Pimlico Plumbers Ltd & Anor v Smith  UKSC 29 – read judgment
The Supreme Court has unanimously dismissed Pimlico Plumbers Ltd’s appeal and upheld the Employment Tribunal’s ruling that the Respondent – Mr Smith – a plumbing and heating engineer had been:
(a) a “worker” within the meaning of section 230(3) of the Employment Rights Act 1996;
(b) a “worker” within the meaning of regulation 2(1) of the Working Time Regulations 1998 (SI 1998/1833)
(c) in Pimlico’s “employment” within the meaning of section 83(2)(a) of the Equality Act.
Questions concerning the true employment status of individuals who are presented to the paying customer as being an integral part of the business in question are increasingly common. Despite being presented to the end customer as such, the purported legal reality is that the individual is self-employed for both tax and employment law purposes. This is partly what is described by such arrangements being part of the so-called “gig economy”.
The decision in Pimlico was not an unexpected one. A summary of some of the key contractual clauses identified by Lord Wilson and set out by the second (and applicable) agreement between Pimlico and Mr Smith were as follows:
- “Gross misconduct” was stipulated as being a potential ground for summary “termination”
- Mr Smith was obliged to meet certain standards in terms of his performance (work to be provided in a “proper and efficient manner”)
- While there was no mutuality of obligation for work to be provided and accepted, Mr Smith was obliged to “notify the Company in good time of days on which you will be unavailable for work”
- Mr Smith was obliged to notify the Company if he could not attend work because of illness or injury
- Mr Smith agreed to be bound by the Company’s rules and policies as set out in the Company Manual, which was itself incorporated into the agreement.
- Mr Smith could not provide services directly to Pimlico’s customers at any time other than under his agreement with Pimlico
The contractual terms were such that – as anticipated by many – the Supreme Court upheld the Tribunal’s ruling that Mr Smith fell within the ambit of s.230(3)(b), namely someone who worked under:
any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.
In other words, Mr Smith was a ‘limb (b)’ worker, and his contract was such that it could not be said that he was carrying on a profession or business undertaking, such that Pimlico Plumbers were his client or customer.
The question of substitution
One of the more interesting aspects of Lord Wilson’s judgment in Pimlico is his analysis of the right to substitution – the purported contractual right for a contractor to decline to work and to send in a substitute in his place as an alternative.
A contractor’s right to send in a substitute in his place, whether such a right is real, contractual, or in some cases seemingly imaginary – has arguably taken on enhanced importance for businesses and contractors alike in both the employment law and tax spheres.
The concepts of control, mutuality of obligation, and the purported right to substitution have been further thrown into the spotlight by virtue of the recent public sector IR35 reforms (by virtue of the new Chapter 10 of Income Tax (Earnings and Pensions) Act 2003, section 61M added by Finance Act 2017 c.10 Sch 1(2) para 9).
In Pimlico (as in Autoclenz Limited v Belcher and others UKSC 41) the contract did not include any substitution clause. In light of the contractual terms that were in place between Mr Smith and Pimlico Plumbers Ltd, and the absence of any contractual right for Mr Smith to send in a substitute, the Supreme Court’s decision is neither novel nor surprising.
Yet Lord Wilson did address the interesting question of the boundaries between contractual arrangements that purport to permit an individual to send in a substitute, but which in reality envisage personal performance:
Where, then, lie the boundaries of a right to substitute consistent with personal performance (paragraph 24)
The classic formulation of the ingredients of a contract of service is the tripartite tests set out by Mackenna J in Ready Mix Concrete (South East) Ltd v Minister of Pensions and National Insurance 2 QB 497, namely: (1) whether the Claimant agreed to provide his own work or skill personally, (2) whether he agreed in so doing to be under the control of the putative employer, and finally (3) whether the other provisions of the contract are consistent with its being a contract of service.
In Ready Mix, Mackenna J held (at p.515) that:
Freedom to do a job either by one’s own hands or by another’s is inconsistent with a contract of service, though a limited or occasional power of delegation may not be … (cited by Lord Wilson at paragraph 22 of his judgment).
The question of the distinction between a genuine right to substitution and a limited or occasional power of delegation occupies both employment tribunals and employment status tax advisors with increasingly frequency, as the parties attempt to interpret what are often inelegantly drafted contractual terms against a contentious factual context.
In Pimlico the Tribunal held that while Mr Smith’s contract did not expressly refer to a right to substitute, Mr Smith had a limited right to substitute in the form of a right to turn down work if Pimlico could offer more lucrative work as an alternative. This limited right was not unfettered, according to the Tribunal, and was not equivalent to a right to substitute at will.
