Some people might think that in order to earn their keep in life, they only have two options; namely be employed by someone else or go self-employed.
From a legal perspective, this is not strictly true. Our law recognises three distinct types of working status.
The 3 types of working persons
The most obvious type is the traditional employee. The law now however draws a distinction between two different types of self-employed persons.
The first type of self employed person would be those who carry on a business on their own account and enter into contracts with clients or customers to provide work or services for them. This would be the independent contractor.
The second type of self employed person is defined in the Employment Rights Act 1996 (among other places with similar definitions) as:
An individual who has entered into or works under a contract of employment or any other contract, where 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 carried on by the individual.
This would be the worker, and this article focuses mainly on the requirement for "personal performance". Personal performance will distinguish the self-employed worker from the independent contractor.
Why is it important to know which type of worker you are?
It might be thought that being able to identify differing working status is of little value, but actually working status has huge implications. For example, an employee has the statutory right to not be unfairly dismissed and to bring a claim before an Employment Tribunal to enforce that right (subject to certain conditions); however a worker and independent contractor do not.
An employee and a worker have the statutory right to be paid holiday pay, not be discriminated against and to bring claims before an employment tribunal to enforce these rights; an independent contractor does not. An independent contractor’s rights will generally be limited to their contractual rights with their customers and judge-made law.
Therefore, an independent contractor who brings a claim before an Employment Tribunal for something like holiday pay is likely to be unsuccessful because they do not have such a right and consequentally the Employment Tribunal would not have the ability to hear that claim from such a person.
If you are self-employed, it therefore helps to be able to identify which type of working status you are likely to have.
A recent case considering “worker” status
A recent case considering whether someone was a ‘worker’ as opposed to an ‘independent contractor’ is the Court of Appeal case of Pimlico Plumbers Limited, Charlie Mullins vs Gary Smith ("the Pimlico case").
Mr. Gary Smith was a plumber and worked for Pimlico Plumbers between 25th August 2005 and 28th April 2011. Mr. Smith had worked solely for Pimlico Plumbers throughout this time. He had signed an agreement on 25th August 2005 which was subsequently replaced by a more detailed agreement in a letter to Mr. Smith dated 21st September 2010. His employment was terminated on 3rd May 2011 and he brought claims before the Employment tribunal for, among other things, direct disability discrimination and holiday pay.
At a preliminary hearing the Tribunal had to decide whether Mr. Smith was a worker as otherwise the claim could not proceed. The Employment Tribunal decided Mr. Smith was a worker. This was appealed unsuccessfully to the Employment Appeal Tribunal ('EAT') and then again to the Court of Appeal.
The Court of Appeal stated that the answer to this question depended entirely on the terms of the agreement that Mr Smith had signed in September 2010. The Court of Appeal decided that the Employment Tribunal was correct in deciding Mr. Smith was a worker, upholding the EAT. The Court’s reasons were in summary that:
- The wording of the agreement required Mr. Smith’s performance,
- There was no term in the agreement giving Mr. Smith a right of substitution or delegation,
- There was no scope for the Court implying such a right since the right was neither obvious nor necessary to make the agreement work.
The principles as to requirement for personal performance
Perhaps more illuminating than the result are the principles that the Court of Appeal highlighted as to the requirement for personal performance. These were:
- An unfettered right to substitute another person to do the work or perform the services is inconsistent with personal performance (i.e. a person with such a right is unlikely to be a worker),
- A conditional right to substitute another person may be inconsistent with personal performance depending on the extent to which such right is limited,
- By way of example: a right of substitution only when the contractor is unable to carry out the work will, subject to exceptional facts, be consistent with personal performance (i.e. generally a person with such a right is likely to be a worker),
- A right of substitution based only on having to show that the substitute is as qualified, will, subject to exceptional facts, be inconsistent with personal performance (whereby generally a person with such a right will likely be an independent contractor). Again by way of example, a right to substitute only with the consent of another person who has an absolute discretion to withhold consent will be consistent with personal performance (i.e. generally a person having such a right will likely be a worker).
These principles are helpful in identifying worker status where they are applicable, but of course they may not be exhaustive. For example, which side of the line should a person fall where another person has a limited and qualified discretion to withhold consent to substituted performance? It must of course depend on the facts of the case.
The significance of the Pimlico case
This case is doubtless important in this area and will likely be used as the main authority going forward in deciding whether an individual has worker status or not. It will likely be a useful reference therefore for claimants in Employment Tribunal proceedings or perhaps during early conciliation where the “employer” may be taking the stance that the claimant cannot proceed with a claim because they do not have the right type of working status.
It will also be a useful guide for those involved in drafting agreements for businesses that want to achieve minimum risk in relation to prospective claims by their workforce against them and are therefore aiming to create a genuine relationship of independent contractor and client. Since the question as to status depends entirely on the terms of the agreement itself, provided those terms reflect the reality, the Pimlico case will likely assist in the drafting of appropriate provisions for substituted performance.
The issue from a business risk perspective however is two-pronged. You will achieve minimum exposure from an employment rights perspective by using genuine independent contractors, however with this must come a corresponding lack of control over who provides services for you and, further, a potential dilution of your business and possibly its goodwill. That of course is a business decision to be taken, but hopefully at the outset before a buisiness has entered into too many contracts!
Ben McCosker is a Solicitor based in our Weoley Castle office. You can telephone him on 0121 685 1109 or email him at firstname.lastname@example.org.
If you are requiring advice or assistance in the area of employment law, either from a litigation or non-contentious perspective, QualitySolicitors Davisons can assist you. Please call us on 0121 685 1248 or leave an enquiry via our website.