Employment status in the gig economy
The question of employment status continues to concern many employers working within today’s ‘gig economy’. In a significant new decision, the High Court has delivered some useful insights for employers when it comes to correctly categorising staff as employees employed under contracts of service or independent contractors engaged under contracts for service.
“Gig economy” is a term used to describe the increasingly popular model of meeting supply and demand for short-term work with payment-by-task solutions. The correct employment status of those providing such solutions has been the focus of a number of cases before the UK courts involving companies like Uber and Deliveroo. In Karshan (Midlands) Limited (t/a Dominos Pizza) v Revenue Commissioners IEHC 894 the issue came before the Irish courts for the first time.
The case before the High Court was an appeal against a Tax Appeals Commission (TAC) finding that Domino’s delivery drivers were employees (for tax assessment purposes) rather than self-employed independent contractors.
Domino’s appealed the TAC’s determination to the High Court, arguing that the Appeals Commissioner had erred in law in her interpretation of the following concepts: (i) mutuality of obligations; (ii) substitution; (iii)integration; and (iv) terms of the written contract (the Concepts).
What did the High Court decide?
The High Court confirmed that the TAC had grappled with “an intricate if not complex factual matrix” in its assessment of the correct employment status of the Domino drivers. The Court observed that there is “no comprehensive statutory or common law definition” for contracts for services or contract of service although the terms are regularly used. Accordingly, the correct categorisation of employment status in any given situation is inherently fact specific and requires a bespoke consideration of each of the Concepts:
- Mutuality of Obligation
Employers have an obligation to give work to their employees and the employees have a reciprocal obligation to carry out that work. Domino’s argued that their drivers were free to work whenever they chose and did so under the terms of an “overarching umbrella contract” that did not adhere to the principles of mutuality of obligation.
However, the Court preferred the TAC’s position that the full contractual arrangement in place comprised a “hybrid contract consisting of an overarching umbrella contract supplemented by individual contracts in respect of each assignment or roster of work”. In short, drivers were required to fill out an “availability sheet” a week before the roster was drawn up, and once rostered there was a contract containing mutual obligations in place between a driver and Domino’s.
The agreement in place between Domino’s and their drivers included a “substitution” clause, permitting drivers to substitute another Domino driver when they were unavailable to work. Domino’s argued that this ability to effectively “subcontract” the driving could not support an employee classification.
Again the Court preferred the TAC’s conclusion: that the drivers did not have freedom to substitute but could simply nominate a replacement driver approved and paid by Domino’s.
Domino’s argued that the drivers were not integral to its business but were “only accessory”. Again, the Court preferred the TAC submission that the drivers “play a vital role and are essential components” of Domino’s business. The Court concluded that a number of factors supported the integration of the drivers into Domino’s’ business including the requirement that drivers wear uniforms and place logos on their car as well as take telephone orders from Domino’s and not from customers directly etc.
- Contractual terms
Domino’s argued that the Appeals Commissioner had erred in law in failing to give proper weight to the actual terms and conditions of the contract between Domino’s and the driver. The Appeals Commissioner pointed to numerous Irish decisions to support her conclusion that “the decisive factor is to look at how the contract is worked”.
What does this mean for employers?
The lines between traditional employer and employee arrangements in today’s gig economy continue to blur. The digital workplace, coupled with an increasing preference on the part of the workforce to be flexible and engage in employment in a different way, has strained the distinction between contracts of service and contracts for services. Given the significant employment law and tax consequences for mislabelling your staff on false contracts of service, the question of how to correctly categorise and classify your staff is critical. Getting this wrong will mean that Revenue will look to the employer to account for any outstanding payroll taxes (including employers’ PRSI of up to 10.95%) on emoluments received by its employees.
In Karshan v Revenue, the High Court cautioned against the temptation to adopt a box-ticking exercise when assessing the correct employment status, concluding that “classification needs a careful and flexible understanding of relationships”. Accordingly, it is vital for employers in Ireland to carefully scrutinise their existing contractual arrangements with employees and service providers to ensure that they accurately reflect the nature of those relationships in practice.