In a unanimous judgment, the Supreme Court found that Gary Smith was a worker as defined by the 1996 Employment Rights Act (ERA), entitled to bring a claim against Pimlico Plumbers (Pimlico) for unlawful deduction from wages; and a worker as defined by the 1998 Working Time Regulations (WTR), entitled to a period of paid annual leave.
The court also upheld a claim by Smith that he was 'employed' by Pimlico as defined by the 2010 Equality Act, which entitles him to bring a claim against the company for disability discrimination and failure to make reasonable adjustments. He was not, however, an 'employee' engaged under a contract of service as defined by the ERA, which means he is not entitled to bring an unfair dismissal claim against the firm.
An employment tribunal had reached the same conclusions in favour of Smith, in a decision which was later upheld by the employment appeal tribunal (EAT) and the Court of Appeal. Smith may now return to the employment tribunal for determination of his substantive claims against the company.
Smith signed an agreement to provide plumbing work on behalf of Pimlico in August 2005. This agreement, which was superseded by a new agreement in 2009, plus an additional manual, governed the relationship between the two until Smith was dismissed following a heart attack in May 2011.
The agreement, among other things, required Smith to work a minimum number of hours over a five-day week, to wear a uniform with a Pimlico logo and to rent a Pimlico branded van. He was also required to maintain "a high standard of conduct and appearance ... at all times". Smith was able to decide on his own working hours, and could reject particular jobs assigned to him by Pimlico in certain circumstances. He was, however, bound by certain non-compete clauses should he cease to work for Pimlico or go to work for a competitor.
The ERA requires that a worker "[undertake] to perform personally any work or services for another party to the contract who is not a professional client of his". The Supreme Court therefore had to decide whether Smith provided his services personally, and whether or not Pimlico was his 'professional client'. The Supreme Court heard that Smith had no express right to appoint a substitute to do his work. He had a limited ability to substitute should a more lucrative job arise, but only for another individual contracted by Pimlico.
Pimlico attempted to argue before the Supreme Court that this limited right to substitute was sufficient to invalidate the personal performance requirement of the ERA. The Supreme Court, however, disagreed, finding that the "dominant feature of the contract remained personal performance on his part".
"The terms of the contract made in 2009 are clearly directed to performance by Mr Smith personally," said Lord Wilson, giving the judgment of the court. "The right to substitute appears to have been regarded as so insignificant as not to be worthy of recognition in the terms deployed."
"[T]he terms of the contract ... focus on personal performance ... 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. The tribunal was clearly entitled to hold, albeit in different words, that the dominant feature of Mr Smith's contracts with Pimlico was an obligation of personal performance," he said.
The Supreme Court also rejected any claim that Pimlico was merely a 'client or customer' of Smith's. It found that, while Pimlico was not required to pay Smith if no work was available, Smith was required to keep himself free to work on Pimlico's behalf for the 40 hours a week across five days provided for by agreement. Other features of the agreement "strongly mitigated against recognition of Pimlico as a client or customer", including the "tight control" the company had over Smith and the "severe terms as to when and how much it was obliged to pay him", the Supreme Court said.
Smith's case is the first time the UK's highest court has been required to consider employment rights in the context of the so-called 'gig economy'. In November 2017, the EAT found that two drivers engaged by taxi-hailing platform Uber should be classed as 'workers', and entitled to paid rest breaks, holidays and the National Minimum Wage. Uber has appealed to the Court of Appeal, which will hear the case later this year.
Employment law expert Sue Gilchrist of Pinsent Masons, the law firm behind Out-Law.com, said that the judgment was "highly significant".
"The government is currently considering a number of issues following on from the Taylor Review into modern working practices, including responses to consultations issued on the back of the review," she said.
"One of these consultations, on employment status, seeks to address Taylor's point about there being a lack of clarity around employment status. Whilst further legislative clarity would be welcomed, it could well be very difficult if not impossible to achieve, so this decision is highly significant, coming as it does from the Supreme Court. The 'substitution' point isn't a new one - it's a well-recognised test - but this very clear guidance from the Supreme Court will result in many gig economy workers and their representatives analysing the decision in the hope that it may be applicable to their own circumstances," she said.
"With anticipated pressure points also around the application of IR35 off-payroll working tax rules to the private sector, issues of status and how such individuals are treated from an employment law and tax perspective are high on employers' agendas at the moment," she said.