Are franchisees entitled to the same rights as employees?

In light of a recent EAT ruling, Avril England explores whether owners of company franchises have the same statutory rights as those directly employed

Issue

Some business models may provide that the individuals engaged are to be regarded as independent contractors. In such cases disputes may arise in respect of their true employment status and whether they benefit from the protection of statutory employment rights. These issues have been explored in numerous high-profile cases in recent years particularly in relation to gig workers. The decisions have largely demonstrated that the labels used by the parties will not necessarily be binding and it is the reality of the working relationship together with the relevant employment legislation that will determine their true status. 

In (1) Stojsavljevic (2) Turner v DPD Group UK Ltd the status of the individuals as described in the written contracts was again challenged but this time it was in the context of individuals who had undertaken work through franchise agreements who were claiming to have statutory employment rights.

Facts

Mr Stojsavljevic and Mr Turner were both 'owner-driver franchisees' who had entered franchise agreements with DPD to operate parcel delivery services. The franchise agreements were in a standard form used for both individuals and companies. 

The terms of the franchise agreement required that the franchisee's business be operated strictly in accordance with DPD’s operating manual which provided that the franchisee was required to supply a driver to perform delivery and collection services and that a driver could not be used until a completed application form had been completed and authority given by DPD. 

The claimants argued that there was a requirement for personal service despite the provisions in the franchise agreement and that they were at least workers with corresponding employment rights.

Decision

The claims failed. It was held that the franchise agreements were genuine and the claimants were independent contractors. The terms of the franchise agreement did reflect the reality of the working relationship between the parties. 

In relation to personal services, while the claimants had in practice only used cover drivers who were also franchise holders it was found that they had a contractual right to use any substitute of their choice at any time. 

As for the requirement that DPD authorise the other driver, this did not mean that their right to provide a substitute was unduly limited. DPD was entitled to be satisfied that a proposed driver fell within the contractual definition of ‘driver’ and was qualified to drive in accordance with the operating manual but it could not otherwise limit the choice of who they proposed as a substitute. 

In these circumstances, there was no contract for personal service which meant that the claimants could not be classified as ‘workers’. 

Key points

A requirement for personal service will often feature as one of the most important factors where there is an employment status dispute. A right to provide a substitute to carry out the work will be sufficient to defeat a claim that the individual has employee or worker status. This case highlights that a substitution right limited only by the need to show that the substitute is as qualified as the contractor, whether or not a particular procedure is required, will still usually be inconsistent with a requirement for personal performance.

However, when construing any agreement, the particular working arrangements will need to be taken into account. It will be important that the agreement reflects the reality of the situation in practice so that third parties can provide the service in question. An agreement that attempts to exclude worker rights by including a right to provide a substitute that cannot be operated in practice will not defeat a claim. It was relevant in this case that the same agreement had been used for corporate franchisees that had used several different drivers. 

Avril England is a partner at Gateley Legal