Pimlico's legacy for self-employed contractors

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.

The court has not made significant new law in this case; nor does it lay down clear guidelines on how to assess status in future cases. In the unanimous judgment, the court is careful to state not that Mr Smith is a worker for the purposes of the relevant legislation, but that on the particular facts of the case, the Employment Tribunal was entitled to reach that conclusion.

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.

When drafting consultancy agreements, it is tempting to include a right of substitution in order to avoid worker status. The CAC in the Deliveroo case suggested that, provided the right was genuine, the reason for its inclusion was not relevant. However, this should not be done without proper thought. Simply including the clause in a written contract will not be sufficient to defeat a claim if it is not genuine and is never relied upon in practice – or if, as in the Pimlico Plumbers case, it is so limited that it does not take away from the overall requirement for personal service. In addition, it is important to consider whether substitution works within a particular business model. Substitution may be appropriate in gig economy businesses – Deliveroo customers may not care too much who delivers their dinner – but if you are engaging a consultant with specialist expertise, you do not want that person to send along a replacement who may not be appropriately qualified. Substitution clauses should be used with caution, and only where meaningful and appropriate.

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 is technical director at CM Murray LLP, London