Our business has a mix of employees and self-employed contractors – I understand that the law may have changed recently, leading to a higher risk of contractors being deemed to be employees. How do I handle it?

The classification of workers as self-employed or employees is a matter which continues to dominate the headlines and indeed the agenda for businesses and there have been some important developments in this area over the past 12 months.

Revenue and the Courts expect Businesses to be able to demonstrate why it has determined a worker is not being treated as an employee.

In the event an individual has been misclassified as a self-employed contractor rather than as an employee, then Revenue may seek the repayment of uncollected payroll taxes and Employer PRSI along with interests and penalties.  The worker may also seek the protection of the Workplace Relations Commission (“WRC”) or the Courts to assert employment rights and protections.

A key development in this area took place on 20th October 2023 when the Supreme Court delivered its judgment in the Dominos Case which we will discuss further below and, given the significance of that judgment, Revenue has requested all businesses to urgently review their current arrangements with workers.

Before we look at that decision, it is important to remind ourselves of the different statutory bodies in place that make determinations on employment status as follows;

• Scope Section of the Department of Social Protection – which examines whether the appropriate class of PRSI has been assigned to a worker.
• Office of Revenue Commissioners – which looks at the tax treatment of workers.
• Workplace Relations Commission – which examines workers rights.

Those bodies, had prior to the Dominos decision, applied the 2021 Joint Code of Practice on Determining Employment Status: prepared by an Interdepartmental Working Group consisting of representatives from the Department of Social Protection, the Workplace Relations Commission and the Revenue Commissioners in consultation with IBEC and ICTU.

That Code of Practice set out five tests for determining status of workers;

1. Mutuality of obligation test - Does the employer provide work to the employee and is the employee obliged to do that work?

2. The control test - What is the degree of control exercised over the worker and, in particular, who controls the work and how and when and where the work is to be done?

3. The integration test – Does the individual work as an integral part of the business? Or are they only an accessory to it?

4. The multi-factorial test - This test means that all features of the working relationship are examined. There are three legs to this test:

1. 1. Does the individual perform work in consideration of a wage or other remuneration?
   2. Is the individual, either expressly or impliedly, subject to the employer’s control?
   3. Are the other provisions of the contract consistent with it being a contract of service?

• If the above tests are met, then it points to an employee/employer relationship.

5. The entrepreneurial test - Is the person, who is performing the services, performing them as a person in business on his or her own account?

• If yes, then it is a contract for services (an independent contractor) and, if no, it is a contract of service (an employee/employer relationship).
• A number of factors may be considered when determining this test:
  • whether the individual provides own equipment;
  • the degree of responsibility for investment and management;
  •  the degree of financial risk;
  • whether he or she employees or contracts-out the work; and
  • whether he or she can profit from the management in the performance of the task.

The 2021 Code of Practice is now under review to take account of the Dominos decision however the caselaw derived from those tests are still relevant. Revenue issued a further update in July 2024 noting that it will be working with colleagues in the Department of Social Protection and the Workplace Relations Commission to update the Joint Code of Practice relating to employment status (Last updated in 2021).

As outlined above, on the 20th October 2023, the Supreme Court delivered its judgment in the Karshan Limited (t/a Dominos Pizza) v Revenue case which clarifies the law relating to employment status and whether a worker is a contractor or employee.

Over a 191 page judgment, the Court reviewed the existing bank of caselaw and set out a 5-step decision making framework to determine employment status to guide an assessment and avoid misunderstandings of the law which has developed over time. The decision confirms the factors which have developed over the caselaw are still of relevance

The Judgment applies to all forms of engagements whether continuous, once-off or gig-based arrangements.

It is also important to note that the case was concerned solely with the proper tax treatment of the workers and the broader question of employment rights was not before the Court, however as we will see, the WRC have applied this decision making framework in assessing employment rights.

In its decision, the Supreme Court found that the relevant Domino’s drivers in that case were in fact employees, rather than independent contractors. In making this determination the Supreme Court introduced a framework for assessing employment status whereby a minimum threshold must be met under three factors:

1)     remuneration and contract type;

2)     personal services and

3)     control.

