On 13th June, the Supreme Court has confirmed that Mr. Gary Smith (“Smith”) should have been classed a “worker” rather than a “self-employed” contractor.

A “worker” is entitled to certain range of rights, including the national minimum wage holiday pay and protection from discrimination. Genuinely self-employed contractors have fewer legal rights, but enjoy the benefit of different tax treatment and the flexibility of working for themselves.

Smith has signed an agreement between Pimlico Plumbers (“Pimlico”) which stated that he was “an independent contractor of the Company”. There was also a company manual which referred to a 40-hour working week, although the agreement itself stated that there was no obligation to provide or accept work. The contract imposed various requirements including that he should drive a branded van with a tracker, wear a branded uniform, carry a Pimlico ID card, and follow administrative instructions from the control room.

Six years after having started work, Pimlico terminated its agreement with Smith. Smith claimed the worker’s rights (including claims for disability discrimination, holiday pay and etc). The Employment Tribunal and the Court of Appeal (“CA”) allowed his claim, so Pimlico appealed to the Supreme Court.

The CA focused on two key issues - whether Smith was obliged to provide his services personally, and whether Pimlico was a customer of a business operated by Smith. It decided that Smith was obliged to provide his services personally, as he had no unfettered right of substitution. The CA also concluded that Pimlico was not a customer of Smith’s business, as in practice he was obliged to work minimum hours.

The SC upheld the previous decisions. The SC said Smith was not free to use any substitute he wished. And in relation to whether Pimlico was a client or customer of a business operated by Smith, as there was tight control over Smith, including the requirements about branding, the van tracker, ID card and following instructions. In addition, the SC referred to severe terms about when and how much Pimlico were obliged to pay him (no payment until the client had paid Pimlico), as well as references in the contract terms such as “wages”, “gross misconduct” and “dismissal”.

This judgement implies that whether the individual is a “worker” or a “self-employed” contractor depends on the feature of the contract.

Regarding the legal status of an individual (whether it is a worker or a self-employed contractor), substantive content of the contract becomes an important criterion rather than the contractual formal wording. In the Pimlico case, there was a word “an independent contractor of the Company” in the contract. However he was recognised as a “worker”.

For both users and working people, it is important to conclude an appropriate contract while checking not only the formal aspect but also the substantial aspect of the contract.
For further information, please contact Koichiro Nakada – Head of Japan Business Group (koichiro.nakada@lewissilkin.com) and Yoko Nakada - Senior Associate, Deputy Head of Japan Business Group (yoko.nakada@lewissilkin.com).
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