Substitution credited for delivering Deliveroo riders outside of employment

Substitution is making up lost ground in the IR35 and employment status stakes, as a lawyer says it swung a new ruling for Deliveroo that its riders are self-employed.

Hannah Morrison of law firm Brabners told ContractorUK that the ability to send another in their place was one of the main reasons Deliveroo riders were not “in an employment relationship.”

Further quoting from the Court of Appeal’s judgment, Ms Morrison said riders had a “virtually unlimited” right of substitution, meaning they were largely free to replace themselves with another food delivery rider.

'Emphasises the importance of substitution'

“So they were not obliged to provide their services personally,” the lawyer said. “This emphasises the importance of the ‘personal service’ test when considering if an individual is self-employed.”

Her analysis that substitution was determinative in a ‘self-employed’ ruling, contrary to what the IWGB union argued, represents a resurgence, of sorts, for one-third of the status ‘trinity’.

Only last month, substitution was (one of four grounds) fought and lost upon in the IR35 case of Nationwide IT contractor Robert Lee, and it has been warned against by ‘Big Four’ accountant EY as the basis for an outside IR35 decision by CEST.

'A favourite avenue of attack for HMRC'

Online too, tax experts have recently been lukewarm about substitution’s effectiveness, even suggesting that a sham sub clause is once again a ‘way-in’ for HMRC.

“The taxpayer [Robert Lee] appeared to rely overly on substitution -- which has been a favourite HMRC avenue of attack for a while now,” posted WTT Consulting tax director Graham Webber.

“Contractors sensibly and prudently advised have not put too much weight on such clauses unless there has been a prior conversation with the end client…[partly because] substitution, on its own, is not enough to keep you outside IR35.”

'False sense of security'

“[Substitution is] rarely enough on its own,” agreed Adam Topham of 34square,  also referring to the Lee case.

He advised: “If there's no inkling at all the clause could ever have been actioned, then rather than protecting contractors -- and now medium and large clients -- a substitution clause could lead to a false sense of security. And a reliance on something that then fails to deliver.”

Addressing the Deliveroo decision, Qdos CEO Seb Maley has said he expects the number of tribunals called to decide such matters to “rise” – “hand in hand with the growth of self-employment and the gig economy.”

'Substitution was key in Deliveroo'

“The [Deliveroo] riders could provide a substitute….[and so Substitution was] key in them being seen as self-employed,” he stated, in line with the analysis of the Brabners lawyer.

“It means they didn’t deliver their services personally, as an employee does. But that’s not to say just having the right to sub in someone else shows a person is self-employed. A host of factors must be considered before employment status is set.” 

In her summation of the Deliveroo case last night, Ms Morrison echoed: “A genuine right of substitution -- which can actually be exercised in practice -- is one of the important factors which points to someone being truly self-employed, as opposed to a ‘worker’ or an employee. Contractors and self-employed individuals should bear this in mind when negotiating contracts.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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