
The Irish Supreme Court’s recent decision regarding the employment status of certain delivery drivers has clarified the considerations to be made when determining a worker’s employment status – particularly those working in the “gig economy”.
The case arose from a tax assessment, where the Irish Revenue took the view that Karshan (Midlands) Ltd, trading as Domino’s Pizza, was employing its delivery drivers and, as such, the Company was liable to pay employment related taxes for those workers. Karshan disputed this arguing that the drivers in question were self-employed contractors.
The matter was first heard before the Tax Appeals Commission. In a 2018 decision the Commissioner found that the delivery drivers in question were employees and not independent contractors.
Karshan appealed this decision to the High Court, which appeal was rejected. However, in a second appeal, the Court of Appeal overturned the High Court decision. Revenue sought a further final appeal before the Supreme Court who overturned the Court of Appeal decision.
While all factors of the engagement between Karshan and its drivers were considered by the Supreme Court, a central pillar of the appeals concerned a disagreement between Revenue and Karshan as to the issue of “mutual obligations” – both what constitutes mutual obligations and when and whether mutual obligations were present in this case.
Karshan argued that mutuality of obligation meant that any mutual commitments between the employer and employee inherently required some form of continuity and a forward-thinking element beyond the period of doing the work.
Karshan further argued that mutuality of obligation required not only an obligation on an employer to provide work but a reciprocal obligation on the employee to perform work. Karshan argued that this mutuality was absent based on the terms of the “umbrella contract” under which the drivers were engaged, which provided that the drivers need not put themselves forward to be rostered for work on a given week.
Karshan argued that without this mutuality of obligations the arrangement could not be one of employment.
These arguments were rejected by the Supreme Court. Specifically, the Court found that, having regard to the terms of the overarching contract, once a driver offered to attend for work and the Company accepted the offer by rostering that driver for work, with resulting commitment to pay the driver at least some fees (regardless of the deliveries done) the mutuality of obligations arose for that period of work.
In terms of differentiating between a contract for service (independent contractor) or a contract of service (employment), Mr. Justice Murray outlined five questions to be answered to establish whether a contract is one of or for service.
1. Does the contract involve an exchange of remuneration for the work?
In Karshan, the court ruled that there is no doubt that a binding agreement came into being between the drivers and Karshan whereby the drivers, in consideration for their services, were paid (a) an hourly rate for branding and (b) the fee due as and when pizzas were delivered by the drivers.
2. If so, is the agreement written so the worker is agreeing to provide their own services and not a third party to the employer?
In examining how a substitution clause contained in the contract operated in practice, the court held that the drivers were limited (including prevented from sub-contracting) such that the element of personal service was present.
3. If so, does the employer have sufficient control over the worker to make the agreement capable of amounting to an employment agreement?
The court noted that Karshan operated the rosters and allocation of work, Karshan had control over the manner the drivers dressed, and that some drivers when at the premises were directed to make up pizza boxes a failure to comply with that requirement entitled the manager to send the driver home for the remainder of the shift. All of this strongly pointed to a high level of control on the part of Karshan.
4. The next step is to look at whether the terms of the contract between the parties (and having regard to the arrangement between the parties) is consistent with an employment contract or some other type of contract and to consider is whether the evidence points to the employee working for themselves or for the employer.
The court ruled that the economic activities of the workers were so restricted by the terms and conditions imposed by Karshan that the work was in every sense work for Karshan and was directed towards advancing its business.
5. Lastly, it should be considered whether any legal reasonings mean a court should adjust any of these requirements.
Mr. Justice Murray noted that he could see no basis on which the language of the Taxes Consolidation Act 1997 required any modification to the standard common law approach as regards to the definition of “employee” and “contract of service”.
The Supreme Court ultimately decided that the evidence in the case pointed to Karshan having a “close control” over the drivers in their employment which created an employee and employer relationship between the parties.
What does this mean for Irish employers going forward?
While the decision arose in the context of a dispute over the Taxes Consolidation Act 1997, it has wide ramifications in the employment law context. Irish employers should be aware that the courts will look to whether the employer has a “close control” over an individual acting in the course of the engagement to establish an employment relationship.
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