Employment status: Irish High Court provides useful insight

The court ruled that delivery drivers for a Dominos Pizza franchise should be treated as holding contracts of service rather than as self-employed contractors for employment tax purposes, backing an earlier ruling by the Tax Appeals Commission (TAC). The franchise, Karshan (Midlands) Ltd, had argued that the TAC had erred in law in her interpretation of a number of concepts: mutuality of obligations; substitution; integration; and terms of the contract when coming to its ruling.

However, Karshan will not be required to pay the Revenue Commissioners' costs. Mr. Justice Tony O'Connor, said that he would make no order as to costs as his judgment would be of assistance to both Revenue and others in interpreting the law. It is the most recent judgment by the High Court in Ireland relating to employment status in the so-called 'gig economy'.

Employment law expert Jason McMenamin of Pinsent Masons said: "It is critical that employees are labelled correctly not just from an employment law perspective but also from a tax point of view".

"It is prudent for employers to carefully examine their existing contractual arrangements to ensure that they accurately reflect the true nature of those relationships as the courts and Revenue will look at the reality of the relationship and not just the written contractual arrangement," he said.

The drivers at the centre of the dispute were engaged by Karshan as 'independent contractors' during the tax years 2010 and 2011. Drivers were paid according to the number of successful deliveries, but were not required to complete a minimum number of deliveries and were not guaranteed a minimum amount of work. They were also required to sign a document confirming that Karshan had "no responsibility or liability whatsoever" for deducting or paying PRSI or tax.

Drivers were provided with branded clothing and logos on payment of a deposit, the wearing of which was mandatory. They were paid an hourly rate for 'brand promotion' by wearing the branded clothing and logos. They were required to use their own cars and motor insurance.  Drivers were permitted to engage a substitute driver "provided that substitute could perform all contractual obligations of the driver to [Karshan]". However, the substitute invoiced Karshan and was paid by Karshan and so the substitute was not a sub-contractor of the driver.

The TAC, in its earlier ruling, had held that the relationship between Karshan and the drivers was that of an "overarching umbrella contract", supplemented by multiple individual contracts in respect of each work assignment. In each of these individual contracts, there was 'mutuality of obligation' – one of the main tests for the existence of a contract of service - between Karshan and the drivers.

Karshan, appealing to the High Court, argued that the TAC had relied too heavily on English case law and that mutuality, in Irish law, "requires an ongoing reciprocal commitment to provide and perform work on the part of the employer and employee respectively". The High Court disagreed, ruling that 'ongoing' "does not necessarily connote immediate continuation or a defined period of ongoing".

"The Commissioner … did not go against Irish law but rather recognised the necessity to adapt to modern means of engaging workers," Mr Justice O'Connor said in his judgment. "[Karshan] agreed to provide work when [Karshan] needed the driver, who notified [Karshan] about his or her availability. The Commissioner considered the facts and applied her understanding of the law which [Karshan] has not established to have been incorrect."

"[T]he right of a driver to cancel a shift was qualified by the requirement to engage a substitute, to provide advance notification to [Karshan] and to work out the remainder of the shifts in the series which had been agreed ... I conclude that a contract which provides drivers with the right to cancel shifts at short notice does not relieve a driver of work related obligations in the manner contended for by [Karshan]," he said.

The judge quickly dismissed Karshan's contention that the TAC had failed to give proper weight to the written terms of its contracts with its drivers. He found that the commissioner had interpreted the terms "with an eye on the reality of the relationships between drivers and [Karshan]", and that she had been correct to do so.

Jason McMenamin said: "Working arrangements have evolved over recent years, with the introduction of agile and flexible working. Such arrangements make it harder to categorise the employment status of individuals. In light of this and the increase in 'gig economy' cases in the UK, we anticipate that the employment status of individuals will become more closely scrutinised in Ireland".

"The assessment of whether workers have a contract of services or a contract for services is not clear cut, and there is no comprehensive statutory or common law definition of a 'contract of service' or 'contract for services'. In fact, Mr Justice O'Connor cautioned against adopting a box-ticking exercise when considering the correct employment status, preferring 'a careful and flexible understanding of relationships'," he said.