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Is the plug about to be pulled on the gig economy?

25 July 2018 by Lydia Newman

Is the plug about to be pulled on the gig economy?

Pimlico Plumbers’ case raises questions about how employment status is defined, while employers need to be mindful when dealing with sickness absence for employees with disabilities

In one of the most widely publicised employment law cases for some time, Pimlico Plumbers and another v Smith [2018], the Supreme Court confirmed Mr Smith was a worker and therefore entitled to employment rights. This long-running case will have many implications for employers.

Mr Smith worked as a plumber for Pimlico Plumbers (PP) for six years prior to suffering a heart attack. During this period, he described himself as self-employed and filled in self-assessment tax returns accordingly. He had not received holiday pay or sick pay, but was contracted to work a certain number of hours a week and provided with a company van.

Following his illness, Mr Smith requested a reduction in working hours, but this request was refused. He unilaterally changed his working pattern in dispute with PP and, subsequently, his company van was repossessed.

In 2011, Mr Smith brought claims for unfair dismissal, discrimination on the grounds of disability and unlawful deduction from wages for PP’s failure to pay sick and holiday pay.

Employment status

A key issue was Mr Smith’s employment status: whether he was an employee, a worker or genuinely self-employed. His employment status had significant implications on which claims he was able to pursue – for example, he must have been an employee to bring an unfair dismissal claim.

Through the lower courts up to the Supreme Court, it was found that Mr Smith was not an employee and therefore could not bring a claim for unfair dismissal.

Yet he was a worker and accordingly entitled to pay in line with the national minimum wage and holiday pay. This was despite his previous assertion that he was self-employed. The court’s reasoning is as described in Levy McCallum Ltd v Middleton [2005]: ‘If parties agree to create a horse but instead create a camel, the fact that they intended to create a horse is of little assistance in determining whether in fact it is a horse.’

Government action

In November 2017, the Business, Energy and Industrial Strategy (BEIS) Committee published a draft bill in response to the Taylor Review on employment practices.

The bill is designed to deal with the perceived unfair treatment of gig economy workers as a new category of self-employed contractors when the reality of their employment status does not reflect this.

The proposals are yet to be taken forward by the government but may appear in the next Queen’s speech.

Onus on the employer

It is clear that further legislation is necessary to clarify this area of law. As emphasised by the BEIS Committee, parties should not have to rely on the tribunal system to decide issues of employment status. Clarity in the law would enable all parties to achieve their overall joint aim of working together in a mutually beneficial relationship, without wasting time and financial resources in disputes over employment status.

Yet there is a danger the pendulum may swing too far in favour of the employee/worker in this instance, as it is proposed the onus will be on the ‘employer’ to establish employment status.

“The more control an ‘employer’ has, the more likely an individual will be found to have worker or employee status”

The matter of employment status currently has a significant impact on ‘employers’ affected by these issues, in terms of HR and risk management. It also proves to be an issue for corporate transactions, as it potentially has a huge impact upon assessment of potential liabilities.

This will be the case for as long as the issue of employment status remains unclarified. The perceived higher risk may impede fluidity in the corporate transactions market to the ultimate detriment of all parties and the economy as a whole.

The courts are focusing on the issue of control over individuals carrying out work. The more control an ‘employer’ has over an individual, including, for example, required working hours and the provision of equipment, together with an inability to use substitutes, the more likely it is an individual will be found to have worker or employee status.

Companies should therefore take this opportunity to carry out a review of working practices within their organisation to consider what, if any, risks may be apparent within the organisation. This is clearly a significant issue for businesses built upon the new gig economy.

Disability and sickness absence

Mrs O’Connor was employed by DL Insurance Services Ltd (DLIS). It was accepted she had a disability, as a result of which she had taken around 60 days’ absence in 2015–2016.

Although she was treated with some leniency, in 2016 she was given a written warning in relation to her sickness absence levels. One outcome of the warning was that DLIS’s responsibility to pay her contractual sick pay was rescinded. Mrs O’Connor brought a claim under the Equality Act 2010 for discrimination arising in consequence of her disability.

DLIS averred that the decision to give Mrs O’Connor a warning and the related withdrawal of contractual sick pay was objectively justified. This was based on the fact that the warning was designed to fulfil the legitimate aims of encouraging Mrs O’Connor to improve her attendance levels and ensure adequate attendance.

However, the Employment Appeal Tribunal (EAT) identified that in this case that DLIS had not shown evidence as to how the warning would achieve the aforementioned aims. Rather, DLIS had relied upon generalisations that such warnings satisfied the aims.

They had failed to liaise internally in relation to the impact the absence had on Mrs O’Connor’s work, and had not taken advice from occupational health in relation to her high level of absence – as required under their policies. 

DLIS had therefore been unable to show the application of their policy achieved the legitimate aims they had identified.

Proportionate means

Employers need to be mindful in circumstances where an employee has a disability and they need to be able to show any action taken under a sickness absence procedure is a proportionate means of achieving a legitimate aim.

Although the aims identified by DLIS were legitimate on the face of it, they had not shown the action taken against Mrs O’Connor was proportionate. Employers should be able to show evidence of discussions with the relevant individuals and that they have also explored where additional support could be offered by medical or occupational health professionals.

Although the EAT commented DLIS had provided a significant level of support to Mrs O’Connor, this was not enough to escape a finding of disability discrimination.

Sickness absence and/or capability procedures cannot and should not simply be imposed upon individuals who are known to have (or may have) a disability without fully considering the implications and risks of a potential claim for disability discrimination.

Lydia Newman is an employment solicitor

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