Important ECJ decision opens up the possibility of valuable retrospective holiday claims

I have written in this blog on many occasions about the importance of getting it right if you are going to treat all or part of your workforce as self-employed, rather than as fully fledged workers or employees. As you may recall, the Pimlico Plumbers case earlier this year ruled in favour of the claimants, finding that they were workers rather than being “fully” self-employed and therefore entitled to holiday pay and other benefits. The issue has been a hot topic throughout 2017 with the Uber and Addison Lee cases for example showing a willingness on the part of the courts to find that there was an employment relationship where, previously, there was assumed not to be.

But what basis should be applied for calculating losses if an entitlement to retrospective holiday pay or other benefits is established. The normal cut off point for calculations is six years, since this is the time limit for claims based on breach of contract. However, the entitlement to paid holidays arises under the EU Working Time Directive and this has a statutory footing.

This issue was recently considered by the Court of Justice of the European Union (CJEU/ECJ) and judgment was delivered in the case of King v The Sash Window Workshop Limited and Dollar on 29 November. Mr King had started working for Sash Window Workshop (“the Company”) in June 1999 on a “self-employed commission only contract”. He continued to work for the Company until his retirement in 2012. He took numerous holidays during the 13 years that he worked for the Company, but was not paid for them. Following his retirement he asked to be paid all his holiday pay for the entire period of his engagement. Unsurprisingly, the Company refused.

Mr King took his claim to an employment tribunal which held that there were in effect three types of holiday claims: (i) holiday pay for 2012-13 accrued but untaken when he left, (ii) holiday pay for leave actually taken but in respect of which no payment was made and (iii) pay in lieu covering accrued but untaken leave (amounting to a further 24.15 weeks). The tribunal found that Mr King was a worker (within the meaning of the statutory definition – see the Pimlico case) and therefore ruled in his favour in respect of all three.

The Company appealed to the Employment Appeal Tribunal.

Deliveroo makes changes to contracts for UK Couriers

Following on from my colleague Martin Malone’s article back in March, takeaway delivery Company Deliveroo have now removed the clause in their self-employed courier’s contracts (or ‘supplier agreements’), which stated that the couriers would not be permitted to challenge their self-employed status at an Employment Tribunal.

New contracts (which are now just four pages long) have been distributed to the couriers,  and confirm that they can work for other businesses and no longer need to provide two weeks’ notice to terminate their contract with Deliveroo.

Dan Warne, Deliveroo UK MD, provided the couriers with a letter by way of further explanation, which stated the following:

“We know that many riders work with other companies as well as Deliveroo, including our competitors. That is fine with us: as an independent contractor you are free to work with whoever you choose and wear whatever kit you want.

“There continues to be no requirement to wear Deliveroo branded kit while you work with us, but please make sure that whatever you wear while riding means that you are safe and visible to other road users.

“This new simple supplier agreement for riders makes it easier than ever to work with Deliveroo. It makes clear that our riders are able to log in to work with us whenever they want – allowing them to fit their work around their life rather than their life around their work.”

The changes have been made following criticism from the House of Commons Work and Pensions Committee, who advised that companies such as Deliveroo, Amazon and Uber, deprived workers of their rights with the wording of the contracts previously utilised.

The distribution of the new contracts also came less than a day after the leak of Labour’s draft manifesto, which contained a proposal for the ‘gig economy’ to assume workers are employees unless proven to the contrary.

Pimlico Plumbers and the definition of a “worker”

As I mentioned in last month’s newsletter, an important judgment concerning the status of workers was handed down by the Court of Appeal on 10 February, namely Pimlico Plumbers Limited and Mullins -v- Smith. The decision was regarded as significant enough to make it on to the national news bulletins and Newsnight, as well as widespread coverage in the press.

Mr Smith is a plumber who worked exclusively for Pimlico Plumbers between August 2005 and April 2011. He claims that, following a heart attack in January 2011, he was wrongfully dismissed in May 2011. According to his initial agreement with Pimlico Plumbing he was a “sub contracted employee”. The contract also stipulated that he had to wear a Pimlico Plumbers uniform, work for five days a week (a minimum of 40 hours), give notice of annual leave and be available to take on-call work. There was a ban on undertaking what was described as “private work”, breach of which would lead to instant dismissal. The contract also provided for payment of “wages”.