The Court of Appeal held that there was no scope for an implied term that conferred on Mr Smith an unfettered contractual right to substitute another of Pimlico’s operatives. There was at most a general practice by way of purely informal concession that operatives could change shifts, and could not be taken as justification for a reading of the contractual terms as meaning anything other than the operative being required to provide his services personally (see paragraph 88 per Sir Terence Etherton MR )
Lord Wilson considered that the Court of Appeal’s analysis did not sit easily with the Employment Tribunal’s use of words to describe the facility and therefore assumed, without deciding the point, that the facility to change shifts was the product of a contractual right. The Tribunal had turned its attention to the terms of a new contract that Pimlico utilized after Mr Smith’s contract had been terminated, the terms of which Lord Wilson considered
“did not clarify anything at all”, and adjudged that (at paragraph 27):
So Pimlico there put before the tribunal an irrelevant contract, cast in highly confusing terms, and now complains that the tribunal’s interpretation of them was highly confused. Irrespective of whether a wider right of substitution would have been fatal to Mr Smith’s claim, this court can in my view be confident that the tribunal found, and was entitled to find, that Mr Smith’s only right of substitution was of another Pimlico operative. Such is the judge’s express finding both in the central part of her judgment and again in her conclusion. Ambiguous terms of a contract to which Mr Smith was not a party cannot widen it.
Lord Wilson emphasised the Tribunal’s findings of fact that the right to substitute another Pimlico operative did not negative Mr Smith’s obligations of personal performance, and that the “right” in question was more akin to the swapping of shifts within a workforce in any event (at paragraph 29). The Court of Appeal authority of Halawi v WDFG UK Ltd (t/a World Duty Free)  EWCA Civ 1387,  3 All ER 543 was held to be of no assistance in perceiving the boundaries of a right to substitute consistent with personal performance, because in that case the reality was that the operative in question could not be said to have had any contract with the purported employer at all, therefore the case could not be said to illuminate the boundaries between the concepts of personal performance and substitution.
Lord Wilson applied Hashwani v Jivraj  UKSC 40,  1 WLR 1872 in which Lord Clarke of Stone-cum-Ebony (at paras 37 to 39) considered Mr Justice Elias’s ruling (as President of the Employment Appeal Tribunal) in James v Redcats (Brands) Ltd  ICR 1006 with nuanced approval, ruling that while there may cases in which it was appropriate to find the dominant feature of the contract in question, this could not be the sole test, that being for present purposes whether there was a contractual obligation for personal performance.
Lord Wilson, in accepting this proposition, held that there remained cases where it was appropriate to consider whether (perhaps in light of the limited or occasional power substitution in question) it is helpful to assess the significance of the right to substitute another operative by reference to whether the dominant feature of the contract remained personal performance on his part.
In other words, does the purported right to substitute in question entail that the dominant feature of the contract cannot be said to be personal performance on the part of the contractor in question?
The contract under scrutiny in Pimlico:
- Was clearly directed to performance by Mr Smith personally
- The (purported) right to substitute was not even referred to within the contractual terms
- Pimlico had agreed that even where a so-called substitute was used by an operative, it was the original operative in question who took responsibility for its performance according to the contract. Lord Wilson held that: “The vocative words clearly show that these requirements are addressed to Mr Smith personally; and Pimlico’s contention that the requirements are capable also of applying to anyone who substitutes for him stretches their natural meaning beyond breaking-point” (paragraph 33).
Lord Wilson therefore held that, to the extent that Mr Smith’s facility to appoint a substitute was a contractual right, it was so limited to and anchored in the ranks of other Pimlico operatives that it could not be said to override or displace the requirement of personal service being the dominant feature of the contract (paragraph 34). The situation in Pimlico was thus the converse of a situation in which the other party is “uninterested” in the identity of the substitute, provided that the work gets done.
While Pimlico provides some helpful focus (as may be required on a case-by-case basis) in the form of a concise analysis of the relevance of an enquiry into what the dominant feature of the contract under scrutiny might be, Lord Wilson’s framing of a genuine right to substitution in terms of it involving a contracting party who is “uninterested” in the identity of the substitute leaves open the question of the extent to which a right to substitution can be qualified in order for the requirement for personal service to be inapplicable and/or displaced.
As many contractors and business people will have experienced in practice, in the modern highly regulated workplace it is unusual that any contracting party will be uninterested in the identity of any substitute, even where there is a genuine and otherwise unfettered contractual right to substitution.
This is particularly the case in the transportation, medical, educational, legal sectors, where issues such as patient safety and client confidentiality are such that a contractor’s substitute is often required to have undertaken – to varying degrees – identity verification and approval processes before the contracting party is able or wiling to accept the substitute in question.
These considerations can be particularly acute where the safeguarding of children is a legal obligation upon one or both of the contracting parties in question.
Pimlico is therefore yet another example of the importance of the quality of the contractual terms in question as against the commercial reality of the business that is seeking to rely upon them, while the nuanced issue of the relationship between personal service and the right to substitution continues to be a developing area of law.