We’ve warned before about HMRC’s increasingly aggressive stance on the legal status of self-employed contractors. We’ve already seen cases being tested in court from both sides of the argument. Around 100 BBC presenters have had their self-employed status attacked, while “gig economy” firms like Uber have been caught in the “false self-employment” crackdown. Part of the problem is that the law being leant on for these challenges is years out of date. We’re seeing the tip of what might be a large and jagged iceberg, with case law precedents still being established, and these early shots could well set the tone for the entire battle to come.
The recent Pimlico Plumbers case is being seen as an attempt to clarify the murky legal waters a little. Having suffered a heart attack in 2011, plumber Gary Smith was hoping to drop his working hours. Pimlico said no and, Gary argued, essentially dismissed him. Pimlico’s argument was that Gary was entirely self-employed, and so not entitled to employment rights or sick pay. As of the current ruling in the case, which could still be overturned in the Supreme Court, that argument has been rejected.
While not a full employee, the legal system has ruled Smith to be a worker rather than a contractor. He wore a company uniform, drove a company van, worked fixed hours and couldn’t appoint someone else to do the work. It didn’t matter that he provided his own equipment or paid his taxes through the Self Assessment system. In legal terms, he ticked too many of employee boxes to be classed as self-employed. It took an Employment Tribunal and a trip to the Appeals Court to set things in stone but Gary’s point seems to have been made.
At the heart of it, this isn’t all that different from the Uber case that reached the same basic conclusion last year. While there have already been cautions from Judges not to read too much into the ruling, it’s difficult not to see the pattern forming. As more of these challenges bubble up, whether driven by workers themselves or by HMRC through employment status challenges, the dangers of an unprepared firm getting chewed up in the gears increase. If that happens, we could be looking at some unpleasant precedents getting set in the developing case law. HMRC, for its part, is looking to make examples of firms it thinks is abusing the new gig economy environment. It’s also, not coincidentally, hoping to net £1.5 billion a year in additional National Insurance contributions. The blunt, indiscriminate club of HMRC is being swung heavily in a lot of these cases, and it’s clearly having an effect.
None of this is to paint the firms using contracted labour as universally blameless, of course. Flexible workforces are becoming a huge part of the UK economy, and there are certainly abuses in the system. As new ways of working become popular, there are people getting stuck in the no-man’s land between employment and self-employment. They aren’t as much in control of their conditions as they ought to be as contractors, but they’re not getting the rights and benefits of an employee either.
As more of these cases are being resolved, attitudes are inevitably going to shift. Companies are likely to be a lot more cautious about taking on self-employed contractors, for one thing. We’re already seeing this in the public sector, with Transport for London reacting to the new shift in responsibility for applying the IR35 test by swearing off Limited Company contractors altogether. For industries like construction, with a largely self-employed workforce, that’s going to lead to some painful situations. Industries in general are going to need more of a “herd immunity” mentality, with HMRC making a point of setting the legal framework as early as possible. A lack of preparation from one firm in the face of a significant status challenge could affect a lot more than just its own future.
Facing a legal battle with workers or a status challenge from HMRC is painful, costly and time-consuming. Contact RIFT Legal Services to hear how we can keep you fully protected and compliant with the law.