The Supreme Court judgment in the Pimlico Plumbers case has been hailed as a victory for workers in the gig economy – and a blow for organisations that rely on large numbers of ‘self-employed’ contractors. In fact, the judgment largely confirms what we already knew – that employment status must be considered on the individual facts of each case and what happens on the ground is more important than the wording of the contract.
However, there are certainly lessons to be learned for all businesses that use consultants and contractors. Many organisations – not just those in the gig economy – engage consultants to deliver short-term projects or specific, specialist tasks. Those organisations should be looking carefully at their documentation as well as considering how much control they exert over the activities of their consultants.
First, a contractual right of substitution will not necessarily be fatal to a claim that an individual is a worker. Although it was not set out in his contract, both parties agreed that Mr Smith was entitled to appoint another Pimlico Plumbers operative to do a job for which he had quoted but which he no longer wished to carry out. This very limited right to provide a substitute – where the substitute had to come from a limited pool of individuals already contracted to Pimlico Plumbers – did not undermine the fact that the ‘dominant feature’ of Mr Smith’s contract was an obligation on him personally to provide the services. In contrast, in the Deliveroo case earlier this year, the Central Arbitration Committee found that the existence of a genuine and unlimited right of substitution, which was relied upon without objection from Deliveroo, defeated a claim for worker status.
Second, consider carefully whether you need contractors to be subject to onerous post-termination restrictive covenants. The presence of such provisions was one of the factors considered by the courts in Pimlico Plumbers as supporting a finding of worker status. Restrictive covenants are often routinely included in consultancy agreements, particularly high-value arrangements where individuals are likely to have significant access to an organisation’s confidential information and clients or customers. There are circumstances in which inclusion of these provisions will be necessary and appropriate for the protection of business interests, but they should not be included as standard without proper consideration of the particular circumstances. Could a consultant pose a genuine and significant threat to the business on departure? If so, it may be safest to simply accept that they will be a worker and factor costs such as holiday pay into the costs of the arrangement if that is acceptable to the individual consultant. Restrictive covenants alone will not turn someone who is genuinely self-employed into a worker, but they are certainly one of the factors which courts will consider.
Finally, make sure the documentation reflects the true position. It has long been the position – and remains so following this decision – that the contractual wording is only part of the bigger picture. Organisations with carefully crafted documentation which does not represent the reality on the ground have frequently been criticised by the courts and tribunals – Uber being a prime example. Agreements should be tailored to the particular situation, and consultant and business should work together to ensure they reflect the commercial reality of the arrangements. If the provisions start to look and feel more like an employment arrangement – for example, because the business needs to have significant control over the consultant – it will often make more sense to put in place a short-term, perhaps part-time, employment contract than to risk a later, expensive and time-consuming dispute about employment status.
Beth Hale, published in Law Gazette