employment law

Deep diving the potential Employment Law and Workers’ Rights case between David Lockwood vs. Sharps

So Nick, today we’re talking about the case of David Lockwood vs. Sharps. We’ve written an article about it already, but you probably put it best when you said it seems like a case of deja vu. Can you give us the top line of what’s happening between Mr. Lockwood and Sharps?

Yes, it’s a case that isn’t a case, if we are being perfectly honest. Whilst the details reported by The Guardian are all around a potential Employment Tribunal, where the gentleman concerned is challenging Sharps over his Employment Status, it’s actually a review of a potential claim being brought and championed by Leigh Day Solicitors, who rather grandly describe themselves as “lawyers against injustice.”

Now, given that we are going to have an election this year, and given that the case – or alleged case – is reported in The Guardian, it rather sounds like the opening salvos of the traditional left vs. right campaign, and the argument over Employment Status that always comes around with an election. So whilst it may well lead to an employment tribunal – and The Guardian has set out in quite clear terms their view that Mr. Lockwood is in fact, or should be treated as a worker, and this case could have significant impacts on Employment Status – the truth is that it hasn’t even been presented to a tribunal yet! So it’s nothing more than pre-election rhetoric and a bit of sabre-rattling from the left, which may well lead to more pressure on – let’s face it – a probable Labour government into reviewing the whole area of Employment Status yet again. indeed, Rachel Reeve, shadow Chancellor has already pledged that within the first 100 days of a Labour government they will implement the policies of their recently published green paper (another) “New Deal for Working People”. As ever, the devil will be in the detail.

Taking the situation as is though, it does serve as a good reminder: it’s not the first case of its kind that we’ve seen around worker status. Some of the questions that are being asked are similar to that of famous cases like the Pimlico Plumbers. Looking at some of the particulars of Mr. Lockwood’s situation, one of the things he’s saying is that he was being presented to customers as a Sharps employee. This is an example of one of the things HMRC could be looking for. Is that right?

Yes, but don’t forget, there are two areas of Employment Law: one for Employment Rights where this case will sit and the issue of Employment Status for taxation purposes, which is what we focus on the from the Revenue perspective. That’s where much of the recent publicity surrounding IR35 has been, around the Revenue side of the argument. As I say, this potential case sits entirely in the Employment Rights side of the argument and the problem that Sharps have is that they may well have presented the gentleman concerned as being part and parcel of their organisation, and as we have discussed on numerous occasions before, you have to be able to demonstrate a clear demarcation with how you use a self-employed individual within your business, and how you operate with your employees.

At risk of repeating ourselves, if it walks like a duck, quacks like a duck and swims on a pond, then it’s probably a duck! If Sharps presented Mr. Lockwood as an employee of the company i.e. if he wears a uniform; if he operates under their direction and control, then Sharps have been guilty of treating him as an employee and therefore he should be treated as such across the board rather than Sharps having their cake and eating it. So it’s always a case that you have to have clear blue water between how you operate with your employees and your self-employed sub-contractors.

As you said, it’s a case that isn’t a case just yet so Sharps haven’t had an opportunity to say ‘this is our clear demarcation in how we deal with Mr. Lockwood versus our own employees, but again, these are reminders for everybody about those proactive measures that you can take as a company to say, ‘this is how things are different; this is how we treat different individuals –

You’re entirely right, and it’s also a reminder of how easy it is to fall into the trap of treating sub-contractors the same way as employees and then falling foul of the consequences.

Mr. Lockwood’s career – or his involvement, I should say – spans about 30 years with Sharps, so with that tenure in mind, what is the potential liability that Sharps could be looking at?

It could be astronomical if the tribunal was to find that he had, in fact, been an employee for the entire period of time. He would have been entitled to paid holiday and the case law surrounding the issue of entitlement to unpaid holiday that’s already been taken, has been through the tribunal and been through the courts in recent years, so potentially he could be making a claim for unpaid holiday pay for his entire engagement with Sharps, so that could be an enormous figure for them.

And Mr Lockwood would represent one of just many fitters, I would imagine, with a similar working situation. I don’t think he would be in isolation there.

No, quite: he’ll be just one of an extended workforce, one presumes, which is a combination of employee and sub-contractor.

We mentioned in our article that as a company, EEBS obviously promotes proactive measures. Starting today, if a company feels like they’re in some sort of grey area, what should their approach be in making things clear?

First thing would be for them to subject themselves to an independent review – we can always help them. We’d look at the way they work with their sub-contractors and give them some clear guidance on where they are at risk and what they’re doing right as well as what their potential problems are, and how they can change their working practices to be more risk-free.

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It’s worth mentioning the CEST tool: we’ve mentioned before that it isn’t failsafe but is it one step towards understanding the Employment Status of your workers?

Yes, it is – and HMRC have said on a number of occasions that they are always happy to accept the result of a CEST review, assuming that it’s been done accurately. But there are lots of pitfalls in using CEST. The questions are structured very much in favour of what the Revenue may be hoping to achieve in terms of a revenue status inquiry, and therefore we always advise potential users of the CEST tool to take some advice about how it’s structured and what the underlying messages of the questions are, and how they are presented to the individual who completes the question. So yes, it’s a useful tool but the caveat is you need to understand what it’s looking for and how it’s structured before you use it.

Yes, I think it’s understandable, or realistic to say there will be bias in the tool itself because of, as you said, the outcomes that HMRC are looking for.
Now, EEBS offer a free audit for companies, and Worker Status would be part of that audit, wouldn’t it?

Absolutely; we’d help the client go through the test if they thought it necessary – or we think it’s necessary. We’ll give them written advice having been through our own processes as to what the likely outcome of other tax inquiries, or an employment tribunal would be, based on the way they currently work with their existing workforce. We’d also explain what changes they can make to improve their chances of passing those tests in the future.

So finally, you get the feeling that because of the repetitive nature, or the similarity between cases, that Sharps won’t be the last big name in the papers here – case or no case. Do you think that it’s legislation that needs to be made clearer? Is it that companies don’t know, is it that it’s not clear, or is it that they’ve just been riding the coattails of their own operation for too long?

The issue of Employment Status remains a complex and complicated area of the law. Not least because there are two independent sections of the law: one, as I already mentioned, for tax and one for Employment Rights and unless there were to be significant legal reform of Employment Status then I’m afraid it’s always going to be a potential area of conflict between employers and workers and employees.

And it has always been, and will remain, a political football depending on the direction of travel that a reviewer takes. The case in point of Sharps – given that it’s been reported from a left-wing perspective – wouldn’t be a surprise to anyone for them for that to have been reported as a potential major breach of Employment Law. Whereas Sharps themselves have directly challenged the assertion and said no, there’s nothing to see here; the Employment Status of Mr. Lockwood is entirely correct. So if it does go to tribunal it’ll be an interesting case, but we wait to see.

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Nick Pilgrim

M.D. | CIS Payroll Expert
01245 493832

Nick loves nothing more than chewing the fat over CIS payroll queries – actually that’s not strictly true; he likes playing golf and driving round Europe, but pick up the phone to him anyway!

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