The initial contract was replaced with a longer and more detailed contract in 2009, which was entitled “Agreement – Self-Employed Operative”. Mr Smith was required to provide his own tools and equipment and he had to pay his own expenses. He also had to maintain adequate public liability insurance. Sub-paragraph 6.1 of the contract stated:
You are an independent contractor of the Company, in business on your own account. Nothing in this Agreement shall render you an employee, agent or partner of the Company and the termination of this Agreement (for whatever reason) shall not constitute a dismissal for any purpose.
Following the termination of the 2009 contract, Mr Smith lodged an employment tribunal claim, complaining of unfair dismissal, wrongful dismissal, entitlement to pay during medical suspension, holiday pay and arrears of pay. He also claimed direct disability discrimination, discrimination arising from disability and a failure to make reasonable adjustments on account of his disability. At a pre-hearing review Judge Corrigan determined that Mr Smith was not an employee. There were circumstances set out in the contract in which Pimlico Plumbers did not have to pay Mr Smith such as when an invoice was unpaid after six months; he had to rectify problems at his own cost; the understanding of the parties that he was self-employed, both for employment and tax purposes, and that he was VAT registered.

However, Judge Corrigan went on to find that he was a ‘worker’ within the meaning set out in section 230 of the Employment Rights Act 1996:

Is a district judge entitled to whistleblower protection as a worker?

The traditional perception of a judicial appointment is that it brings with it generous terms of employment as well as very valuable pension arrangements on retirement.

While that might have been the case for many years, it is most certainly not the current position and senior judges have expressed concern about the impact on morale and recruitment. Judges at all levels are being required to deal with increased workloads, archaic IT and the challenges presented by a large increase in the number of unrepresented parties, as a result of severe restrictions on the availability of Legal Aid. If that were not enough much higher small claims limits, below which most legal costs are not recoverable, have priced many people out of being able to afford professional legal representation so cases are less well prepared and the guiding hand of a professional who might advise terms for settlement is absent.

While recent decisions seem to have applied a wide interpretation to what working terms are sufficient to establish employment rights as a worker (for example see last month’s Uber case), the opposite is the case as far as district judges are concerned. In Gilham v Ministry of Justice the Employment Appeal Tribunal (EAT) was asked to consider whether, in addition to being an office holder, District Judge Gilham was also a worker and therefore entitled to protection from whistleblowing.

I will not repeat what is required in law to be considered as a worker because I dealt with this last month when reporting the Uber case. In the employment tribunal the judge found that:

District judges are appointed by the Queen on the recommendation of the Lord Chancellor, are paid a salary as determined by the Lord Chancellor (which may be increased but not reduced) and are assigned to areas (circuits) by the Lord Chief Justice.
District judges hold office to the age of 70. They can only be removed for misbehaviour or inability to perform their duties (the latter only with the concurrence of the Lord Chief Justice).
Their judicial role, functions and authority are prescribed by statute and rules of procedure made under statutory authority.
Their terms of service are set out in memoranda issued by the Lord Chief Justice from time to time.
The memoranda cover such matters as allocation of work, deployment, wellbeing and training ad general advice and direction.

The Lord Chief Justice therefore has responsibility for and control over the activities of district judges.

Ms Gilham was appointed as a salaried district judge in January 2006. She was assigned to the Crewe County Court and subsequently sat at Warrington County Court. The offer of appointment letter referred to “terms of service” but there was nothing to indicate the creation of a contract or which referred to employment.

Uber and the “gig economy”

I have been writing about employment status since this blog started a number of years ago. One of the most widely reported cases dealing with the issue was published last week in Aslam, Farrar and others v Uber B.V., Uber London Limited and Uber Britannnia Limited. As most readers will know, Uber is a controversial transportation system which provides app based bookings for private hire taxi journeys. It operates in 66 countries and 507 cities. There are some 30,000 Uber drivers operating in the London area. Uber B.V. owns the smartphone app. Uber London Limited is a licensed private hire operator and Uber Britannia holds licenses for district councils outside London.

At a case management hearing in 2015 two “test claimants” were selected for a preliminary hearing to determine the question of their status in the context of employment law protection (the action was backed by the GMB union). They claimed that, as workers, they should receive the minimum wage and be entitled to paid holidays as well as protection from whistle-blowing. Uber contended that they were independent contractors and not workers, and therefore not entitled to the rights claimed. The preliminary hearing took place over five days between 19 July and 12 October 2016, with the decision published on 28 October. The tribunal summarised how the Uber system operates. Passengers register their information on the app, including credit or debit card details. Once registered they can request journeys by using the app. They do not have to state their destination but, if they do, they may choose to receive a fare estimate. Uber then locates the nearest available driver and notifies him of the passenger’s first name and rating (drivers and passengers can be rated on the app). He then has 10 seconds to accept the trip or it is offered to the next best matched driver. If accepted the driver is put in phone contact with the passenger to agree the pick-up location and advise about any delays but he is strongly discouraged from asking about the destination until he has picked up the passenger. Once the passenger is picked up the app specifies the route to the destination and this must be followed unless the passenger indicates otherwise. Once the journey is complete the driver confirms accordingly on the app and is then placed back in the pool of available drivers. The passenger pays via the app and the Uber software then generates what appears to be an invoice from the driver to the passenger. The driver is paid weekly based on the fares earned, less a service fee which is usually 25%.