Once those three factors are met, the working arrangement and legislative context are examined further.

The court set out a 5 question framework to guide any assessment of employment status as follows:

Q1 – Does the contract involve the exchange of a wage or other remuneration for work?

There must be a wage – an ongoing or continuous commitment to provide work does not necessarily need to prevail. Therefore, a contract is capable of being an employment engagement where there is paying on a once off basis.

Q2 – Is the agreement one pursuant to which the worker is agreeing to provide their own services, and not those of a third party to the employer?

There must be personal services, but a limited degree of substitution may still be consistent with a contract of employment e.g. – where a worker is unable to carry out the work without the consent of another person however if there is an unconditional right to appoint a substitute that would be inconsistent with a contract of employment.

Q3 – does the employer exercise sufficient control over the putative employee to render the agreement one that is capable of being an employment agreement?

What level of control there is in terms of how, when and where the work is carried out along with what work should be carried out

Q4 - :  whether the terms of the contract between employer and worker interpreted in the light of the admissible factual matrix and having regard to the working arrangements between the parties as disclosed by the evidence, are consistent with a contract of employment, or with some other form of contract having regard, in particular, to whether the arrangements point to the putative employee working for themselves or for the putative employer.

In its decision, the Supreme Court conducted an extensive analysis of the actual working arrangement between Dominos and the delivery drivers. The focus here is on the contractor’s ability to make a profit from their own skills, and the need for investment on the part of the contractor, particularly in terms of tools and equipment used to carry out the work. On the factors pointing to an independent contractor relationship, Mr Justice Murray noted under the terms and conditions that the drivers were not punished for failing to work and the fact that drivers did not have to take orders from customers.

On the other hand, he noted the following which indicated an employment relationship:

• One party had drafted the agreement and there was no negotiation. The unequal bargaining power between the parties also being important here.
• The drivers must commit to work a week or so in advance and if they were not required, they would still receive pay for being rostered;
• The drivers took little or no economic risk and there was very limited opportunity to increase the profitability of their work;
• They could not substitute themselves or employ their own labour;
• They worked exclusively from Domino’s premises and wore uniforms and carried branding on their vehicles.

Q5 – : Finally, it should be determined whether there is anything in the particular legislative regime under consideration that requires me to adjust or supplement any of the foregoing.

This relates to any legislative provisions which might adjust the outcome such as schemes involving the protection of particular employee rights

In May 2024, the Revenue published a new guidance note, setting out the factors to be considered in determining employment status for tax purposes. On foot of the judgment, it is expected there will be an increase in the number of workers that will be determined to be employees for tax purposes

While the guidance note was issued in the context of tax law and practice it will have relevance to determining the status of individuals for employment and social welfare purposes also.

The issue has also come before the Workplace Relations Commission (WRC) in the highly publicised decision of Matthew McGranaghan v MEPC Music Limited (ADJ-00037668), published in September 2024.

The WRC’s decision marks the first time it has applied the principles of the Supreme Court’s ruling in Karshan.

The Complainant, Mr. Matthew McGranaghan, was a fiddler in the Respondent’s band, the Michael English Band. The Complainant had been performing with the band since 2014. On 22 September 2021, the Respondent emailed Mr. McGranaghan to confirm that his services would no longer be required, after he raised concerns about his employment status. The Complainant brought a number of complaints to the WRC alleging that he was an employee rather than a self-employed contractor. As a result, he contended that he had been unfairly dismissed and also raised issues regarding failure to provide core terms in writing, unpaid notice, unpaid work on a Sunday, annual leave, and public holiday entitlements. The Respondent claimed that the Complainant was a self-employed contractor and not an employee.

The distinction between an employee and an independent contractor is crucial in this case because it determines whether statutory protection applies to the Complainant and therefore, the jurisdiction of the WRC.

The WRC’s decision represents the initial application of the principles outlined in the Supreme Court’s decision in Karshan.

