Personal Service and Substitution

A self employed contractor enters into a contract to provide a service rather than personal skills and should be able to provide a substitute or engage helper to provide the service. An employee would provide his services personally. The case of Chaplin v Australian Mutual Provident (1978) held that:

“…the power of unlimited delegation is almost conclusive against the contract being a contract of service.”

The right of substitution is one of the strongest tests of self employment as shown in the case of Echo and Express Publications v Tanton (1999).

Although the majority of contractors may never exercise it, the right to substitute someone else to undertake the work must be a genuine one. The substitute must be answerable to, and paid by, the company who originally undertook to complete the contract. The client may retain the right to veto a substitution on reasonable grounds, however this should be limited to factors such as the qualifications/experience of the proposed substitute or security issues.

EXAMPLE OF A COMPLIANT SUBSTITUTION CLAUSE

The Supplier shall provide the services using suitably qualified personnel of their own choosing. The Supplier reserves the right to substitute any personnel, provided the Client is reasonably satisfied that any proposed substitute possess the necessary skills and qualifications for the satisfactory completion of the services. The Supplier will remain liable for the services completed by substitute personnel and will bear any costs A contract without an explicit right of substitution will almost always fail a contract
assessment. Attempted substitution clauses that contain the following will also cause a contract to fail assessment:

• If the Client is given sole discretion over a proposed substitution. In order for a subs clause to be valid, the client may only be able to reject a proposed substitute on reasonable grounds. Reasonable grounds would relate to the suitability of the proposed substitute, or security issues.
• If the Contractor is required to give anything more than reasonable notice of a proposed substitution – anything longer than 7 days can be seen as unreasonable (although more flexibility can be given to those with clients with particular security risks, such as the MOD)
• If the Client requires to “interview” a proposed substitute.
• Rights to subcontract do not constitute a right of substitution.