Subcontractor or Employee?

14 Feb 2017

Pimlico Plumbers and the potential for property damage liability to rest in unexpected places

Pimlico Plumbers Ltd & Charlie Mullins v Gary Smith [2017] EWCA Civ 51

Caroline Kane sheds light on an appeal from the Employment Tribunal to explain why contractors and their insurers should be paying close attention to recent rulings defining the status of employees and the potential for findings of vicarious liability in respect of a subcontractor.

The facts

Gary Smith carried out plumbing work for Pimlico Plumbers between 2005 and 2011.  His work was governed by agreements and a working practice manual that operated so that to Pimlico Plumbers and Mr Smith, Mr Smith was a self-employed contractor, but to Pimlico Plumbers’ customers, Mr Smith was a Pimlico Plumbers employee; he was required to buy and wear a Pimlico Plumbers uniform; was to drive a van with a Pimlico Plumbers logo; and was to be provided with a Pimlico Plumbers ID card. He worked a 40 hour week over five days exclusively for Pimlico Plumbers and he could be substituted by another Pimlico Plumbers worker on any job.

Mr Smith claimed that he was an employee of Pimlico Plumbers and that following a heart attack in 2011 he was unfairly or wrongfully dismissed and discriminated against on the grounds of his disability.  Pimlico Plumbers’ position was that he was self-employed.

Section 230 of the Employment Rights Act 1996 (“ERA”), defines an “employee” as working under a contract of employment and a “worker” as working under any other contract by which an individual undertakes to do or personally perform any work or services for someone who is neither client nor customer. The definition of worker can encompass an employee but not all workers are employees.  The key distinction is between an independent subcontractor doing work for its own clients or customers, and the definition of either worker or employee, both of which confer protective rights by virtue of the provisions of the ERA.

The crucial issues to be determined here were whether Mr Smith was an employee of Pimlico Plumbers; whether he was a worker of Pimlico Plumbers or that he was, alternatively genuinely self-employed on his own account.

The decision

The Employment and Employment Appeal Tribunals had found that whilst Mr Smith was not an employee, he was a “limb B worker”, a person who is self-employed but provides their services as part of a business undertaking carried on by someone else.  This meant that he could not claim for unfair or wrongful dismissal, but could claim for discrimination.  Pimlico Plumbers appealed arguing that he was neither an employee nor a worker – they continued to maintain that he was self-employed.

The Court of Appeal agreed with the decisions of the lower tribunals and dismissed the appeal, noting that Mr Smith’s obligation to perform the contracts personally; to work 40 hours per week; to hire a van with a Pimlico Plumbers’ logo (the rental of which was deducted from his salary) and to use a mobile phone (the monthly tariff of which was also deducted from his salary) all influenced the finding that he fell within the definition of “worker” However, he was not an employee.

What does this mean for you?

We are looking here particularly at cases of property damage caused by a contractor, or more usually, by a subcontractor several steps down the chain from the claimant, such as a claim for fire started by a faulty electrical wiring fitted by a subcontractor to the maintenance contractor, who in turn has contractual obligations to the property owner.

Where a subcontractor works exclusively for one contractor it seems that the line between contractor and employee can become increasingly blurred, and the nearer that a contractor gets to becoming an employee, the greater the chance that liability for their actions might rest with their unknowing employer, rather than being passed on down the chain of subcontractors. This approach was underlined by the Supreme Court decision last year in Cox v Ministry of Justice [2016] UKSC 10, which determined that the Ministry of Justice was vicariously liable for the actions of a prisoner working in the prison kitchen, notwithstanding the complete absence of a contract of employment.

Both main contractor and subcontractor need to be very clear about the capacity in which they are working to avoid surprises when it comes to liability for damage. Insurers will also want to ensure that they are aware of any potential for their insureds to have unintentionally employed staff they believed to be subcontractors. A review of the insurance arrangements in place would be well advised as the definition of what constitutes an employee increasingly comes under the microscope and there are challenges to the boundaries of vicarious liability.

This is an area of law that is coming under repeated consideration by the courts and one that we continue to monitor with interest. Ultimately the finding here was that Mr Smith was not an employee. Had he caused a flood for failing to properly fit a tap the prospects are that Pimlico Plumbers would have a good argument that  it was not vicariously liable for the ensuing damage. That said it was a hard fought dispute with factors for and against and in a civil claim brought by a third party for damage consideration might have been given to a contribution to settlement given the uncertainty. The approach to these claims will need to keep pace with what is very much an evolving picture.

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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