The Adjudication Officer stated that the judgment provides an extensive review of the caselaw to date in the area of determination of employment status, and succinctly summarises it through the provision of a decision-making framework.

Question 1: Does the contract involve the exchange of a wage or other remuneration for work?

• The Complainant did provide a personal service of being the fiddle player for the band in exchange for payment. The Complainant’s fee was a set amount for each gig/rehearsal in return for him providing his personal service and he was paid every Friday and on occasion for work in advance.

Question 2: Is the agreement one pursuant to which the worker is agreeing to provide their own services, and not those of a third party to the employer?

• The Complainant provided his fiddle playing services for the band as the resident fiddle player and he would get 3-6 months’ notice of gigs in advance normally 3-4 times a week. In the very limited occasions, out of the 1,200-1,300 gigs he did, he was not available, a substitute was found to cover his fiddle playing for that specific gig. The substitute got paid directly. The substitution however was not considered as a regular option. It was an exception.

Question 3: Does the employer exercise sufficient control over the putative employee to render the agreement one that is capable of being an employment agreement?

• It was determined that the Respondent had sufficient control over the Complainant. The Complainant had no flexibility as to when the work was performed as the gigs were scheduled months in advance, he was told what music to play, wore the band uniform and was instructed by the Company for all work-related matters.

Question 4: All the circumstances of the employment must then be considered: whether the terms of the contract between employer and worker interpreted in the light of the admissible factual matrix and having regard to the working arrangements between the parties as disclosed by the evidence, are consistent with a contract of employment, or with some other form of contract having regard, in particular, to whether the arrangements point to the putative employee working for themselves or for the putative employer.

• When considering the evidence and circumstances of the case in practice, the Complainant was an employee. The facts of the case did not support the Complainant being self-employed.

Question 5: Finally, it should be determined whether there is anything in the particular legislative regime under consideration that requires the WRC Adjudication Officer to adjust or supplement any of the foregoing.

• There was no particular legislation that required any adjustment to the above answers.

Based on the above test and based on all the evidence presented, the Adjudication Officer found that the Complainant met the definition of an “employee” on a Contract of Service as defined by Section 1 of the Minimum Notice and Terms of information Act 1973.

Finding in the Complainant’s favour, the WRC Adjudicator awarded a total of €43,840 on foot of his complaints which included:

• €26,880 for the breach of the Unfair Dismissals Act 1977
• €12,480 for breaches of employment rights under the Organisation of Working Time Act 1997, the Terms of Employment (Information) Act 1994 and the Minimum Notice and Terms of Employment Act 1973
• €4,480, under the Payment of Wages Act 1997 (for not receiving the appropriate payment in lieu of notice on the termination of his employment).

This WRC case is a landmark decision that reinforces the importance of correctly classifying workers and protecting their rights.

It is also Important to note that while the Karshan case was concerned solely with the proper tax treatment of the workers and the broader question of employment rights was not before the Court, the WRC has applied this decision making framework in assessing employment rights and each relationship will have to be assessed in a holistic manner to determine the relationship in practice

Hopefully a more uniform approach to determining employment status will now be taken by employment rights forums, tax authorities and social welfare authorities.

No doubt this is an area to continue to watch and we are expecting more developments in this area with the publication of the updated Joint Code of Practice relating to Employment Status and also the upcoming EU Directive on Platform Workers, including taxi drivers, domestic workers and food delivery drivers. The Directive will help correctly determine the employment status of persons working for platforms, enabling them to benefit from any employment and labour rights they are entitled to and provides for EU member states to establish a legal presumption of employment in their legal systems that will be triggered when certain facts indicating control and direction are found.

Currently, the majority of the EU’s platform workers are classified as self-employed. The Directive will enter into force following publication in the EU’s Official Journal.

Member States will then have two years to integrate the directive’s provisions into their national laws.

These developments to date and upcoming developments highlight the importance for business engaging workers on an independent contractor basis to review their existing practices and working arrangements to determine whether they are indeed contractors or are more akin to employees.