Two recent judgments involving courier companies, with contrasting outcomes, have provided some welcome clarity on worker status and, in particular, whether an individual has a genuine right to send a substitute to perform work.

The requirement for an individual to perform work personally is a minimum criterion for both employee and worker status. Commonly, this issue will turn on whether they have a genuine right to provide a substitute in their place.

If an individual does not provide personal service, they will not be classified as an employee or worker. It is perhaps the simplest route to establishing independent contractor status. It does not rely on a careful analysis of a complex factual matrix to determine if, for example, the employer exerts a sufficient degree of control or the individual is integrated into the workforce.

Statutory definitions

Under s.230(1) ERA, an ‘employee’ is defined as ‘an individual who has entered into or works under … a contract of employment’. A contract of employment means ‘a contract of service or apprenticeship’. Although there is no express reference to personal service, it is well-established that this is one of the ‘irreducible minimum’ criteria for employment status (Nethermere).

Under s.230(3) ERA, a ‘worker’ is someone who works under a contract of employment or ‘any other contract … whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual’ (emphasis added).

A slightly different approach is taken to the definition of ‘employee’ or ‘employment’ in other key pieces of employment legislation, such as the EqA and TUPE. However, the minimum requirement for personal service across all definitions is a consistent thread.

The peril of substitution clauses

Many contracts purporting to create an independent contractor relationship will include an express substitution clause as a means of seeking to demonstrate that the personal service criterion has not been met. However, this requires caution because we know that:

• the courts have the power to look behind a written contract to determine the true nature of the relationship. This principle was established a decade ago by the Supreme Court in Autoclenz and has been cited regularly in subsequent reported cases;
• even before Autoclenz, it was recognised that there is a distinction to be made between clauses that do not reflect the reality of the situation (because no-one seriously expects that a worker will seek to provide a substitute or refuse the work offered) and those which genuinely reflect what realistically might be expected to occur. See, for example, the EAT's decision in Kalwak; and
• the issue of employee or worker status is one of statutory, not contractual, interpretation. Following Uber, employers can no longer point to the contract as the starting point and require individuals ostensibly engaged as independent contractors to prove otherwise.

The Pimlico Plumbers guidance

The question of substitution was given detailed consideration by the Court of Appeal in Pimlico Plumbers. Sir Terence Etherton MR outlined five categories (comprising two core principles and three illustrative examples) to assist in determining whether there was a requirement for personal service:

• principle 1 – an unfettered right to substitute another person to do the work or perform services is inconsistent with an undertaking to do so personally;
• principle 2 – a conditional right to substitute another person may or may not be inconsistent with personal performance depending upon the conditionality. It will depend upon the precise contractual arrangements and, in particular, the nature and degree of any fetter on a right of substitution (or, using different language, the extent to which the right of substitution is limited or occasional);
• example 1 – a right to substitution only when the contractor is unable to carry out the work will, subject to any exceptional facts, be consistent with personal performance;
• example 2 – a right of substitution limited only by the need to show that the substitute is as qualified as the contractor to do the work, whether or not that entails a particular procedure will, subject to any exceptional facts, be inconsistent with personal performance; and
• example 3 – a right to substitute only with the consent of another person who has an absolute and unqualified discretion to withhold consent will be consistent with personal performance.

Two recent judgments, Stuart Delivery and DPD, have applied (and further clarified) the Pimlico Plumbers guidance. Both cases involved businesses operating in the same sector (courier delivery) but the factual nuances of each case resulted in different outcomes. They provide a useful point of comparison for determining where the line should be drawn.

Stuart Delivery: a finding of personal service

In Stuart Delivery, the respondent operated a technology platform connecting moped couriers with clients via a mobile app. Couriers could take individual jobs on an ad hoc basis. Alternatively, they could sign up for time slots using an online facility called ‘Staffomatic’. This required them to stay in a certain geographical area for a specified period and be available to take jobs, in return for a guaranteed minimum hourly rate of pay.

A courier who signed up for a time slot but changed their mind could request to release it via the app. However, if another courier did not accept the shift, the original courier was obliged to honour the time slot or incur a penalty.

The employment tribunal made a clear finding that there was personal service: ‘The entire intention of [Stuart Delivery’s] stick and carrot system of rewards and punishments was to ensure an optimally reliable supply of couriers to meet optimum demand of users in “hot zones” at times of highest demand as predicted by very detailed market research. The whole business model is predicated on this precise balancing act. If the rewards and penalties were not real, and not perceived to be so by couriers, it would not work. Couriers would abandon signed-for slots with impunity and the users would not be happy.’