Who does a vicar work for?

Every now and then the very different worlds of ecclesiastical and employment law overlap, particularly in the context of considering employment claims by the clergy.

In 2011 a female Methodist minister won the right to bring a claim for unfair dismissal since she was held to be an employee of the President of the Methodist Conference. However in 2013 another case concerning a Methodist minister resulted in a decision of the Supreme Court (by four to one) that ministers are office holders and, as such, not employees. The case and its background were analysed by barrister Emily Walker.

The thorny question fell to be considered once again in the recent case of Sharpe v The Bishop of Worcester in which Reverend Sharpe sought to maintain a claim for constructive unfair dismissal after a campaign of victimisation. Reverend Sharpe lost his claim against the Bishop in the employment tribunal on the basis that he failed to meet the threshold tests (for eligibility to bring a claim). However he was successful on appeal to the Employment Appeal Tribunal and, from there, the matter found its way to the Court of Appeal.

Lady Justice Arden noted that the Church of England is not a legal person but it and its officers are governed by ecclesiastical law, including canon law. The office of rector or vicar in a particular parish is known as a benefice which carries with the freehold interest in the parsonage house. Pursuant to The Ecclesiastical Offices (Age Limits) Measure 1975 vicars have to retire at the age of 70. They may also be removed as a result of disciplinary proceedings. Appointment of vicars is made by patrons of the parish pursuant to a right known as “advowson”. Mr Sharpe was offered his appointment in October 2004. Following his appointment he was provided with “the Bishop’s Papers” containing information and advice “on matters spiritual and temporal” including his stipend, other financial matters, information about taking holidays and sick pay. However the Bishop was not in the practice of issuing instructions in the sense of an employer or a line manager.

Taking these and other features into account the employment tribunal concluded that there was no formal contract, let alone an employment contract. The appeal judge in the Employment Appeal Tribunal effectively reached on opposite conclusion based of the same facts. There were numerous indicators of an employment relationship, sufficient for one to be established. Having considered the evidence in considerable details Lady Justice Arden admitted that her mind wavered between both interpretations. She also referred to the Magna Carta, noting that its very first clause provides that the English Church should be free. “That would, I think, include freedom of thought and conscience for individual incumbents, free from interference by parishioners or the Church’s hierarchy.” She accordingly concluded that there was no employment contract between Reverend Sharpe and the Bishop. Similarly, there was no contract and he could not therefore be regarded as a worker.

LLPs in full retreat in face of HMRC crackdown

Last month I reported on the plans by HMRC to remove self-employed status from fixed-share partners in limited liability partnerships or LLPs, a business structure frequently used by accountants and solicitors.

The issue has become very pressing for those affected since it now seems very likely that the rule changes will come into effect this April. That leaves very little time for organisations to conduct thorough overhauls of their business structures and, in many cases, to come to terms with renegotiating key terms with senior employees. Further, if self-employed status is to be maintained, fixed share members are facing up to the prospect of having to meet significant cash calls.

Accountants such as Baker Tilly have warned that the new rules “will be far harsher than originally expected”. Even those contemplating hasty changes may be caught out since tax specialists have advised that sudden injections of capital may be seen by HMRC as tax avoidance.

Details are emerging of the steps being taken. Law firm Weightmans has confirmed that its fixed share partners are not currently required to make capital contributions and thereby to share the risk of ownership. As a result they have commenced consultations with those effected which are due to conclude at the end of January.

Trowers and Hamlins is another firm that has commenced consultations. Their senior partner has confirmed that one option under consideration is to ask for increased capital contributions by way of a cash call.

is a zero hours contract one of employment or self-employment?

