Contractors may be entitled to pensions after Pimlico decision

The UK's highest court ruled this week that a plumber engaged as an "independent contractor" by London firm Pimlico Plumbers had 'worker' status, which entitled him to certain employment rights under the Employment Rights Act (ERA) and Working Time Regulations. Although the judgment did not directly consider the issue of pension rights, all 'workers' are generally entitled to a workplace pension under pensions law unless they fall outside certain age and earnings requirements.

"This means there are risk, budget and administration implications for gig economy employers and those who use self-employed contractors," said pensions law expert Tom Barton of Pinsent Masons, the law firm behind Out-Law.com.

"Such employers need to think carefully about their contracts, and working practices, with contractors and those operating in the gig economy – and whether the reward package needs to take account of a mandatory employer pension contribution," he said.

Plumber Gary Smith was engaged by Pimlico under a contract which described him as an 'independent contractor'. He was dismissed by the firm after seeking a reduction in working hours following a heart attack.

The Supreme Court, in a unanimous decision, found that Smith's contract met the test for 'worker' set out in the ERA, which requires that an individual "perform personally any work or services for another party to the contract who is not a professional client of his". The decision does not mean that every individual working by way of a 'gig economy' model will automatically be classed as a worker, although the government is currently revising the legislative tests of employment status as part of its response to the Taylor Review of modern working practices.

Barton explained that whether or not a particular individual would be classed as a 'worker' "comes down to employment law principles".

"The 'gig economy' creates a new context for those employment law principles but, ultimately, if an individual is a worker then workplace pension entitlements will follow," he said.

"In recent months, The Pensions Regulator has used fines, penalties and criminal sanctions to make sure all employers comply with these workplace pension requirements. Non-compliance is not an option. That doesn't just mean correcting things for the future; it can mean correcting the past too. The cost of backdating pension contributions over a period of years can be significant - and even establishing what that cost is can be complicated," he said.

All employers, regardless of size, are now required to automatically enrol all workers aged 22 or over who meet a minimum earnings threshold into a defined contribution (DC) pension scheme which meets certain minimum requirements. They must also make contributions towards the pensions of workers that do not opt out of the scheme once enrolled.

Pensions expert Tom Barton said that the decision in the Pimlico Plumbers case was "a good prompt for employers generally to revisit pensions terms in staff contracts".

"It's not unusual to find such contracts say rather too much about auto-enrolment, hard-coding higher rights into contracts than would generally exist in law," he said. "It's also not unusual to see schemes, scheme types and contributions all specified in contracts, which can make even routine future changes more difficult than they need to be."

"There's really no need to say much at all about auto-enrolment in employment contracts since the law applies regardless and workers will need to be informed of their statutory rights through separate mandatory communications," he said.