This was upheld by the EAT: ‘[Stuart Delivery] had an absolute and unfettered right to withhold consent since only the couriers it had accepted onto their pool could use the Staffomatic app to sign up for slots a fellow courier wished to relinquish. The claimant had no control whatsoever over who, if anyone, would accept a slot he had signed up for and no longer wished to work. The tribunal's primary finding is correct – it is not a right of substitution at all. It is merely a right to hope that someone else in the pool will relieve you of your obligation. If not, you have to work the slot yourself. You cannot, for example, get your mate to do it for you, even if s/he is well qualified. All you can do is release your slot back into the pool.’

Court of Appeal decision

The court determined that:

• there was no genuine right of substitution in this case. Separately, Stuart Delivery could not be classified as a client or customer of the claimant’s own business undertaking. Therefore, worker status was established;
• in Pimlico Plumbers, the dominant feature of the claimant’s contracts with Pimlico was an obligation of personal performance. He could only appoint someone from the ranks of Pimlico operatives: ‘It was the converse of a situation in which the other party is uninterested in the identity of the substitute, provided only that the work gets done’; and
• the circumstances in Stuart Delivery were similar: ‘Any substitute had to come from the ranks of [Stuart Delivery's] couriers … [Stuart Delivery] was not uninterested in who performed the work. It wanted to ensure that those couriers who took the slot were subject to the same constraints as the claimant to ensure that they actually worked the slots because it wanted to ensure that there were sufficiently reliable couriers available in hot zones at peak time.’

DPD: a finding of no personal service

In DPD, couriers entered into a standard franchise agreement to provide parcel collection and delivery services as independent contractors. They could perform the work themselves or nominate substitute drivers, either on a permanent or temporary basis (up to 90 days).

The eligibility criteria for 90-day drivers were relatively limited (compared to a more formal onboarding process for permanent drivers), but there was nothing to prevent a franchisee from using 90-day drivers on a rolling basis. Further, the franchise agreement did not distinguish between permanent and 90-day drivers.

Some franchisees operated with multiple drivers and vehicles. There was evidence from the distribution manager at the depot that he had never encountered a 90-day driver who had not been authorised by DPD.

The employment tribunal found that there was a genuine right to substitute. The claimants were entitled to send other drivers in their place. The only contractual requirements on the claimants (as franchisees) were to ensure that any driver had received the requisite training, performed the services appropriately and was available to perform them when requested by DPD.

EAT decision

The EAT determined that:

• DPD had no absolute and unqualified discretion to withhold consent. Applying the Pimlico Plumbers guidance, this case fell within example 4, rather than example 5. Accordingly, there was no personal service and the couriers could not be classified as workers;
• DPD was uninterested in the identity of the substitute. While it was necessary for a driver to satisfy the relevant contractual requirements described above, it did not matter if they were an existing DPD franchisee, a previously approved driver or a particular individual. They were only concerned that the services were suitably performed and the driver was qualified and trained to undertake the work; and
• as such, the limitations on the right to substitute were much less restrictive than in Pimlico Plumbers. The substitute could come from a large pool of eligible people. This was analogous to Deliveroo, where the Court of Appeal decided that riders were not ‘employees’ for the purposes of seeking union recognition, because any substitute did not need prior approval. The only restriction was that they could not be an ex-rider whose contract had been terminated by Deliveroo.

Conclusion

In applying the Pimlico Plumbers principles, the decisions in Stuart Delivery and DPD provide some rare clarity in the pervasive fog of employment status cases.

Ultimately, there is unlikely to be personal service if the business is genuinely relaxed about who does the work (provided it actually gets done).

Of course, this approach may not suit many businesses, which understandably want some control over who is servicing their customers, with the right to vet or veto any particular individual. The competing commercial considerations of worker flexibility, quality control, cost, brand consistency and fluctuating demand require a delicate juggle, particularly for those operating in the platform or ‘gig’ economy. However, we can now advise with more certainty on when the personal service criterion has been met.

Dominic Holmes is a Partner and Head of Employment at Taylor Vinters LLP

KEY:

ERA Employment Rights Act 1996

EqA Equality Act 2010

TUPE Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246)

Nethermere Nethermere (St Neots) Ltd v Gardiner [1984] IRLR 240

Autoclenz Autoclenz Ltd v Belcher [2011] UKSC 41

Kalwak Consistent Group Ltd v Kalwak [2007] IRLR 560

Uber Uber BV v Aslam [2021] UKSC 5

Pimlico Plumbers Pimlico Plumbers Ltd v Smith [2017] EWCA Civ 51

Stuart Delivery Stuart Delivery Ltd v Augustine [2021] EWCA Civ 1514

DPD Stojsavljevic v DPD Group UK Ltd (EAT) (EA-2019-000259-JOJ)

Deliveroo IWGB v CAC (Deliveroo) [2021] EWCA Civ 952