Employment status: personal service and the right of substitution

The Employment Appeal Tribunal has ruled that individual owner driver franchisees, who provided delivery services to DPD, were neither employees nor workers.

In Stojsavljevic & another_v_DPD_Group_UK_Ltd, the Employment Appeal Tribunal agreed with the tribunal’s decision that owner driver franchisees (ODFs), who provided delivery and collection services for DPD, were not employees or workers. The EAT found that the ODFs had a genuine right of substitution, which was inconsistent with employee and worker status. We take a brief look at the case below and the implications for employers.

Contractors or employees?

The emergence of the gig economy, where individuals are engaged by businesses on a flexible and ad hoc basis, has presented problems for determining employment status, both for the purposes of employment rights and tax liability. Tribunals and the courts have tried to grapple with these issues over a series of cases which have been widely reported on, most recently Uber BV and others v Aslam. From these cases it has been established that tribunals will look at what the practical relationship is rather than just what the contract says. In doing so, one of the key factors they will consider is whether there is a right to substitute personal performance to a person of their choice.

The Facts

Mr Stojsavljevic and the other claimants had entered into a written franchise agreement to become ODFs with DPD, responsible for the provision of parcel delivery and collection services. The franchise agreement required the ODFs to supply a driver (which could be the ODF themself or another person) to perform the services. A non-contractual Operating Manual required the ODF to supply a copy of a driving licence of any proposed driver and a completed application form to DPD for them to authorise.

The sole issue to be determined in this case concerned personal performance, namely whether the ODFs had an unrestricted right of substitution. DPD argued that the claimants were independent contractors who had not met the relevant statutory definitions of employee or worker, relying on the wording of the franchise agreement and their right to substitute work. The claimants contended that the franchise agreement did not reflect the real relationship, and that the reality of the agreement with DPD was that they were contracted to be a driver, and were solely responsible for the delivery and collection services which they agreed to undertake.

The EAT decision

The EAT dismissed the appeal and upheld the tribunal’s decision that the ODFs were not employees or workers.

Consistent with the approach taken in Uber, the EAT found that the tribunal had not started from a legal presumption that the agreement contained the whole of the parties’ agreement, but also had regard to the relationship between the parties as to how it worked in practice. The EAT agreed with the tribunal’s conclusion that the agreement reflected the true agreement between the parties.

The EAT decided that the franchise agreement did not require the claimants personally to perform the services and, although in practice the claimants had not regularly exercised this right, the EAT held that this did not detract from their entitlement to use a substitute of their choice, subject to complying with the minimum requirements necessary for delivering the service to customers. DPD had no absolute and unqualified discretion to withhold consent (which would have been consistent with personal performance) – with the conditions imposed on the substitute, and not on the right to send a substitute.

Indeed, the EAT found that a substitution right that is limited only by the need to show that the substitute is qualified - in this case having a driving license and being familiar with DPD’s practices - will usually be a genuine right of substitution that is inconsistent with personal performance, and both employee and worker status.

Implications for employers

This decision demonstrates that the right of substitution can be an important element to be considered when determining employment status. In this case, it was the key factor. In addition, it confirms that a right to substitute will generally be inconsistent with personal performance, and that the business may check that the substituted person has the requisite qualifications without this compromising the overall right of substitution.

Finally, this decision serves as a useful reminder to anyone engaging contractors to ensure that the contract reflects the reality of the situation. A close analysis of the business’ contractual arrangements and working practices will help to assess this, and whether any changes need to be made.