June saw two important decisions relating to the much litigated topic of employment status. Whilst both cases are very fact specific, they provide a timely summary of the issues that need to be assessed in determining whether your contractors are genuinely self employed or not.
Why is employment status important?
Under UK law we have 3 types of working relationships: employee, worker and self employed. There has been a great deal of litigation recently in this area. Determining status is important as, amongst other considerations such as tax and PAYE, employees have the full range of employment protection; workers are also entitled to key benefits which self employed individuals are not.
In the Pimlico Plumbers case, Mr Smith, a ‘self employed’ contractor brought claims of disability discrimination, unlawful deduction of wages and failure to pay him his statutory annual leave entitlement. The Supreme Court rejected Pimlico’s appeal in June.
Meanwhile, in the Hermes case, a number of individuals brought test cases against Hermes to determine their employment status. Hermes workers claimed unlawful deduction of wages and failure to pay statutory annual leave entitlement. In June the employment tribunal decided that these individuals are also workers and are therefore entitled to pursue their claims.
Summary of the facts in Pimlico
Mr Smith worked as a self employed contractor for Pimlico for 6 years before falling ill and was then unable to work. In reviewing the working arrangement the courts looked at the obligations placed on Mr Smith by Pimlico:
- Required to lease and drive a company van and wear a uniform.
- Obliged to work 40 hours per week.
- Had to comply with strict administrative requirements.
- Restricted from working for competitive businesses post termination.
- Although Mr Smith was allowed to swap assignments between other plumbers, they had to be Pimlico plumbers and was more akin to swapping shifts with a colleague.
Given the above points, the Supreme Court decided that Pimlico exercised a significant degree of control over Mr Smith, and, as he was unable to substitute another plumber in his place, he was a worker, working under a contract of service.
Summary of the facts in Hermes
65 Hermes couriers brought a test case to establish their employment status. Hermes, the large parcel delivery company, sought to argue that the couriers were truly self employed, despite a number of requirements placed upon the couriers. The tribunal judge was scathing of Hermes’ evidence that these couriers were self employed and found many of the arguments put forward by Hermes as ‘implausible’.
The couriers were subject to the following requirements:
- Once a round of deliveries was allocated to the courier, they were obliged to make the deliveries (this is termed ‘mutuality of obligation’ and points to worker status).
- Expected to be available 6 days per week.
- Obliged to find cover if they could not complete a round of deliveries otherwise face a risk of not being provided with future work.
- The choice of substitute had to be vetted by Hermes, so there was no ‘unfettered’ right to provide a substitute (which would indicate a more self employed status).
Whilst both cases turn on their own individual facts, there are some common links that can be extracted from the courts’ decisions. The court will scrutinise both the terms of the contract and the reality of the working relationship to ensure that they are consistent. Mutuality of obligation and the right to substitute are key areas which will be analysed in detail in determining worker status.
What does this mean for my business?
This does not mean that you cannot continue to use truly self employed contractors in your business. It does mean that those businesses who exploit individuals by classing them as self employed, rather than worker, to avoid paying minimum wage and holiday pay, are likely to face a number of claims in the future.
If you do use self employed contractors in your business, now is the time to carry out an assessment of their employment status. Look at the requirements that you place upon them; such as any requirement to abide by company procedures and processes; are they truly free to set their own working arrangements? What happens if they cannot take on a job? Given the complexities surrounding this area of the law it is always a good idea to seek advice sooner rather than later, so do not hesitate to get in touch if you think this may affect your business.
Chloë Leyland
Enhanced HR Solutions Ltd
www.enhancedhr.co.uk
