‘An Obligation of Personal Performance’
An important indicator of how to define the status of workers in the Gig Economy (see our previous article on this here) been laid down in a Landmark case by the Supreme Court.
(The full judgement of the case can be found: here)
The repercussions of the above judgement will have far-reaching implications for the self-employed and their potential statuses as workers. The judgement also for reasons below serves as a stark warning to all employers and companies out there on the use of poorly drafted and inconsistent contractual terms.
On appeal from the Court of Appeal, the case before the Supreme Court of Pimilco Plumbers Ltd (the Appellant) -v- Mr. Smith (the Respondent) rested on:
- ‘whether Mr. Smith was a worker within the meaning of s.230(3) of the Employment Rights Act 1996 (ERA)’.
The effect of being defined as a worker, as opposed to an independent contractor is an important factor in conferring employments rights, entitling Mr. Smith to claim unlawful deductions of wages and the payment of his statutory annual leave.
The difficulty presented by the contractual agreement in place between Pimilco and Mr. Smith was acutely described as:
- ‘Pimilco wanted to present their operatives to the public as part of its workforce but that, on the other, it wanted to render them self-employed in business on their own account; and that the contractual documents had been “carefully choreographed” to serve these inconsistent objectives’
The contractual inconsistencies can be identified through the following examples:
- ‘The Company shall be under no obligation to offer you work and you shall be under no obligation to accept such work from the Company’
Which is by its very nature contradictory to the provision containing:
- ‘Normal working hours consists of a five-day week, in which you should complete a minimum of 40-hours’
In respect of these inconsistencies and whether Mr. Smith was a worker or contractor, the court determined that the dominant feature of a contract in such circumstances was whether the person in question was entitled to substitute his work and/or was obliged to personally perform the work.
The court held that the requirements expected of Mr. Smith by Pimilco to perform his work to a ‘high standard of conduct and appearance’ went against the assertion that Mr. Smith was capable of substituting ‘anyone’ on his behalf.
This is because the strict limitations placed upon him under the contract, would have meant that Mr. Smith was only permitted to substitute his work to other Pimlico operatives under the identical obligations. This was likened to the example of another worker simply swapping shifts with another colleague.
It was therefore ruled that Mr. Smith was under a personal obligation to perform the work personally and there was no express right to substitute with the restrictions placed on him. This defining feature was therefore critical in determining Mr. Smith’s true status as a worker, as opposed to a contractor.
It is important to highlight that the obligation to perform services personally is not the sole test for whether you are self-employed or a worker but will nevertheless remain a defining feature!
Other features of a worker will be the degree of control that a Company holds over an individual contractor. For example, requirements to wear branded uniforms / drive branded vehicles / carry identity cards and being subjected to Company’s rules and policies. The question therefore comes down to whether a person is a master of his own business, do they have the ability to grow and dictate how his or her business runs?
To anyone who believes that paying your own tax and national insurance is enough to define you as self-employed, take note of the fact that Mr. Smith presented himself as self-employed for the purposes of income tax and VAT and was found to be a worker nevertheless.
In warning to employers and companies poorly worded contracts and agreements can present a serious complication in such claims. A court will look to the true relationship of a contract and will not accept inconsistent or contradictory terms at face value. In this present case, the references made to ‘wages’, ‘gross misconduct’, ‘dismissal and a swathe of ‘restrictive covenants’ were indicative of the true nature of Mr. Smith as a worker.