Stuart Delivery ruling shows limits of substitution clauses

There has been yet another ruling from the courts on the issue of worker status in the gig economy. This latest case is the Court of Appeal’s decision in Stuart Delivery v Augustine and, not surprisingly, it has been widely covered in the press. It’s an important decision because it gives further insight into how the courts will treat substitution clauses which, as we all know, are favoured by some employers in the gig economy as a device to escape their drivers being classed as workers rather than self-employed. The worker classification can be a serious problem for them – it brings with it a raft of employment rights which can be very expensive, for employers, effectively scuppering their business model which is often based on small profit margins. More on that shortly.

The facts briefly. Warren Augustine worked for the delivery company Stuart Delivery as a courier. The company is a fairly new and successful entrant to the UK gig economy. Based in France, it was set up in 2015 and as many do, it relies on a fleet of courier drivers delivering packages to customers, using technology, chiefly a mobile phone app, to manage the service. 

Using the app, Augustine was able to accept jobs on an ad-hoc basis, or sign up to work at particular times, which were referred to as ‘slots’. There were financial incentives to sign up to slots but if a courier either couldn’t, or didn’t, want to work a slot they had agreed to they could offer it to other couriers on the platform using the app. However, if no-one else agreed to work the slot, there were penalties if the original courier did not do so. When the relationship ended, Augustine claimed that he was a worker, not self-employed, and he brought claims for unlawful deductions from his wages, and for holiday pay. The firm argued that he was not a worker because he was not obliged to perform services personally because he could send a substitute to work if he was no longer able or willing to perform one of his slots. Crucially, the obligation to provide services personally is a pre-requisite for a worker relationship under the Employment Rights Act.

The employment tribunal and EAT upheld Augustine’s claims finding that his right to offer a slot to a substitute did not negate the requirement to provide services personally. Stuart Delivery appealed but the Court of Appeal dismissed the case. The court said the courier’s ability to release a slot to other couriers using the app was not a sufficient right of substitution to remove the obligation on the courier to perform his work personally and so his status was caught by the so-called ‘limb (b)’ definition of worker in s230 Employment Rights Act 1996. The court highlighted the fact that if one of the other couriers did not take up the slot, the courier would have to work it or face penalties. 

So, let’s get some reaction to this decision and look at what it means for employers. On the line from the London office to help with that is Chris Evans. I asked Chris for his reaction to the Court of Appeal’s decision:

Chris Evans: “The decision in Stuart Delivery doesn't change the law as we know it but it's a good example of what we're seeing in practice in terms of companies trying to use substitution clauses to get around what's termed the ‘limb (b)’ worker, which is effectively the requirement for personal services. Now, in the Stuart Delivery case they tried to include provisions of substitution but at the same time still wanted the relevant individuals to be able to effectively swap shifts with other approved delivery drivers. What the Court of Appeal effectively decided was that the drafting that had been provided was insufficient to draw it away from personal service because effectively Stuart Delivery still wanted that element of control over who was effectively carrying out the services for them and I think that's what we find as being the rub here, to be honest with you. The majority of clients that I come across want to avoid having staff with worker status but at the same time still want to maintain an element of control and the difficulty they've got is unless they're in a position whereby their primary aim is just ensuring that the service is provided, it doesn't matter by whom, then they're going to be in some difficulties in preparing a suitable substitution clause. Now, that's not saying it's impossible, and certainly the case law which has come out from the Court of Appeal and above and below, has indicated that there may be occasions in which you can have limits on substitution and it still be sufficient to not be a limb (b) worker, but certainly the case law that's come out recently clearly demonstrates that that will be difficult. What courts are increasingly doing as well as looking at the reality of the situation rather than necessarily what's in clever drafting. So whilst we often get clients come to us and say, can you help us? How can we try and avoid staff getting worker status? What drafting can we include? It's all very well and good including certain drafting in the contract but what a court or tribunal will do is they will look at the drafting, consider it, but then look at what sits underneath it, what actually happens in practice, and if the practice doesn't match up to the contractual term, no matter how well the contractual term is drafted, then there is very likely to be a finding that they are a limb (b) worker.”

Joe Glavina: “I’m sure there are plenty of times when clients come to you and say ‘we want to avoid worker status because it’s so expensive’ but they’re nervous about their service delivery so it’s a tricky one. Effectively they want to have their cake and eat it.”

Chris Evans: “Yes absolutely. So they need to make a decision at the outset as to what is most important for them. Is it the provision of the services by anyone, in which case the substitution clause can be quite nicely drafted and it should reflect the reality? Or is it the case that they need to ensure that there's an element of control? So here, for example, in Stuart Delivery, they needed to ensure that they had staff available when there was a peak demand and the way they did that was by effectively fettering the right of substitution so that if an alternative individual couldn't be found to cover the shift the individual who had originally said their work it would eventually have to work it or face a penalty. We've seen that in other cases as well. So with Pimlico Plumbers, for example, there is an ability to effectively swap shifts again if from a more lucrative job came in or, alternatively, subcontract to a specialist but, again, the right of substitution in that case was insufficient. Yes, there was an element of substitution but it wasn't this true, unfettered right that the courts seem to favour in finding they are not a limb (b) worker. Now, as I've said, it's not necessarily the case that any type of fetter will render them a worker because of personal services but to be on the safe side, and certainly if you're advising a client that they want to ensure that they don't get tripped up by worker status, they would need to be in a situation where the right of substitution is a true right of substitution rather than the one that's fettered by other constraints.”

Joe Glavina: “Stuart Delivery is quite a new business – it started in 2015 – and there are lots of others popping up and they are all looking at ways to be ultra tech-savvy, using apps in their business models, but it seems to me that HR needs to be linked into this because they are the people who understand the employment status angle and, as you say, getting this wrong can be incredibly expensive.”

Chris Evans: “I completely agree what I would encourage any start-up who is developing an app on a similar basis to Stuart Deliver, or any other delivery company, they need to ensure it works on the ground and corresponds with what they're looking to achieve in the contract because if they get it wrong it can be extremely expensive. There's not only the pension rights and holiday rights, but also national minimum wage requirements, etcetera etcetera. So this is a fundamental issue with their business model and it's why we've seen so much litigation around it, be that through the all the way through to the Supreme Court or in the Court of Appeal as with Stuart Delivery. It’s so important because of the financial consequences of getting it wrong and as a consequence businesses are willing to take it all the way through the court system. Now, my view if a client was coming to me, would be let's try and get this right at the outset so we don't have to have this expensive litigation ongoing in one, two years’ time, and potentially have to have a reserve fund, depending on numbers of employees, potentially stretching to millions of pounds in order to ensure that if they do get a challenge they can meet it and they can continue functioning of the business.”

That decision of the Court of Appeal is Stuart Delivery v Augustine. If you would like to read it for yourselves you can – we have put a link to it in the transcript of this programme.

LINKS
- Link to judgment Stuart Delivery v Augustine