Owner driver franchises: Contractors or employees?

Owner driver franchises: Contractors or employees?

We explore the Employment Appeal Tribunal's recent ruling on owner driver franchises and its implications.

The Employment Appeal Tribunal (EAT) has upheld a decision that individual owner driver franchises (ODFs) who provided delivery services on behalf of DPD Group UK Ltd (DPD) were neither employees nor workers but independent contractors.

In this case the claimants, Mr. Stojsavljevic & Mr T Turner, entered into franchise agreements from 2013-2017 with DPD, a parcel collection and delivery company operating its services via franchise agreements with owner drivers and employed drivers. In this case, the Tribunal did not find the circumstance to be such that the claimants did not then have a choice in respect of their engagement with DPD there being a genuine choice between the franchise arrangement and a contract of employment.

In August 2017, shortly following the termination of the engagements, both claimants presented claims to the Employment Tribunal for various employment rights. The Employment Tribunal had to therefore decide whether the claimants were in fact engaged as independent contractors or employees/workers.

The Tribunal held that the claimants were not personally required to perform the service because there was a genuine right of substitution. The drivers appealed to the EAT.

Each Claimant contended that the reality of his agreement with DPD was that the Franchise Agreement did not reflect the real relationship between the parties, placing reliance on Autoclenz and Pimlico Plumbers.

They submitted that they had been contracted personally as an individual driver, had not registered additional drivers and were therefore solely responsible for the delivery and collection services they agreed to undertake. Each claimant maintained that although they could use a substitute, such person had to be a DPD-approved driver, operating as a fetter on any right to substitution.

It was agreed at the outset of the hearing that the issue for the Tribunal’s determination was one of personal performance only, primarily focusing on whether there was an unfettered right of substitution.

The Franchise Agreement contained the following provisions:

“Under the terms of your Franchise Agreement you are required to supply a Driver to perform parcel delivery and collection services for GeoPost. It is YOUR responsibility to inform us of the identity of all Drivers you intend to use.

  • You must supply the Franchise Department with a copy of the driving licence for each Driver you use
  • The Franchise Department will then issue an application form for each Driver and it is YOUR responsibility to ensure that it is returned.
  • You will not be able to use the services of any Driver until the completed application form for that Driver has been returned to GeoPost and GeoPost have issued a formal letter of authorisation in relation to that Driver.
  • You will be responsible for any breaches or non-compliance with the Franchise Agreement or this manual by your Driver(s)."

In addition, the agreement clearly stated that under no circumstances were the owner drivers to use a DPD employee as a cover driver.

Although, in practice, the ODFs had only used cover drivers who were also ODFs or drivers of other ODFs, it was held that this had been no more than a ‘practice’ and did not detract from the claimants broad contractual right to use any substitute of their choice at any time.

The EAT said that there was a critical distinction from the circumstances in Pimlico Plumbers in which only another Pimlico operative could be used who was bound by an identical suite of heavy contractual obligations. In this case, a driver had no contractual obligation to DPD at all as he could be employed or engaged by another owner driver.

As was made clear by Lord Clarke JSC in Autoclenz and Lord Wilson JSC in Pimlico Plumbers in the Supreme Court, the relevant question was not what the claimants had elected to do in practice, but what they had been contractually entitled to do.

The EAT agreed with the Tribunal’s finding that DPD’s right to satisfy itself that a proposed driver met the criteria set out in the Franchise Agreement was consistent with a right to check that the substitute was as qualified as the driver.

The EAT and Tribunal therefore both considered that the franchise agreements were genuine and represented the true agreement between the parties under which there was a genuine right of substitution. Even if the Operating Manual had been incorporated in the Franchise Agreement, nothing in it imposed an obligation upon franchises personally to carry out work.

This case emphasises the importance of ensuring the working practices do in fact reflect the reality of the working arrangements to ensure substitution clauses cannot be regarded as a sham as held in Autoclenz. The Tribunals will look at each case on its particular facts to decide if there was an unfettered right of substitution.

In this case, even though the right of substitution was rarely used, the Tribunal accepted that there was an unfettered right of substitution and just because it is not used, does not mean that it is not genuine. This point was highlighted in Kalwak v Consistent Group Limited 2007, where Elias P, noted the distinction drawn between clauses which do not reflect the reality of the situation:

“...because no-one seriously expects that a worker will seek to provide a substitute, or refuse the work offered, and those which genuinely reflect that which might realistically be expected to occur, in which event the fact that the rights conferred have not in fact been exercised will not render them meaningless.”

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