A decision by Britain's highest court to rule in favour of a gig-economy employee has been described as a "warning shot" to employers.
The Supreme Court has ruled in favour of plumbing and heating engineer Gary Smith who had argued he was entitled to workers' rights, despite employer Pimlico Plumbers classing him as self-employed.
The court ruled that it was "entitled to conclude" that Smith, who had worked solely for Pimlico Plumbers for six years until 2011, was a worker.
Legally "workers" are not entitled to the full range of benefits awarded to full-time staff, but should receive holiday and sick pay.
While acknowledging that Smith was able to refuse work, the judges found that the terms of his contract "betrayed a grip on his economy inconsistent with his being a truly independent contractor", including the requirement that had a branded uniform and car.
Commenting on the impact of the ruling for employers, Jonathan Rennie, partner at UK law firm TLT, said: "The judgement highlights the ‘regrettable' complexity of this area of employment law but also, and perhaps more importantly, how easy it is for employers to take the wrong approach when trying to address their employment relationships.
"In examining the reality, the court took a ‘checklist' approach, which provides employers with useful guidance as to the features of a working relationship that could be used to determine whether or not someone is a worker or self-employed.
"The court also helpfully clarified that when it comes to the degree of ‘personal service' as a test for employment, Mr Smith was a worker and not self-employed, even though he was allowed to substitute himself for someone else even if he wasn't sick, for example.
"Secondly, the fact the Pimlico Plumbers lost its appeal and the risk that decisions against employers could apply to all workers immediately and automatically, should make employers more concerned about reviewing and updating their contracts and working relationships in light of modern working practices and employment law before it is too late."
Michael Ryley, a partner at Weightmans LLP, said today's ruling is confirmation of a trend of cases going against employers who brand those working for them as self-employed.
He said: "These relationships frequently lack the genuine characteristics of an independent relationship and, once these individuals are reclassified by the courts as ‘workers', the cost to the business rises because the minimum wage, paid holiday and pension contributions come into play amongst other costs.
"A clear message from the court in this case is that they are going to look behind the wording of contracts to the reality of the situation. Businesses are not going to be able to rely on cleverly drawn documentation and imaginative business models if the practice looks rather different. So businesses must look to adjust their operating arrangements and not seek to pull the wool over the eyes of the courts with how they describe a relationship.
"Unwritten understandings are particularly dangerous - expectations that individuals will be available, requirements to work a certain number of hours each week and the like - these can found an umbrella contract which ties them to the business more closely.
"It is a requirement of worker status that individuals deliver the work themselves - so substitution clauses are often written into contracts to show that there is no requirement for personal service. The court has made it clear that these must be genuine and unfettered if they are to work. Consequently there is a tension here for businesses who want to reassure their customers that their staff are accredited/verified. That becomes increasingly difficult to achieve with truly independent staff. Likewise the requirement for branding - Pimlico Plumbers required these individuals to wear branded uniform and to drive branded vans - will tie the individuals more closely to the business."
He added: "The onus is now on businesses to either show some honesty in these relationships and to bear the cost, or to loosen the reins and to create a pool of individuals who are genuinely independent."