Substitution – is it a deciding factor for employment status?

Hanna Sandford, Consultant at Aspire Business Partnership LLP, blogs on new case law which has demonstrated the importance of having an effective substitution clause in place when engaging people as self-employed.

In recent months, we have seen more than a few companies get caught up in the gig economy dispute, and subsequently get their share of the Tribunal limelight for wrongly classifying individuals as self-employed when the reality of their engagement suggests that they have ‘worker status’ and so, are entitled to employment benefits such as the National Minimum/Living Wage, holiday pay and pensions. In cases like Uber, Pimlico Plumbers and Citysprint Ltd, the Tribunals (and the Court of Appeal in Uber’s case) have ruled that the individuals working for them should be classified as workers and entitled to the same employment rights as employees.

However, new case law has demonstrated that the right to provide a substitute has been a determining factor in relation to employment status and has meant that the Tribunal has made a couple of rulings whereby the Appellants’ do not have the status of an employee or worker.

Substitution is not a myth and it is not simply a “must have” clause in a contract for services to demonstrate self-employment. Substitution can happen in practice and it does facilitate the argument that someone is genuinely self-employed. If an individual is genuinely self-employed, they will have a substitution clause in their contract which they can exercise. This clause will set out that the individual is not obliged to personally provide the company with the specified services, and they should be able to exercise this clause by sending a substitute if they are unable to carry out the services personally.

Deliveroo has recently received its decision from the Central Arbitration Committee following a submission from the Independent Workers’ Union of Great Britain (IWGB), which represented Deliveroo couriers who believed that they had been incorrectly classified as self-employed. One of the major determining factors in the Deliveroo case was that the couriers’ contract stated that they were allowed to send a substitute, and there were examples of the right to send a substitute being exercised by the couriers in practice which supported the argument that the couriers were not obliged to personally provide their services to Deliveroo.

Another case, Daugvila and Petrulaneus v Expert Logistics [2017], which was not as highly publicised as other recent “gig economy” case law, saw two self-employed individuals make a claim to the Employment Tribunal that they should be classified as workers and so, qualify for significantly more rights than they would as self-employed contractors. Both individuals worked as contracted delivery drivers either for the respondent, or for a contract driver of the respondent. In January 2017, they presented claims to the Employment Tribunal which alleged unfair dismissal and breach of contract in relation to notice periods and for outstanding wages due. The respondent denied the claims, with their primary defence being that neither claimant was an employee nor a worker and therefore not entitled to make such claims.

There were differing factors in both Mr Daugvila and Mr Petrulaneus’ cases, however the Tribunal found that neither individual was a worker. A big influence in Mr Daugvila’s case was that he, on occasion, exercised his right to send a substitute by providing Mr Petrulaneus to carry out the delivery service in his absence.

In these cases, we have seen many of the same factors contributing to the end result of a worker status determination. Below is a list of some of the following factors which have contributed to employment status determinations; -

1. Contract for Services between the self-employed individual and the company - the contract should be a true reflection of what happens in practice otherwise it could be found to be a sham and therefore unenforceable.
2. Right to substitute – the individual should not be obliged to personally provide you with the specified services if they are genuinely self-employed.
3. Mutuality of Obligation – there should be no expectation for companies to provide work to the individual and the individual should not be expected to accept the offer of work.
4. Uniform – providing a branded uniform which individuals are required to wear whilst working is an indicator that they could be a worker.
5. Providing equipment – a genuinely self-employed individual should be providing their own equipment.

The list is not exhaustive, and each case is reviewed on its own merits – one factor might be detrimental to one case and have little or no impact on another and so, it is important to remember that a Tribunal would make a ruling entirely dependent on the specifics of each case.  

One of the biggest factors in the big self-employment debate is the ability to send a substitute. If an individual is genuinely self-employed then they should be able to send a substitute due to the lack of a requirement of personal service.

Aspire Comment

The two cases where it was ruled that companies were correct in their classification of self-employment proves that substitution plays a heavy part in determining whether an individual is genuinely self-employed or not. Whilst some have failed at the substitution hurdle, it is evident that others are learning from their mistakes and proving that self-employment can be demonstrated correctly where the circumstances clearly reflect the requisite hallmarks.

In order to avoid worker-led issues and Tribunal claims which could lead to hefty back-pay claims, it is imperative to have contractual documentation in place which can be reflected in reality and would stand up under scrutiny.

If you are worried about your engagement of self-employed workers, feel to give one of the Aspire team a call to discuss how we can help you.