Pimlico Plumbers: Supreme Court finds a self-employed plumber was a worker

Gary Smith was a plumber. He worked for Pimlico Plumbers for nearly six years under a contract that described him as an independent contractor, paid VAT, filed tax returns as a self-employed person and could reject jobs. Yesterday the Supreme Court held unanimously that he was a worker, with the rights to holiday pay and protection from discrimination that go with it, and dismissed the company's appeal.

The judgment, delivered by Lord Wilson, turns on two points that will be familiar to every contractor who has read an IR35 opinion. The first is personal service. Mr Smith's contract allowed him to swap jobs with other Pimlico plumbers, but not to send anyone else. The court held that a right to substitute limited to people already engaged by the same business is not a right to substitute at all; the dominant feature of the arrangement was that he would do the work himself.

The second is the relationship between the parties. Pimlico argued that it was Mr Smith's client, one among many that a self-employed plumber might serve. The court found that the company's control over him, from the branded van and uniform to the requirement to work a minimum number of hours and the restrictive covenants that bound him after he left, was inconsistent with a client relationship. He was integrated into the business. It was not his customer.

What it decides

The decision applies employment rights law, not tax. Mr Smith's status for tax purposes was never in question and is unaffected. The rights he has established are those of a worker, the middle category between employee and self-employed that the Taylor review last year proposed to rename dependent contractor. He can now pursue his claims for holiday pay and disability discrimination in the tribunal that first heard his case in 2012.

What the judgment does for the wider argument is confirm that a contract which calls someone self-employed does not make them so, that a substitution clause has to be real to count, and that control and integration are what the courts look at. Those are the tests HMRC applies under IR35, and advisers on both sides of that argument have spent the day reading the speeches for anything that helps them.

The reading for contractors

For the professional contractor with a genuine business, the case is not a threat and may be a help. Mr Smith lost on substitution because his right was illusory. A contractor whose company can and does send a substitute is in a different position, and the court's reasoning makes the distinction sharper. On control, the judgment reinforces what advisers have always said: the branded van is the giveaway, and so is anything that looks like a shift pattern.

For the engager, the case arrives four weeks into a consultation on extending the off-payroll rules to the private sector. Businesses that use contractors have been told by the Treasury that they may soon be responsible for deciding status for tax. The Supreme Court has just reminded them that they may already be responsible for it in rights. The two questions are answered by the same facts, and the answer can be expensive either way.

Every business that engages self-employed tradespeople on similar terms will now be reviewing its contracts. Whether the Taylor review's proposal for a statutory test would have made yesterday's outcome any more predictable is a question the government has yet to answer.