Actual Substitution Was Not Enough

Casual hauliers found to be employees

Lorry drivers who occasionally engaged and paid a replacement driver were still found to be employees by the First Tier Tax Tribunal in the case of husband and wife partnership, R S Dhillon and G P Dhillon Partnership v HMRC.

The partnership t/a ‘London Goods Transport’ (LGT) provided haulage services to its customers who were larger companies which produced asphalt, tarmac and other aggregates for the construction industry. For this purposes LGT owned and insured five lorries. Materials would be delivered from customer sites to where the materials were being used by self-employed drivers.

Detailed written ‘franchise agreements’ were entered into by LGT and its customers, under which LGT were granted a right to carry on a business of providing delivery services to the customer to specified standards (spanning such matters as branding on the lorries, vehicle maintenance, operational instructions for drivers, and health and safety standards) at agreed rates per delivery set out in the contracts.

LGT had been presented with a PAYE tax and NIC bill of nearly a quarter million pounds covering the four years ended 5th April 2013, by HMRC who view drivers who do not hold their own license and operate their own vehicles as employees anyhow.

Working arrangements

LGT built up a pool of potential drivers of its lorries but there were no written contracts in place.

Typically, a customer would tell Mr Dhillon, usually the evening before the job needed to be done, how many lorries were needed the next day for deliveries and where the loads needed to be transported to. Mr Dhillon would then contact the drivers by telephone and offer them the job, which the drivers were free to decline. Regular refusal would however affect a driver’s chances of being offered future work. If the driver accepted the offer, then they would pick up LGT’s lorry at one of the customer sites, load it and drive it to the construction site, unload it and finally return the vehicle to the customer’s site to park it up. Although Mr Dhillon did not supervise the work, a driver would interact with LGT’s customer and its staff as to the precise details of where, how and when to load and unload the lorry.

Drivers had to meet certain competence standards such as holding a HGV licence and an ‘EPIC’ card (driver’s skill card) which required attending a training course, which drivers arranged and paid for themselves. Customers of LGT also had site training courses which drivers were required to take. The costs of attaining these standards however were all met by the drivers themselves.

When drivers were first taken on, Mr Dhillon assessed how much relevant driving experience they had. If they had little experience then Mr Dhillon or one of the other drivers accompanied the new driver on delivery jobs for up to 2 weeks, during which time the new driver was not paid.

Drivers were paid a fixed fee for a shift, which differed according to whether it was a day or night shift. Other than occasional discretionary bonuses, drivers received no other remuneration.

Shifts could end at varying times, meaning that some drivers could finish earlier than on other days.

There was no guarantee of work and drivers were free to work for businesses other than LGT. Some drivers however continued to work for LGT for four or more years whilst others sought work elsewhere, either because they were not getting enough work from LGT or because they started up their own similar businesses.

The ‘franchise’ agreement permitted LGT to use ‘franchisee’s substitutes’, meaning employees of LGT or other workers that had been previously approved by the customer.  There were occasions when one driver procured another driver and paid that replacement driver. Typically, this would happen in situations where, by law, the first driver had reached the limit of the number of hours they could drive the vehicle without a break.

LGT did not provide protective clothing for the drivers, such as boots and trousers.

HMRC’s argument

HMRC submitted the minimum requirements of mutuality of obligation were met, ie that LGT would have been obliged to pay a wage/remuneration and in return the drivers were obliged to provide their own work or skill. LGT’s representatives quite rightly pointed out that what was being described was simply a contract. For a contract for services, more was required, as set out in case law.

According to HMRC the key factors were:

• The requirement for a driver to carry out the work in person;
• LGT had sufficient control over the drivers;
• The drivers did not have sufficient financial risk;
• Intention of the parties – there was no agreement between the parties as to whether the driver was an employee or independent contractor; and
• The drivers were integrated into LGT’s business

On the issue of personal service, HMRC claimed there was no genuine unfettered right of substitution.

Those drivers who regularly worked for LGT made over £25,000 a year which was in contrast to a self-employed person who would work for various engagers during a year. If you had hoped that HMRC had made it into the 21st century, then this statement alone shows how still hopelessly out of touch they are.

That some drivers stopped working for LGT to establish their own, similar, businesses showed the difference between having your own business on your own account and working for LGT.

Tribunal’s view

Control

Engaging a driver is, by its very nature, prescriptive. For example, where someone calls a cab and instructs its driver to take them from A to B in a particular vehicle at a specified time, the exercise of control over the driver is not a meaningful indicator of the driver’s status as an employee as opposed to an independent contractor. The test of control therefore was of limited assistance.

Mutuality of obligation (MOO)

There was no overarching contract requiring LGT to provide work, or the driver to carry out work, over and above the particular delivery job offered. However, a contract was formed each time a driver accepted an offer from LGT to carry out a specified delivery. Each engagement was a free-standing contract, made on a ‘per job’ basis and, as such, the required MOO was present.

MOO however was not considered to be a strong indicator in either direction.

Substitution

Whilst a right of substitution existed, the replacement driver had to be approved by LGT and their customer. The power of delegation was both limited and occasional and therefore substitution, although indicative of self-employment, was not in itself determinative.

Business on own account

The Tribunal were presented with little or no direct evidence of the drivers being in business on their own account and because of this the judge considered this test suggested that the drivers were engaged under a contract of service.

Overall picture

The facts of the case did not point consistently in one direction. That the drivers operated without supervision and had a limited right of substitution, pointed towards self-employment. On the other hand the lack of evidence that drivers were in business on their own account, combined with quite prescriptive rules for the performance of the deliveries imposed by LGT, pointed towards employment.

Essentially, the drivers were no more than ‘day labourers’ engaged on terms that were unwritten, uncomplicated and non-negotiable. ‘Master and servant’ was an apt description of the relationship that existed between the parties and the near-total absence of evidence that the drivers were running their own businesses, led the Tribunal to decide that the drivers were employed by LGT.

During the proceedings the judge commented that the existing case law surrounding employment status highlights the importance of avoiding a checklist approach to the tests of employment and of making an informed, considered, qualitative appreciation of the whole picture. I couldn’t agree further.