Appellant: The Revenue Commissioners

Karshan (Midlands) Ltd t/a Domino’s Pizza

This case involved a question of whether delivery drivers were employees under the Taxes Consolidation Act 1997 (TCA), as different tax rules apply depending on whether a worker is, or is not, an employee.

Drivers were engaged to deliver pizzas for a Domino’s pizza franchise (Karshan). Umbrella contracts signed by the drivers described the drivers as independent contractors and acknowledged that Karshan had no responsibility or liability to deduct and/or pay employment taxes on behalf of the drivers. The umbrella contracts provided that Karshan would pay the drivers an amount depending on the number of deliveries made and in respect of brand promotion – i.e. wearing Domino’s branded clothing and/or affixing the logo to their vehicles. They also included several terms relating to insurance, substitution of drivers, scheduling and limitations on the right of the drivers to provide delivery services to other companies. The drivers were required to sign other documents, including a ‘Promotional Clothing Agreement’ regarding the use of branded clothing and a ‘Social Welfare and Tax Considerations’ document, pursuant to which the drivers acknowledged that any work undertaken was strictly as an independent contractor.

The Supreme Court was of the view that the term mutuality of obligation has created unnecessary confusion, which it commented could be avoided in the future, if the use of the term in this area is discontinued. In its unanimous judgement, the Supreme Court conducted a detailed assessment of the case law over the past half a century, in order to retrieve a test that is ‘clear, workable and yet sufficiently flexible’. The Supreme Court relied on the framework developed by the UK decision in Ready Mixed Concrete (Southeast) Ltd v Minister for Pensions [1968] 2 QB 497 and National Insurance to determine whether, in any given case, a worker is an employee should be resolved by reference to the following factors:

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

The Supreme Court held that there could be no doubt in this case that the umbrella contract was a contract whereby the drivers would be paid in consideration for their services.

Is the worker agreeing to provide their services personally? 

It is necessary to determine if the agreement is:

•  One for personal services;
• One for personal services with a conditional capacity for delegation; or
• Whether it is an agreement that enables such a level of unconditional delegation that it is not an employment contract at all.

The Supreme Court found that in this case, the right of substitution was sufficiently limited, and therefore the TAC was entitled to decide that the personal service required for the contract to be an employment contract was maintained.

Does the employer exercise sufficient control over the employee? 

The Supreme Court commented that the right of control is important and that if a worker is unskilled, close direction as to the means and manner by which the work is completed is expected, while if skilled, the employer would not be expected to direct the worker as to the methods of achieving the prescribed objective.

The Supreme Court found that the combined effect of the operation of the rosters, weekly allocation of work, as well as the level of control over matters such as those outlined below, all pointed to a high level of control on the part of Karshan:

•  The manner the drivers dressed.
• The time the drivers were there.
• The number and extent of deliveries the drivers were to undertake.
• The preparation of filling out invoices.

Do the terms of the contract, interpreted in light of the factual matrix and working arrangements, point to the worker working for themselves or the ‘employer’? 

The Supreme Court noted the following factors considered by the TAC in determining that the delivery drivers were not independent contractors:

•  They did not take calls from customers.
• They did not employ, or have the right to employ, their own labour to undertake the tasks.
• They took no credit or economic risk.
• They worked exclusively from Karshan premises.
• Their ability to maximise their own profits was very limited and constrained by the control exercised by the on-site managers.
• They did not advertise their services.
• They did not scale their delivery business to any particular market.

In short, the drivers’ economic activities were so restricted by the terms and conditions imposed on them, the Supreme Court found that they could not be said to have been engaged in their own business.

The legislative context

Depending on the particular legislation under which a worker’s employment status is being considered, the different language, purpose and context of that legislation will need to be taken into account. In this case the language of the TCA did not require any modification to the above approach.

The unanimous decision of the Supreme Court provides welcome clarification in this complex area of law. Employers must consider their current and future arrangements with those they engage to provide services, in light of the five sequential factors outlined by the Supreme Court.

While the Supreme Court were at pains to point out that this was a tax case, the implications for the classification of workers in employment law are significant.