The Pimlico Plumbers judgment serves as a warning to businesses that employ flexible workers, according to employment law firms.

Gary Smith, a ‘self-employed’ plumber working for Pimlico Plumbers, took the company to an employment tribunal after he was dismissed following a dispute over working hours.

Pimlico Plumbers appealed the tribunal ruling, which found that Mr Smith, as a worker, was entitled to basic employment rights.

The Court of Appeal ruled in favour of Mr Smith, agreeing with the employment tribunal, setting precedent for future related cases.

“Following hard on the heels of the Uber and Citysprint gig economy cases, today’s judgment is a wake-up call for employers reliant on independent contractors as an integral part of their businesses,” said Naeema Choudry, partner at Eversheds Sutherland (International) LLP.

“A common confusion is to assume that workers treated as self-employed for tax purposes have no employment rights, such as paid holiday, pensions and the minimum wage. While that is true for those self-employed who genuinely run their own independent businesses, it is incorrect for a growing number of self-employed workers.”

These workers are typically subject to a greater degree of control by the business, are not allowed to send a replacement to do their work and are integrated into the organisation. For example, they are presented to the outside world as part of the organisation, such as wearing a uniform, and they are told when, where and how to do their work. The law says that this is not a contract between two independent business undertakings and, as such, the worker is entitled to the enhanced protection of some, but not all, employment rights.

“Given the growing number of tribunal claims in this area, and the accompanying negative publicity, employers need to review the employment status of their freelance and contracting workforce. The risk being that misclassifying a worker as an independent contractor may result in large financial exposure to unpaid holiday, pension and other entitlements, particularly where significant numbers of workers are involved,” Ms Choudry added.

Phil Pepper, employment partner at law firm Shakespeare Martineau, agreed, saying that the case brought by Mr Smith against Pimlico Plumbers further evidences that employers need to be crystal clear in their contracts of employment.

“In theory, the business model adopted by Pimlico Plumbers offers flexibility to both the employer and employee. However, employment practices cannot be left unregulated and rights of workers and employees cannot be ignored unless businesses are willing and ready to face the backlash of legal and reputational repercussions,” he explained.

“It is stark reality that the application of employment rights will often mean that companies are unable to adopt the agility needed to support their success. Regardless of the business structure, having a solid approach in relation to employment rights is crucial. Failing to comply with such regulations will not only result in penalties – it can impact brand reputation hugely.”

Employment status can change over time and discrepancies between contractual terms and working practices can surprise employers and open them up to liabilities. Companies must be alert to these changes, assess the risks and make an informed decision to act or ignore, Shakespeare Martineau recommended.

“To identify, assess and avoid risks associated with the use of self-employed individuals in future, all employers need to check that they are keeping robust records for all individuals that are kept up-to-date and that such records detail information such as regularity of work patterns, and substitution,” said Mr Pepper.

“Ideally employers need to be open and honest about the relationship they want to establish with each individual worker from the outset and make sure the correct agreement is struck at the start and maintained, and assessed appropriately.

“If employers choose to ignore the reality of the relationship and accept the risk, then they should do so with full knowledge of the implications.”