumbers Ltd and Anor v Smith has upheld a lower Tribunal's decision that Mr Smith, a plumber working for Pimlico Plumbers (PP), was a 'worker' in accordance with both the Employment Rights Act 1996 (ERA) and the Working Time Regulations 1998 (WTR), and also 'in employment' for the purposes of the Equality Act 2010. Kevin Lau looks into what this means for the future of guidance on the issue of worker status.

Although this ground-breaking decision does not involve an individual working in the 'gig-economy' or indeed a franchiser-franchisee relationship, it may still have far-reaching ramifications for those working in these areas, as they may now be entitled to legal rights such as holiday pay and sick pay. However, as claims are inevitably fact specific and parliament are currently consulting on the issue following the Taylor Review, the practical impact of this decision may have been overstated. In this article, we consider the decision and the possible implications for those operating the franchising model.

The Background

Mr Smith brought claims for a failure to pay holiday pay, unlawful deductions from wages and disability discrimination, after his employment with PP was terminated. At first instance, the Employment Tribunal judge found that, as Mr Smith was obliged to provide work personally to PP and did not therefore have an unfettered right of substitution, he satisfied the definition of 'worker' contained in the ERA. As a result, he gained the rights associated with worker status, notwithstanding that his official contractual status remained that of an independent contractor.

This is much the same as the arguments progressed in the recent Uber and Addison Lee cases, which both involved gig-economy delivery drivers challenging their self-employed status. Again, the respective courts confirmed that a common-sense approach should be taken which focuses on the working reality of the relationship rather than how it is classified in the individual's contract. As franchisers often rely on staff engaged on zero hour contracts and those who are 'self-employed', they should consider the risks associated with operating such working structures – in particular when the reality of the working relationship does not correlate to the contractual position - and should be mindful that they may face legal challenges from individuals wishing to gain access to worker status rights.

The Decision

In the case, PP maintained that as their plumbers had the right to swap shifts with each other, they had not undertaken to personally perform the work and, in any case, were either PP's clients or customers. In their judgment, the SC confirmed that Mr Smith's ability to swap shifts was a limited and non-contractual concession rather than an unfettered right of substitution. As a result, the judge was entitled to conclude that this was consistent with an obligation to perform services personally, and Mr Smith could therefore be legitimately considered as a worker. The SC also disagreed with PP's argument that Mr Smith was their client/customer, as the elements of control PP exercised over him suggested otherwise.

The Reasoning

In concluding that the “dominant feature of [the contractual relationship] was an obligation of personal performance”, the SC helpfully explained the factors they took into account. These included:

  • There being no written term in the contract providing a right to substitute work;
  • The ability to substitute work, in reality, being limited only to another PP operative (making it an informal concession rather than a right); and
  • The requirements imposed by PP being directed at plumbers personally (eg. 'Your skills')

Unsurprisingly, in finding that PP exercised a degree of control over Mr Smith sufficient to contradict the assertion that he was their client/customer; the SC took a practical approach focusing on factors such as:

  • PP requiring Mr Smith to use a branded uniform and vehicle
  • Heavy control over Mr Smith's terms of payment
  • Contractual references to 'wages', 'employment' and 'gross misconduct'

Taken together, these factors indicated a relationship of subordination and therefore warranted the finding of worker status and the awarding of further rights. This is of particular significance to franchising as the franchiser will undoubtedly impose conditions on their franchisees in terms of the way in which they must operate, which may be used by individuals to indicate their worker status.

The Future

Although this case provides useful guidance on the issue of worker status, it does not seem to provide any new guiding principles and instead re-iterates the general approach already taken by lower courts. Moreover, as contractual documentation and the reality of each situation will differ, those operating a franchise model will still need to consider the status of their staff on a case by case basis. Therefore, it is likely that the practical impact of this decision has been overstated and uncertainty will likely persist. Legislative changes may also be on the horizon as worker status is currently the subject of government consultations following the Taylor Review.

Despite this, given that all UK courts are legally bound to follow SC decisions, the high level nature of the judgment in the field of worker status may make it a powerful precedent for individuals continuing to fight for access to employment rights. Mr Mullins, chief executive of PP, suggested that this decision may open the floodgates for other 'self-employed' contractors to challenge their legal status. To reduce the risk of future litigation in this area, franchisors would be well advised to audit their current models of delivery, ensure contracts are consistent and reflect the working relationship, and consider introducing restrictions or indemnities in franchising agreements to prevent the use of self-employed models which are likely to fall foul of the law. Conversely, businesses who do not franchise may consider deploying the franchising model to convert self-employed individuals or workers to genuine franchisees. This could reduce the risk of future liability arising from the self-employed model and improve profitability and brand recognition.

For more information please contact Kevin Lau (Associate) at kevin.lau@footanstey.com.

Tags: Franchising


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