348: Does existence of a substitution clause establish ‘self-employed’ status?

Substitution clauses in contracts are common, but yours might not have the effect you think it has.

In order to assess employment status, courts will look beyond contractual drafting to the reality of the relationship between the parties. A substitution clause that gives the employer a degree of control may prove fatal to worker status, for example, where there is a right to substitute only with the employer’s consent, or where a substitute has to comply with service standards, branding, and vetting procedures.

One of the key features of ‘worker’ status is an obligation to provide services personally. In order to provide evidence that an individual is self-employed, many contracts now include provisions allowing them to send a substitute to work in their place. As we have seen in gig economy employment status cases such as Pimlico Plumbers and Uber, the courts will scrutinise these clauses carefully to assess whether individuals genuinely have an unconstrained right to send a substitute to work in their place, or whether in reality the employer is seeking to retain control over the substitute. In the recent case of Stuart Delivery Ltd v Augustine, the Court of Appeal has provided some useful guidance on substitution clauses in its ruling that a moped parcel courier was a worker.

Mr Augustine worked as a package courier for Stuart Delivery Ltd, which uses a mobile phone app to connect couriers with clients. The app allowed drivers to accept jobs on an ad hoc basis or to sign up for specific time slots. If couriers did not want to work an agreed slot, they could offer it to other couriers using the app. However, if no one else accepted, the original courier was liable for completing it, or incurred a financial penalty for failing to do so. Mr Augustine brought various claims including claims for unfair dismissal, unlawful deductions from wages and holiday pay. The company argued that he was self-employed since a substitute courier could work in his place if he was no longer able or willing to do his slots.

The Employment Tribunal found that Mr Augustine was a worker, not an employee or self-employed. A key factor in its reasoning was that Mr Augustine’s right to send a substitute was in reality fettered, because if no other courier took a slot he had released on the app, he would have to work it himself or face financial penalties. This meant that effectively there was an obligation on Mr Augustine to perform the work personally. The EAT, and now the Court of Appeal, agreed with this reasoning. Mr Augustine’s ability to release a slot to other couriers using the app was not a sufficient right of substitution to remove the obligation on him to perform his work personally.

This case emphasises the importance of assessing the potential employment law risks and liabilities when setting up an app-based business model.