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The gig economy – another nail in the coffin?

June 2018

The U.K Supreme Court in its judgment of Pimlico Plumbers v Smith (June 2018), has confirmed once again that Courts will look behind the written contract and the designation of a person as a “self-employed” contractor, to determine if, in practical terms, the arrangement gives rise to an employment relationship, bringing into focus once again the topical debate and viability of the “gig economy”.

The gig economy gained momentum during the economic downturn and has created a distinct work environment. In simple terms, the idea is that companies work with “self-employed” contractors using an I.T. platform, to assist in providing a service to match supply with demand in a service area, and that person is paid per task (e.g., think food, Deliveroo; taxis, Uber; house rental, Airbnb; and so on). In theory this should be a “win-win” for both parties – the company saves on overheads and remains competitive by not becoming an employer with the associated costs, and the “self-employed” contractor maintains his/her independence and is free to work at will, when and where it suits him/her.

A number of recent high-profile judgments have examined the reality of these arrangements in practice and have found that the balance of the arrangements appears to be in favour of the company – that these “self-employed” contractors are in fact tied into onerous, employee-like obligations and arrangements that essentially puts them at the behest of the company. The Courts in turn have determined that by companies imposing these obligations on self-employed contractors, grants these contractors an employment status.

In the most recent of these decisions in Pimlico, Mr. Smith was working as a self-employed contractor with Pimlico Plumbers when he suffered a heart attack. He approached the company and proposed that his working hours be reduced in order to aid his recovery. This proposed reduction in hours was rejected by Pimlico and Mr. Smith lost access to a company van and subsequently was dismissed.

Mr. Smith brought a claim for unfair dismissal and the debate arose as to whether he was an independent contractor or a “worker” under the relevant legislation (under UK law there are two types of workers – limb a) an employee with full employment rights and, limb b) workers with more limited employment rights due to nature of their position. In Ireland, there is currently no distinction between employee and worker).

The Court concluded that whilst Mr. Smith was not an employee for the purpose of succeeding in an unfair dismissal claim, it was held that he was in fact a “worker”. In coming to this conclusion, the Court heard that Mr. Smith was able to reject jobs, negotiate his pay and decide his own working hours. Seemingly, Mr. Smith enjoyed all the freedoms of being self-employed, yet the Court of Appeal held that he was in fact a worker due to the following factors:

  • He was obliged to use the company van;
  • He was obliged to carry out the work personally (with a limited right of substitution);
  • He had a minimum number of hours that he had to work each week.

Pimlico Plumbers appealed the decision to classify Mr. Smith as a worker to the Supreme Court. However, the Supreme Court dismissed Pimlico’s appeal. Reiterating what the Court of Appeal had decided, the Supreme Court gave significant weight to the level of control Pimlico were exercising over Mr. Smith. This included him having to wear a Pimlico branded uniform, to drive a company van with a tracker in it and the possibility of being subjected to disciplinary procedures. It was also written into his contract that he be available to work for 40 hours a week, even though Pimlico had no obligation to ensure he had work. The Supreme Court remarked that these “severe terms as to when and how much it was obliged to pay him, on which it relied, betrayed a grip on his economy inconsistent with his being a truly independent contractor”.

Similarly, in the Irish jurisdiction, the Courts will look behind a service contract to determine the reality of the situation and will have regard to a variety of factors such as the degree of control a company exerts over the working conditions; to which party the financial risk falls; and the obligation of personal performance on behalf of the worker.

The Pimlico decision is a reminder to companies who utilise self-employed contractors to review the contracts of service it has with its contractors to ensure an appropriate level of flexibility, with the following questions in mind:

  • What level of control does the business hold over this arrangement?
  • Who pays the taxes?
  • Who holds the risk?
  • Who has responsibility for maintaining the equipment?
  • Does the company instruct the contractor how to carry out their job?
  • Are there any penalties imposed on the contractor on a gradual basis for non-performance that is akin to a disciplinary procedure?
  • Does the contractor have a right to substitute who carries out the work?

The recent case law in this area is united in terms of its message, companies wishing to capitalise on the flexibility of the gig economy will not be able to have the best of both worlds – working conditions should be flexible to allow a contractor to be truly independent, or if the company wishes to exert control over the contractor carrying out the work, they run the risk that the self-employed contractor may be deemed to be an employee of the company.

For more information, please get in touch with your usual Whitney Moore contact, Marie Claire Scullion or and member of our Employment, Pensions and Immigration team.