Pimlico Plumbers ruling – what it means for contractors

The Supreme Court has rejected an appeal by Pimlico Plumbers in a case which may have significant implications for the way workers are categorised for the purposes of tax and employment rights in the future. We ask how this ruling may affect contractors and IR35.

What is the case about?

This high profile case revolves about the employment status of Gary Smith, a plumbing and heating engineer who provided his services to Pimlico Plumbers between 2005 and 2011.

In August 2011, Smith took the firm to an employment tribunal, claiming he had been unfairly dismissed and should have received statutory annual leave.

The Tribunal ruled that as Smith was not an ’employee’ during his time with the firm, he was not entitled to complain about unfair dismissal.

However, he was determined to have been a ‘worker’ for his client (according to the Employment Rights Act and Working Time Regulations), and an ’employee’ for the purposes of the Equality Act 2010.

As a result, he would be entitled to claim a number of employment rights, including sick and holiday pay.

Pimlico Plumbers appealed this decision at the Court of Appeal but were unsuccessful. They subsequently took the case to the Supreme Court, which last week upheld the original ruling that Smith is eligible to receive employment rights despite being registered for VAT, and taxed as a sole trader.

Key findings

The key points addressed by the Supreme Court included:

Had Smith undertaken to provide a personal service to Pimlico? The Court determined that he had very limited right to provide a substitute, and that the terms of the contract are “clearly directed to performance by Mr Smith personally, and any right to substitute was significantly limited by the fact that the substitute had to come from the ranks of those bound to Pimlico in similar terms.”

As a result, the Court found that “the tribunal was entitled to hold that the dominant feature of Mr Smith’s contract with the company was an obligation of personal performance.”

On the issue of whether Pimlico Plumbers could be considered to be a client or customer of Mr Smith, the Court said that although Smith was able to reject a particular job and was free to accept outside work to some degree, there were strong features of his contract which suggested that Pimlico had tight control over most aspects of Smith’s job – including payment terms, restrictions to his working activities following termination, and work attire.

“Accordingly, the tribunal was entitled to conclude that Pimlico cannot be regarded as a client or customer of Mr Smith.”

You can read the full judgement here.

Confusion

Unsurprisingly, this decision, and cases soon to be heard involving Deliveroo, Uber and CitySpring, may have huge implications for how an individual’s working status is classified – and therefore their rights (if any) to claim employee-type benefits in the future.

Gone are the days where the vast majority of individuals work either on a PAYE basis for an employer or as genuinely self-employed.

Clearly, a professional contractor – working via his own limited company – has a completely different employment status to that of a part-time delivery driver. This is clear to see.

But, the danger is, will the Government clumsily group all non-traditional working people into the same classification when it comes to taxation and employment rights?

What about contractors and IR35?

We asked Seb Maley, the CEO of Qdos Contractor, what this ruling means for contractors:

“In theory, the recent Pimlico Plumbers verdict should not impact contractors and IR35. This was a disagreement over the worker’s employment status, not IR35 status. The two are separate, and public sector bodies – now tasked with setting IR35 status – must remember this when making such decisions.

“The plumber was classed under ‘worker’ status, which sits in-between employment and self-employment. With regards to IR35, there is no such thing. You are either inside IR35 or outside.

“Worryingly, the number of cases like this are on the rise, which in itself is a sign that complex employment law needs to be simplified. It’s vital the boundaries between self-employment, worker status and employment can be understood by each party in the supply chain.”