A plumber has successfully defended his employment status in the Supreme Court, after Pimlico Plumbers failed in its latest attempt to overturn a tribunal outcome from 2011. The Supreme Court rejected an appeal from the plumbing firm, which had argued that respondent Gary Smith was an independent contractor during his time with the company.
Smith was dismissed by the firm in 2011, after requesting to work part-time following a heart attack. However, later that year, Smith succeeded in bringing claims against Pimlico for disability discrimination and basic workers’ rights. His eligibility for this hinged on the Court’s interpretation that he had been engaged as a ‘worker’, rather than self-employed.
The ruling looks likely to add clarity to the issue of employment rights within the gig economy. More significantly for contractors, it is also the latest in a succession of tribunal cases which have reaffirmed the flaws in HMRC’s interpretation of mutuality of obligation (MOO), and its Check Employment Status for Tax (CEST) tool.
Supreme Court ruling contradicts HMRC’s MOO position
The Court deliberated over whether Smith’s contract with Pimlico cast obligations on him during periods between work assignments offered by Pimlico, or only during his performance of these assignments.
In making their deliberation, Lord Nicholas Wilson and his colleagues referred to Windle v Secretary of State for Justice (2016), referencing Underhill LJ’s statement that: “a person’s lack of contractual obligation between assignments might indicate a lack of subordination consistent with the other party being no more than his client or customer.”
Lord Wilson ultimately upheld previous judgments, stating that, although Pimlico had no obligation to provide Smith with work on days where there simply wasn’t work available “it would seem hard to understand why, in the normal course of events, Pimlico would not be content to be obliged to offer work to him.”
Legal expert calls on HMRC to forget CEST
“The fact that the Supreme Court considered MOO alone reinforces the fact that CEST is not fit for purpose,” notes ContractorCalculator CEO, Dave Chaplin. “But the clear distinction made here between the ongoing obligations in an employment relationship and the temporary obligations in a contractor arrangement is what really buries HMRC.”
“The judgment reaffirms the crucial importance of MOO in determining employment status,” adds Martyn Valentine, director of The Law Place. “The Supreme Court’s judgment followed earlier judgments relevant to IR35, and specifically mutuality of obligation, such as Usetech, and is binding in lower courts.
“Therefore, HMRC’s policy of disregarding the question of whether sufficient mutuality of obligation for a relationship of employment has arisen is indefensible, and vulnerable to judicial review. It’s time for HMRC to forget CEST before it becomes a nightmare.”
Hattrick of rulings leaves HMRC with nowhere to turn
“Though, in this case, the intentions of the parties are reversed, with Smith defending his status as a worker rather than a contractor, the same rules apply when considering IR35,” comments Chaplin.
“This ruling is the third to emerge in a matter of months, which decisively refutes HMRC’s assumption that MOO is inherent in every engagement simply by there being a contract in place. This assumption underpins CEST and has subsequently resulted in thousands of public-sector contractors receiving inaccurate status assessments.”
Chaplin concludes: “The body of evidence proving CEST’s flaws is simply too large for the taxman to continue to ignore. The longer HMRC goes without acknowledging its mistakes, the more people will continue to call its integrity into question.”