Franchisee, worker or employee?

In the case of Stojsavljevic and another v DPD Group UK Ltd, the Employment Appeal Tribunal (EAT) upheld a decision that owner-driver franchisees who carried out parcel delivery and collection services for DPD were neither employees nor workers.

The case is a useful touch point for businesses operating within the "gig economy", and particularly for those which are considering the franchise model.

Background 

In 2013, two owner-driver franchisees ("ODFs") entered into DPD's standard franchise agreement relating to the provision of parcel delivery and collection services (the "Franchise Agreement"). They were also given a non-contractual operating manual (the "Manual"). 

One of the terms of the Franchise Agreement stated that the ODF was required to supply a driver (who could be either the ODF or another person) to perform the delivery services. The Franchise Agreement went on to confirm that it was the responsibility of the ODF to ensure that any substitute drivers were trained in accordance with DPD's procedures and policies. The Manual also stated that if an ODF needed to engage a substitute driver, the ODF would need to give a copy of the driver's driving licence and complete an application form for DPD to authorise the substitute. 

The ODFs' status 

A dispute eventually occurred between the parties which prompted the ODFs to claim at the Employment Tribunal that they held either worker or employee status. The Tribunal disagreed and the Employment Appeal Tribunal (EAT) upheld the Tribunal's decision in December 2021. 

A key element of worker status is that the individual undertakes to perform the work or services themselves ("personal performance"), but in this case the Franchise Agreement provided the ODFs with the unfettered right to supply a driver, which could be either themselves or another driver (also known as a "right of substitution"). Nothing in the Franchise Agreement required the driver to have a particular identity, subject to DPD being satisfied that the minimum requirements necessary for the service to be delivered to customers would be met. 

A right of substitution limited only by the need to show that the substitute is as qualified as the contractor to do the work is, subject to any exceptional facts, inconsistent with personal performance (as applied in Pimlico Plumbers Ltd v Smith), which means that the genuine right of substitution in this case was also inconsistent with worker and employee status. 

The ODFs argued that the reality of the Franchise Agreement was that they were contracted as individual drivers who were solely responsible for the services that they had agreed to undertake. However, the Employment Tribunal stated that "this was not such as to amount to a fetter on the [ODFs'] contractual entitlement to engage a driver of their choice". 

Takeaway for Franchisors 

This case highlights the importance of ensuring that written terms between parties reflect the true nature of the franchise relationship – even if there are explicit substitution clauses, an employment tribunal will always look to the reality of the relationship between the parties. If DPD had, for example, unofficial internal policies that meant that the ODFs were not allowed a right of substitution in reality, it is likely that the Employment Tribunal would have found that the Franchise Agreement did in fact confer worker or employment rights on the ODF. 

That being said, whilst the right of substitution is key, there is no one determining factor. In recent cases involving the likes of Uber, judgments have also focussed on elements such as the ability to determine pricing and level of integration into the parent/franchisor business. Risks can also arise where a franchisor centralises training and policies more generally, for example, by imposing terms and conditions on franchisees (and their workforce). 

Franchising is taking hold in the delivery sector, with the likes of Amazon and other "last mile" delivery services announcing the launch of franchise programmes. It has been widely reported in US that brands such as Uber and Lyft are looking at a franchise model, in light of repeated push back for worker right status for the independent contractors who operate on their platforms. For any business in this sector which is looking at the franchise model, it is prudent to consider the potential practical cost and risk of a finding of worker status before deciding whether or not to proceed.

It remains to be seen whether these businesses will adapt and change their business models to incorporate the typical hallmarks of a franchise operation, or whether some will view franchising as a means to a certain end – i.e. shifting the legal responsibility (and risk) of worker status onto franchisees.

Co-authored by Kristina Holm.