This impacts on whether too much reliance is placed on substitution to determine employment status and the subsequent effect on IR35 assessments.
The Court of Appeal decision is further confirmation that, when considering employment status, it is unwise to rely on substitution provisions without looking at the arrangements in the whole.
In a recent case Stuart Delivery v Augustine, the Court of Appeal decided that Mr Augustine, a moped courier rider, should be classed as a worker because he was obliged to perform services personally for Stuart Delivery, a courier company.
Stuart Delivery argued that Mr Augustine’s ability to re-allocate work slots to other riders from within a pool, amounted to a right to substitute. Therefore, he could not be regarded as worker, with rights to holiday pay etc.
The Court of Appeal rejected that argument and observed that in practice Mr Augustine could not choose and didn’t even necessarily know to which substitute rider the work was allocated. As such, this could not be regarded as a genuine right of substitution at all but simply a hope that someone else may relieve him of a contractual obligation to perform the work.
The Court confirmed that the question to be addressed, in all cases, is whether a right to substitution is inconsistent with an obligation to perform services personally. To answer this, it is unlikely to be critical as to whether the right to substitute was contractual or a right in practice.
What needs to be answered is, when considering both the contractual terms and the way arrangements work in practice, is there an obligation to provide personal services?
Substitution and IR35
Mr Peter Lappin, a Senior Legal Consultant at recruitment law specialists, Lawspeed, said: "Whilst this case relates to worker status, the obligation to provide personal service is relevant to deemed employment status under IR35. No personal service results in IR35 being irrelevant, so the right to substitute is therefore an important factor."
However, what this case, and other recent high profile status cases, underline is that the question is unlikely to be determined simply by the presence of a substitution clause. If that right is unduly limited, either by the term itself or in practice, for example nothing is actually in place for allowing a genuine substitute, the obligation to provide personal service may still exist.
Peter Lappin continued: “This case highlights that a particular danger can arise when too much emphasis is placed on the existence of a right of substitution. In this case Stuart Delivery could not rely on that position.
"To avoid problems emerging at a later stage, IR35 assessments should always be made with reference to the actual working arrangements and the practicality of providing a substitute, if this is to be relied upon for the assessment. The contracts throughout any engagement chain should ideally reflect all of the arrangements if the assessment is to be accurate and reliable.
“In a significant number of cases hirers will not accept a substitute or allow unfettered rights to substitute in a contract, leaving reliance on substitution clauses nothing other than an over fished red herring. In contrast properly formulated contracts that reflect genuine work arrangements that are outside IR35 should always win the day.”
Further IR35 information
For more information about all aspects of IR35, including the controversial IR35 reforms see Shout99's News on IR35 section.
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Susie Hughes © Shout99 2021