Stojsavljevic & Turner v DPD Group UK Ltd and the Importance of Substitution Clauses

The Employment Appeal Tribunal (EAT) has upheld the Employment Tribunal’s judgment that Mr Stojsavljevic and Mr Turner (the claimants) were not employees or statutory workers of DPD Group UK Limited (DPD).

DPD, then known as Geopost, is a parcel delivery and collection company, engaged the services of Mr Stojsavljevic and Mr Turner (the claimants) between 2013 and 2017 under their standard written franchise agreement.  At the time, DPD recruited drivers both as employees and through franchising arrangements.

Most employment status cases focus on the full range of employment tests to determine the circumstances in which an apparently self-employed person should more accurately be considered an employee or statutory worker.  By contrast, what is interesting about this case is that it turned almost exclusively on the question of personal service.

This is because it was common ground that the claimants had signed up as ‘owner drivers’, signing franchise agreements with DPD. 

Franchises and Employment Status

Very simply, a franchising arrangement is where one organisation (franchisor) develops products, methodology, marketing and branding. It then essentially licenses the use of its intellectual property and systems to other organisations (franchisees). 

There are upsides to the model for both parties, but there can also tend to be a fairly significant amount of control and other restrictions exerted over franchisees.  The model can also raise questions of economic reality and business integration.   In this case, the franchising arrangements with DPD displayed the hallmarks to satisfy most of the employee or statutory worker status tests such as control, again meaning that the sole ‘live’ issue to be determined by the ET was whether the claimants were obliged to give personal service. 

Personal Service

In employment law, the most basic distinction between the self-employed and employees or workers is personal service.  Simply put, a self-employed person provides a service; an employee has to provide that service themselves.

To simplify the legal arguments, the claimants’ case was that they were personally responsible for the collection and delivery of parcels.  They had used alternative drivers on occasion, but said these were drivers approved by DPD, which was a significant point in respect of their right of substitution.

Substitution Rights

A contractual substitution clause allows for the person signing the contract to give the work to someone else.  Where a substitution clause is valid, there is no personal service obligation, meaning the person cannot be understood as an employee or statutory worker.

In the past this has led to something of a perception of substitution clauses as a kind of loophole allowing employers off the hook.  Accordingly, the law underpinning substitution clauses has become complex to the point that many written substitution clauses simply don’t stand up to scrutiny.  This is particularly true where the clauses do not reflect the reality of the working arrangements or are unduly restrictive in terms of who can be sent as a substitute.  The courts can tend towards suspicion of contractual terms that seek to undermine personal service.

The Parties’ Cases

In this case, the claimant’s argument was that their right to send a substitute was fettered, that is, restricted, by the fact that any driver they could send had been previously approved by DPD. Put another way, they didn’t have a free hand in selecting another driver because of the contractual restrictions on who could be sent.

The claimants asked the ET to look beyond the written terms of the franchise agreement to the reality of the working arrangement, following the approach of the Autoclenz, Uber and other leading judgments.  According to the claimants, the reality pointed towards personal service and thus employee or worker status.

By contrast, DPD’s case was quite straightforward – it employed some drivers and entered into franchise agreements with others; if it wanted to employ drivers, it did.  Other franchisees had used their substitution and other rights to nominate additional drivers. In some cases, franchisees did no driving at all.  There were minimum criteria for temporary, substitute drivers but these amounted to having the legal right to drive in the UK and sufficient training to be conversant with DPD’s practices, consistent with the nature of the franchise agreement.

ET Decision

The ET held that the franchise agreement was a genuine commercial agreement and not simply the product of clever legal drafting.  The ET further held that the claimants had the option of being taken on as employees.

On the subject of substitution, the ET agreed that there was a degree of formality to the hiring of permanent (additional) drivers, which likely went to a level of control beyond what would have been expected.  However, there were provisions for short-term, temporary drivers, where the stipulations were primarily that the driver in question could legally drive in the UK and that they had been trained enough to be conversant with DPD’s practices. Such training was to be provided by (in this case) the claimants or, if necessary, DPD would provide the necessary training as a matter of business efficacy rather than obligation. The ET concluded that this was not a fetter on the right of substitution, meaning it was legally valid.  And on the basis that there was a valid right of substitution, it followed that there was no personal service obligation on the claimants meaning they were neither employees nor statutory workers.

EAT Decision

The EAT held that the ET had correctly analysed the contractual obligations between the parties in light of the relevant case law.

So What Does This Mean?

Had there been no substitution clause, or an invalid or fettered substitution clause, the claimants probably would have been successful.  On that basis, Stojsavljevic & Turner v DPD Group UK Ltd shows the importance of appropriate, well-constituted substitution clauses in subcontracting arrangements.  The law of substitution is complicated so it’s not a get out of jail free card, and you should be clear that any contractual substitution rights are followed in practice to avoid the appearance that they are simply the product of devious legal drafting.

In particular, if your business operates using franchise agreements with people who, in reality, largely do the work themselves, you should be wary of the extent of any control or other limitations you impose on franchisees.  Some limitations on franchisees are effectively built into the business model, but the more restricted the franchisee the higher the risk to businesses of finding their franchisees reclassified as employees or workers.  Again, you should not rely on the fact that you have substitution clauses in your franchise agreements and simply hope that you’re fully protected in the event of employment law litigation. 

DPD used a hybrid of franchising and employment, which undoubtedly bolstered their case. Nevertheless, what seems to have stood them in good stead is that when a franchisee wished to send someone else to do the work, DPD generally allowed it.

If you have any questions about this case, or employment status generally, please get in contact with us.

GuildHUB is an information resource, provided free of charge by The Guild, for accounting professionals and their clients.  If you wish to contact The Guild, please email contact@trusttheguild.com.

The content of this article is for guidance only and shall not constitute advice. Please seek independent advice or contact GuildHUB for information about its services.

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03/2022
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