A Right of Substitution Does Not Always Decisively Indicate Self-Employment


A contractual right to substitute someone else to perform your work is a powerful indicator that you are self-employed – but it is not, in every case, decisive. The Employment Appeal Tribunal (EAT) made that point in a guideline ruling.

A financial professional was described in his contract with an investment company as an independent contractor. A clause in the contract entitled him to substitute his own employees or agents to provide services to the company on his behalf. His proposed substitutes, however, first had to be approved by the company at its sole discretion.

In Employment Tribunal (ET) proceedings, he claimed that he had been subjected to detriments for whistleblowing and had not been paid in respect of his entitlement to annual leave. Following a preliminary hearing, however, the ET dealt a fatal blow to his claim when it ruled that he was not a ‘worker’ within the meaning either of the Employment Rights Act 1996 or the Working Time Regulations 1998.

The ET found that the contract was subject to an implied term that the company’s consent to the man’s provision of a substitute would not be unreasonably withheld. The substitution clause was a genuine provision which meant that he was under no obligation to perform any work or services for the company personally.

Ruling on his challenge to that decision, the EAT found that the ET had erred in implying a term into the contract on the basis that it was necessary to give the substitution clause business efficacy. It was perfectly workable without such an implied term which had the effect of excluding him from any of the statutory rights available to workers. It was also highly relevant that the right of substitution had never been exercised in practice.

In finding that the ET wrongly placed weight on the contract’s characterisation of the relationship as one of self-employment, the EAT noted that, to an outsider, the man’s role within the company would have appeared identical to that of its employees. The EAT concluded that he did undertake personally to perform work or services for the company. Remaining issues relevant to the question of whether he enjoyed the status of a worker were remitted to the same ET for further consideration.

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