Employment status: the impact of a genuine "substitution clause"
Author: Darren Newman
Consultant editor Darren Newman looks at how Deliveroo managed to ensure that its riders were neither workers nor employees through the inclusion of a "substitution clause" in their contracts.
The battle over workers' rights in the gig economy shows no sign of letting up. Soon after the Employment Appeal Tribunal (EAT) upheld a tribunal finding that Uber drivers were workers entitled to holiday pay and the minimum wage (Uber BV and others v Aslam and others [2018] IRLR 97 EAT), the Central Arbitration Committee (CAC) held that Deliveroo riders were not workers and therefore unable to pursue union recognition. The Deliveroo case is potentially important because it shows how any gig economy "employer" can ensure that those it engages are neither workers nor employees.
At the heart of being either an employee or a worker is the obligation to provide personal service. There must in either case be a contract whereby one individual undertakes to perform work for another. If that element is not present, the individual falls into neither category and has no employment rights.
In Express and Echo Publications Ltd v Tanton [1999] IRLR 367 CA, the Court of Appeal held that a right to provide a substitute instead of performing the work personally was inherently inconsistent with an obligation to provide personal service. It is therefore quite common for a business keen to avoid the burden of having employees or workers to include a "substitution clause" in its contracts allowing the individual to get someone else to do the work instead.
This needs to be done with care. In Consistent Group Ltd v Kalwak and others [2007] IRLR 560 EAT, the EAT held that tribunals should be alive to the risk that "armies of lawyers" would simply insert substitution clauses "even where such terms do not begin to reflect the real relationship". This approach was approved by the Supreme Court in Autoclenz Ltd v Belcher and others [2011] IRLR 820 SC. In that case, highly detailed contracts issued to car valets insisting that they were self-employed - and including a right to send a substitute - bore no practical resemblance to the reality of the relationship and the Court held that they could be disregarded as a "sham".
So if an employer inserts a substitution clause it will be effective only if it is genuine. The employer has to be prepared in practice to accept the work being done by others. Many employers would resist such a course because they would not want to risk their brand being damaged by inappropriate substitutes. Deliveroo was, however, prepared to accept that risk.
In the run-up to the CAC case, Deliveroo introduced new contracts with a strengthened right for riders to subcontract delivery jobs or transfer them to other riders without any need to ask Deliveroo's permission. The contracts made it very clear that riders were free to allow others to use their password on the app to accept and complete jobs on their behalf. There was no need to ask permission for this and no need for the substitute to be "cleared" by Deliveroo as suitable. Riders themselves are carefully selected, trained and assessed - but Deliveroo sought to exercise no control over whom they could appoint to act as their "substitute". There was evidence that the substitutions, although quite rare, were happening - with one rider explaining that he made a profit by subcontracting work to a friend at a lower rate than he was paid by Deliveroo.
The CAC was clearly surprised that Deliveroo was prepared to adopt an approach to substitution that had the potential to undermine the quality of its service. But, of course, it was not part of the CAC's role to determine whether or not the right to provide a substitute was a good idea. It did not even matter if it was introduced for the sole purpose of ensuring that riders were not workers. The only question was whether or not the substitution clause genuinely formed part of the agreement and the CAC accepted that it did. The result was that the riders were not workers and the claim for recognition failed.
The lesson for gig economy employers is clear. You can avoid employment rights if you are prepared genuinely to relinquish control over who does the work. In most cases, of course, those who sign up as riders for Deliveroo will indeed perform the work personally. Not many will be able to make a profit by finding riders prepared to work for less than the set rate for the job. The CAC also noted that, since riders are under no obligation to accept work (a fact that in itself could prevent them from gaining worker status), there is little reason for them to bother finding someone else to do the work in their place. This means that, by including a genuine substitution clause that will, in practice, be used only rarely, Deliveroo gets to have its cake and eat it. The substitution clause prevents riders from being workers, but its infrequent use will limit any damage that may be caused to Deliveroo through unsuitable substitutes.
It is worth noting that the Taylor review into modern workplace practices recommended that the existence of a substitution clause should not be sufficient to prevent an individual from being a worker. The review indicated that much more emphasis should be placed on the extent to which contractors are controlled and much less on the need for personal service. The Government has yet to respond to the review, but the law could easily be amended to provide that the fact that an individual is entitled to send a substitute will not of itself prevent him or her from being a worker if it is envisaged that the work will usually be performed personally.
Of course, if you close one loophole, others will be found. The Uber case, for example, centred around "mutuality of obligation" and the finding that Uber did impose some requirement on its drivers to accept a high proportion of the work offered to them. If Uber was willing to - genuinely - lose that element of control and rely purely on drivers' need to earn a living to ensure that work was accepted, that could well defeat any claim of worker status. Perhaps the answer is to move away from any specific contractual test. The Taylor review says "ultimately if it looks and feels like employment, it should have the status and protection of employment". A definition of employment along those lines would be criticised by many as vague and uncertain - but it would be difficult for even armies of lawyers to come up with a sure-fire way of getting around it.