News about zero hours contracts continues unabated. After I reported last month that the Chartered Institute of Personnel and Development had conducted research suggesting that many people are happy with zero hours contracts, Vince Cable has performed the sort of volte face that seems to come easily to politicians by announcing that the crackdown on zero hours contracts that he had championed just weeks earlier will not now take place. However there is to be a Government consultation.
In G4S Secure Solutions (UK) Ltd v Alphonso the Employment Appeal Tribunal has looked at what amounts to a zero hours contract in the context of procedural issues as to whether a claim was in time or not and whether the appeal could proceed despite having the employee failed to comply with the Tribunal’s orders. As I have mentioned before zero hours contracts are not defined in statute and it is therefore unsurprising that we have seen a rash of cases dealing with legal issues concerning their operation in practice.
Mr Alphonso originally started work as security guard for G4S in 2002. In 2011 he asked to move to a zero hours contract for personal reasons; this was agreed and put in place on 14 November that year. He was thereafter offered work twice, but then in May the next year he was sent his P45. It was automatically generated because he had not worked for three months and his screening for suitability to work as a security guard had expired. He presented a claim for compensation for unfair dismissal. The question was, when did he stop being employed – when he received his P45, or when he transferred to a zero hours contract? G4S said his zero hours contract meant there was no obligation to offer work, or for him to take it, so it was not an employment contract but a self-employed arrangement.
Unsurprisingly the Employment Appeal Tribunal held that it was not as simple as that.

disguised employees: they’re not as smart as they’d like to think they are

Last May I commented on the Queen’s Speech and the removal of the presumption of self-employed status in LLPs. I pointed out at the time that almost invariably fixed share partners in LLPs were, in reality, employees in all but name so that there was little point in LLPs continuing to pretend otherwise.
Notwithstanding (occasionally convoluted) protests from leading accountancy firms, particularly those that championed such arrangements, details of the crackdown have now emerged in the form of draft legislation published by HMRC. According to detailed guidance notes the changes are likely to affect “Individual members of a limited liability partnership (LLP) who work for the LLP on terms that are tantamount to employment (‘salaried members’) and LLPs that have salaried members”. The objective is to make the tax system fairer by ensuring that employment taxes are paid by LLP members who are essentially employees and, significantly, the LLP employer – consequently liable for 13.8% Employers’ NIC contributions.
There is a three-fold test.
the disguised salary condition
Disguised salary means remuneration which is either fixed (as in many cases) or not affected to any material extent by the profits and losses of the business. What is a material extent? This condition will be satisfied unless at least 20% of the overall remuneration is directly related to the profits and losses of the business as a whole. Consequently individual or team performance incentives will not satisfy this condition.
the influence condition
In order to avoid the presumption of employed status the member must be able to exert “significant influence over the affairs of the partnership”. What this means in practice is likely to lead to a good deal of litigation but one would expect that this will catch many fixed share members, particularly in larger organisations.
the capital contribution condition
Under many current arrangements fixed share partners are liable to make only nominal capital contributions and these are sometimes covered by adjustments to drawings so that it is not necessary to make any capital payment at all from outside resources. In order to make the idea of capital contribution meaningful the third condition requires that in order to avoid the presumption of employment status, a member must contribute an amount equivalent to at least 25% of their remuneration. Consequently remuneration of £100,000 would require a capital contribution of £25,000. Furthermore this is an annual requirement so any increase in pay will require a corresponding 25% increase in capital contributions.

is it a contract of employment or not?

What are the essential characteristics of a contract of employment? This much discussed topic has been the subject of a great deal of judicial scrutiny in recent decades. Various tests such as “master and servant” and the “control test”, as well as characteristics such as “mutuality of obligation” and the “requirement for personal service” have jostled for supremacy and the topic continues to keep the courts busy.
One of the latest such cases, Troutbeck SA v White & Anor concerned a situation in which an employer had little day to day control over their employees’ work. Although many might regard this as a failure of one of the key tests the Court of Appeal found that the lack of control was no obstacle to there being an employment relationship. Troutbeck employed a couple to look after a small farm in Surrey which it had bought as an investment, and as a holiday retreat for its Nigerian owners. The parties entered into a written agreement which described the parties as employer and employee, provided that the couple (who also had other jobs) should live on site and set out what they would be paid. No tax or NI contributions were ever deducted from their pay. However, those familiar with employment law know that the definition of “an employee” for tax purposes does not necessarily correlate with being an employee for employment law purposes. The couple were very much left to decide for themselves how to go about running the farm. In due course Troutbeck decided to sell, and served notice. The couple claimed unfair dismissal and unpaid wages. Troutbeck denied that there was an employment contract.
The Employment Tribunal dealing with the case decided that the lack of day to day control meant there could not be a contract of employment. Both the Employment Appeal Tribunal and Court of Appeal found this to be wrong in principle. Sir John Mummery, who delivered the lead judgment in the Court of Appeal, asked the pertinent question of Troutbeck – if it is not a contract of employment then what is it? It was contended that it was a “commercial contract”. Remuneration was described as a “personal allowance” and in addition to describing the respondents as “employees” the document itself was described as “an employment agreement. While there was a low level of control, it was not completely absent and the Tribunal should have looked at all the facts in the round.