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A dent in the substitution argument?

Hermes ruling may add another string to HMRC’s bow

The recent Employment Tribunal ruling in the Hermes Parcelnet Ltd (Hermes) case may have provided HMRC with another strand of argument when disproving a right of substitution.

A total of 65 couriers brought successful claims against Hermes for the National Minimum Wage, holiday pay and unauthorised deductions from wages, on the basis that they were ‘workers’ rather than independent contractors.

A ‘limb’ worker is someone who:

  1. Undertakes to do or perform personally any work or services for a third party; and
  2. Although self-employed, provides their services as part of a profession or business carried on by someone else – essentially integrated into the clients’ business organisation.

Hermes business model

Hermes is a parcel delivery business which directly employs approximately 2,500 people throughout its operations in the UK. Broadly speaking, parcels are collected from retailers by Hermes lorries, brought to hubs and sorted by region. They are then driven to regional depots where they are sorted in more detail. They are then distributed to one of 550 sub-depots to be collected by individual couriers for the final stage of delivery.

Hermes advertises widely for new couriers using recruitment material that refers to couriers being their “own boss”. Successful candidates are allocated a courier number and assigned a round. All couriers must provide their own vehicle and driving licence to match. The vehicle is not required to have Hermes branding.

Personal service and substitution

The written agreement between couriers and Hermes is entitled ‘Self-employed couriers contract for services’ and has a specific clause that states:

“You are not under an obligation to provide the service personally. Accordingly, you have the unconditional right to nominate a substitute to provide the service on your behalf, at any time for any reason.  

However, it is your responsibility to ensure that your nominated substitute carries out the service in line with the standards to which you would be subject if you were providing the service.

Should you wish to exercise your right to provide a substitute, you should advise us of your substitution in writing or telephone the details to the Company.”

Where a substitute worker (a non-Hermes worker) is used, payment of that replacement worker remains the responsibility of the courier.

In addition to invoking their right of substitution, couriers may arrange for their deliveries to be undertaken by another Hermes courier. However, in these circumstances Hermes contracts directly with the ‘cover’ and pays them.

The judge found that the written agreement did not reflect the true agreement between the two parties, as Field Managers could veto a courier’s choice of substitute and their permission (express or implied) is also required.

It was considered by the judge that the provision of a delivery and collections service on a round is the work or service that the courier undertakes personally to perform.

If the couriers could simply inform Hermes on the days on which they were available to provide delivery services, the question of whether and in what circumstances they could instead send a substitute to carry out those deliveries would be fundamental to deciding whether they undertook personally to perform the work.

However, where the contract obliges the courier more broadly to provide a delivery service every relevant day, whether by delivering the parcels themselves or by sourcing somebody else to do so, the judge had no doubt that the couriers were obliged to personally to do that work.

Whilst there is the ability to nominate a substitute to perform the actual deliveries/collections on a particular day, there was no suggestion that anybody but the round holder could source the cover or substitute, communicate with the Field Manager about that, or supervise the substitute. These are contracts that require at least part of the work to be carried out by the courier themselves and, as such, are contracts under which the courier undertakes personally to perform that work.

If the contracts had been for the performance of deliveries on particular agreed days, rather than contracts for the provision of a delivery service every day, then the judge believed that the question of personal service would have been less clear cut.

There had been instances of couriers using substitutes. In fact, one of the claimants had once acted as a substitute and another of the claimants had a number of rounds and used his father and brother to assist him.

With regard to the second condition of ‘limb’ worker status, it was quite obvious that the couriers’ degree of dependence on Hermes was essentially the same as that of employees rather than people with a sufficiently arm’s length position to be able to support themselves. They do not actively market their services to a wider audience but are recruited by Hermes as an integral part of its business.

HMRC are very quick and keen to play down the importance of a right of substitution, arguing that if the right is not wholly unqualified, then it is fettered and therefore not conclusive in demonstrating self-employment, even when that right has been exercised on the odd occasion. This recent ruling may therefore help HMRC fan those flames higher. Nevertheless, even where a right of substitution is conditional, it may succeed depending on the conditionality and should be compelling if it is successfully invoked without too much fuss.

The full judgment can be found here Hermes ET decision.

By Qdos Contractor

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5 thoughts on “A dent in the substitution argument?”

  1. guy

    Given that almost no-one understands these microscopic and largely untested arguments and that HMRC never apply their own rules in a uniform manner is there not some recourse to ‘the spirit of the contract’ in that it was obviously intended to put the worker outside of IR35 despite unknown and unconsidered nano-technicalities?

    In most other areas of contract law I believe the spirit of an agreement often carries great weight. Perhaps it should be stated in a contract that the intent is to put the worker outside of IR35 so that it is clear and stated even for the most autistic of interpretations.

    • Soprano

      Besides if HMRC are free to ignore the much more extensive and well established case law on MoO, where they’ve been flatly contradicted, I don’t see why contractor advisers should just accept any crap spewed in some of these clueless rulings. I am hoping QDOS are putting together counter arguments to bad rulings. HMRC will certainly ignore case law as it suits them.

      • Soprano

        Reading the article, the argument seems fatuous and the result of tortured reasoning. The only issue is that the sub has to undertake a direct contract with the client but whether they have to be available ‘every day’ or on ‘particular agreed days’ seems neither here nor there.

  2. Margaret Gould

    The whole inside/outside IR35 has become madness.

  3. somecat

    This totally unnecessary complexity is established and sustained by those who have a vested interest in maintaining it

    Guess who?

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