PERSONAL SERVICE - IN THE SPOTLIGHT

Published: 28th November 2008

Are substitution clauses still enough to avoid employee status?

If you don't require an individual to do their work personally for you and allow them to send someone else in their place could they still be one of your employees? Following the decision in Express and Echo Publications v Tanton in 1999 the answer was likely to be "no". However, the recent decision in Redrow Homes (Yorkshire) Limited v Buckborough and Sewell has cast doubt upon the impact of substitution clauses on employment status. In this update, we summarise the previous substitution clause cases before considering Redrow.

Express and Echo Publications Limited v Tanton (1999)

Mr Tanton was employed as a driver by Express. He was made redundant but later re‑engaged on a self-employed basis. Express sent Mr Tanton an "Agreement for Services". The Agreement permitted Mr Tanton to use a substitute driver "at his own expense entirely" if he was "unwilling or unable" to drive himself.

While Mr Tanton found the Agreement unacceptable and refused to sign it he did work in accordance with its terms and exercised the right to use a substitute driver. However, he then sought a declaration from a Tribunal that he was an employee. The Tribunal considered that Mr Tanton's right to provide a substitute was just one factor among many that it had to consider when addressing the question of his status. As Mr Tanton had to follow a set route, wear the company uniform and use a pool van the Tribunal decided that Express had a high degree of control over him and that he was an employee.

Express appealed to the Employment Appeal Tribunal (EAT) and then the Court of Appeal. The Court considered that the right to provide a substitute was inherently inconsistent with existence of a contract of employment which, it said, must necessarily contain an obligation to provide services personally. Without this "irreducible minimum" of obligation there could be no contract of employment. According to the Court the recognition that the contract of employment involves mutual trust and confidence is consistent with the requirement of personal service.

So, after Express, if an individual worked under a contract that included a widely drawn substitution clause, leaving them the discretion to send a substitute if they did not want to do the work personally, they would not be an employee. But what if the right to send a substitute was limited?

McFarlane v Glasgow City Council (2001)

Mrs McFarlane was a gym instructor who worked at sports centres operated by the Council. If she was unable to take a class she would arrange for a replacement to do so. However, replacements had to be from a register maintained by the Council and the Council would pay the replacement directly.

When the Council attempted to introduce a new contract, Mrs McFarlane claimed that she had been constructively and unfairly dismissed. The Council contested the claim on the basis that Mrs McFarlane had always been self-employed.

The Tribunal followed Tanton and agreed with the Council. However, the EAT considered that a limited right of delegation was not inconsistent with the obligation of personal service. Tanton could be distinguished because Mrs McFarlane had to perform the services personally unless she was unable to do so and even then she could only send a substitute from the Council's register. Whereas, on the other hand, Mr Tanton could choose not to perform his contract personally by sending a substitute of his choice.

So, even after McFarlane, a widely drawn substitution clause, like the one in Tanton, remained inconsistent with a contract of employment.

Redrow Homes (Yorkshire) Limited v Buckborough and Sewell (2008)

Mr Buckborough was a bricklayer who worked under a contract that required him to provide sufficient labour to ensure sufficient progress was made with the building works. The contract included a clause that explained, for the avoidance of doubt, the obligation to perform the work was not personal to Mr Buckborough and that his obligations could be performed by other labour.

Mr Buckborough claimed that he was a worker (rather than an employee) and so entitled to annual leave under the Working Time Regulations. The claim succeeded before both the Tribunal and EAT on the basis that the substitution clause was a sham because neither of the parties intended that it should govern their relationship.

However, the Tribunal also considered that Mr Buckborough's claim would have succeeded even if the substitution clause was not a sham (and so binding upon the parties) despite the fact that to establish he was a worker Mr Buckborough would have to show that he had undertaken "to do or perform personally any work or services". The EAT considered that while Mr Buckborough might not have been obliged to do the work for Redrow personally he was nevertheless personally obliged to perform a service for them - to find other labour.

The Express and Redrow Cases - are they consistent?

If there is a conflict between Tanton and Redrow the decision in the former should prevail because it is a decision of the Court of Appeal. However, Mr Tanton did not seek to argue that he was an employee because he provided the service of finding alternative labour for Express.

If Mr Tanton chose not to work, or was unable to do so he was obliged "at his own expense entirely" to find a suitable substitute. Therefore, he was either doing the work personally or personally providing the service of providing a substitute which is analogous to the facts in Redrow. Would that be enough to make Mr Tanton an employee if the case arose again today?

The logic behind Redrow would appear to apply equally to Mr Tanton's situation. However, it was applied in Redrow because of the definition of worker in the Working Time Regulations which is satisfied when an individual undertakes to perform "any work or services" (our emphasis). The definition is unique to workers and does not apply to employees.

It remains to be seen whether individuals will now seek to unpick genuine substitution clauses that have been used by both parties in an attempt to show that they are employees. In the meantime, however, we consider that Tanton remains good law and that Redrow should be confined to determine whether someone is a worker rather than an employee.

However, if you use substitution clauses it is important that they are widely drawn like the one in Tanton. If Mr Tanton brought his claim today he may be able to show he was a worker even if not an employee. This might entitle him to paid annual leave or the minimum wage. If you want to avoid these obligations the safest course is to ensure that your contracts show the individuals are in business on their own account.

If you are concerned about the contracts or arrangements you have with any third parties in cases such as this, please call your usual contact within the Employment and HR team.