In IR35

International law firm, Osborne Clarke, has shed further light on the implications for contracting workers, staffing agencies, and end-clients of this week’s Supreme Court ruling in favour of former Pimlico Plumber worker, Gary Smith.

Smith’s claim that he was a worker rather than a self-employed contractor during his years with Pimlico Plumbers was vindicated by the Court on Wednesday, which found that although he was VAT registered and taxed as self-employed, other conditions in his contract meant that an Employment Tribunal (ET) was entitled to consider him a ‘worker’, not an independent freelancer. So, he becomes entitled to certain employment rights, including paid holiday and sick leave, and the national minimum wage.

The Supreme Court’s verdict was based on the definition of ‘worker’ in Section 230(3) of the Employment Rights Act 1996 (ERA). The court was guided by ERA stipulations that as a worker, Smith would be obliged to perform his work personally for the respondent (Pimlico Plumbers), who would be neither his client nor his customer.

A previous ET had found that Smith only had a ‘limited facility’ to appoint a different Pimlico operative to undertake any work he had originally quoted for but no longer wanted to perform (for example, because a better-remunerated opportunity arose). Crucially, his contract contained no clear, express right to appoint a substitute, and indicated that he was required to perform work personally (for example, by references to ‘your skills’). Any substitution permitted was, in fact, merely “a means of work distribution between the operatives and akin to the swapping of shifts within a workforce”.

Contracting professionals, staffing agencies, and end-clients would do well to note the following: the Supreme Court is effectively saying that wherever a personal service is in reality required of a specific individual, a merely technical right to substitution which is effectively highly circumscribed and involves appointing people from a limited pool will not defeat a claim for ‘worker’ status.

The Court also found aspects of the contract that “strongly militated” against Smith relating to Pimlico as a client or customer. For example, the company exerted control over his attire, requiring him to wear a branded uniform, hold a Pimlico identity card, and drive a branded, tracked vehicle. It also imposed severe terms regarding pay which were “inconsistent with his being a truly independent contractor”.

On future IR35 determinations, the ruling underlines the need to assess each individual case on its facts. Of particular importance will be the specific terms that individuals are engaged on, especially concerning how substitution rights work in practice.

Recommended Posts

Leave a Comment