Determining employment status case: employee status denied to delivery drivers

In Stojsavljevic and another v DPD Group UK Ltd, the EAT upheld the findings of an Employment Tribunal (ET) that delivery drivers engaged by the Respondent under ‘franchise agreements’ were neither employees or workers, and were instead independent contractors. This provides a good opportunity to remind ourselves of how the Tribunals go about determining employment status.

What are the elements of an employment contract?

When considering questions of employment status, an ET will take into account a broad range of factors in order to determine the true agreement between the parties. Where a written contract exists between the parties, the ET will give close consideration to the following:

Personal service and substitution rights: Generally, an employee would be obliged to provide personal service, whereas an independent contractor would be free to provide a substitute or subcontract the work.
Control: Where an employment contract exists, the employer will wield a higher level of control. As per previous case law; “control includes the power of deciding the thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when and the place where it shall be done.”
Mutuality of obligation: An employment contract will involve a mutuality of obligation between employer and employee whereby the employer is obliged to provide work and the individual is obliged to accept and perform that work.
Other factors: the ET will take account of the economic reality of the relationship, including factors such as who provides the equipment to perform tasks, the degree of financial risk adopted by the parties, and the method of payment.

The case facts

To understand the result of the case and the EAT’s reasoning, it is first necessary to examine the relationship between the Claimants and the Respondent. Between 2013 and 2017, the Claimants had entered into the Respondent’s standard form written franchise agreement (‘Franchise Agreement’), which related to delivering and collecting parcels for the Respondent. Therefore, the Claimants were working under the terms of this Franchise Agreement rather than a contract of employment. In line with the Franchise Agreement, the Respondent stated that the Claimants were neither employees nor workers; instead they were what the Respondent called ‘owner driver franchisees’ (ODFs), and should be classified as independent contractors. The Claimants disagreed with this classification. They said the sole issue as to classification was one of personal service: were the ODFs personally liable to complete work assigned to them, or did they have an unfettered right of substitution?

Judgment

In order to invoke their right to substitute/subcontract their work to another driver, the ODFs were required to supply a copy of the proposed substitute driver’s driving licence and complete an application form for the Respondent’s authorization. This was held not to be a fetter on the right to substitution: the Respondent operated a contractual definition of ‘Driver’ (appropriate qualifications and driving licence, aged over 21 and to have undergone relevant training) and was implicitly entitled to have these requirements satisfied. The Respondent held no broader right of refusal beyond this. Previous case law on this area has established that a substitution right limited only by the requirement to demonstrate that the substitute is as qualified as the contractor is generally inconsistent with personal service. Therefore, the Respondent had been within their rights to treat the Claimants as independent contractors, rather than as employees or workers.

Conclusion

Whilst it is not the only factor that the ET will take into consideration when deciding the true nature of the employment relationship, it is clear from the above that the element of personal service remains extremely important in classifying between employee/worker and independent contractor. Businesses and individuals would therefore do well to familiarise themselves with the below – a helpful summary of the applicable principles of personal service derived from a previous Court of Appeal decision (Pimlico Plumbers Ltd v Smith) on which the EAT above relied:

An unfettered right to substitute another person to do the work or perform the services is inconsistent with an undertaking to do so personally.
A conditional right to substitute another person may or may not be inconsistent with personal performance depending upon the conditionality. It will depend on 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.
A right of substitution only when the contractor is unable to carry out the work will, subject to any exceptional facts, be consistent with personal performance.
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.
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.

In summary, determining employment status will always be a tricky area and advice should be sought on any specific issues in order to navigate through.

This blog was written by Michael Green, paralegal at didlaw.