Karshan contended that drivers who provided delivery services for its pizza business were engaged as independent contractors. Revenue contended that they were employees.
The Tax Appeals Commission (TAC) had determined that the drivers were employees. The High Court upheld the TAC decision. The Court of Appeal reversed the High Court decision. Revenue appealed to the Supreme Court.
The Supreme Court noted that “the issue presented in this appeal is one of considerable importance to those involved in the provision of a range of services in our economy, and indeed those who hire them”.
In a lengthy and detailed decision, the court has provided welcome clarification on the test to be applied to determine whether a person is an employee.
Deep pan
The question of who is an ‘employee’ defines the parameters of employment law. There is no comprehensive statutory or common-law definition of the term.
Over the years, the courts have set out various tests for the definition of ‘employee’, with the tests evolving to reflect the continuously changing nature of working life.
Employment legislation – which, in general, establishes a floor of employment rights – provides definitions of ‘employee’ that are frequently wider than that at common law, including, for example, agency workers.
However, independent contractors, by their nature, are outside the fold of employment-law rights and obligations. The distinction between ‘employee’ and ‘independent contractor’ is fundamental to the limits of the application of employment law.
The tests of employment that the courts have established are:
- The control test – whether the employee is “subject to the command of his master as to the manner in which he shall do his work” (Yewens v Noakes),
- The integration test – whether the work in question was an integral part of the business, or whether the work was not integrated into the business, but was only accessory to it (Re Sunday Tribune Ltd),
- The multi-factorial or mixed test – an examination of all of the features of the work relationship, including the extent of control and integration (Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance),
- The enterprise test – whether the person is engaged in business on his or her own account (Henry Denny & Sons (Ireland) Ltd v Minister for Social Welfare).
In Nethermere (St Neots) Ltd v Gardiner, the UK Court of Appeal described ‘mutuality of obligation’ – the obligation to offer work and the obligation to accept the work – as an “irreducible minimum” for the existence of a contract of employment.
This test was applied by the High Court in Minister for Agriculture and Food v John Barry & Ors. In the Court of Appeal decision in Karshan, the court endorsed ‘mutuality of obligation’ as an ‘irreducible minimum’ to the existence of an employment contract.
Five toppings
The Supreme Court in Karshan reviewed these tests and the role of ‘mutuality of obligation’ within those tests.
The court set out and applied a five-stage test. It said that this test is simply “a reduction of the existing case law” for the sake of clarity, as cases have made it clear that, at times, there are issues as to the application of the tests:
1) Does the contract involve the exchange of wage or other remuneration for work? The court said that this question addressed the matter of consideration for the contract. The court found that the agreement between Karshan and the drivers was capable of being an employment contract as, for at least the periods during which they worked, there was an exchange of labour and work.
2) Personal service – is the agreement one under which the worker is agreeing to provide their own services, and not those of a third party, to the employer? This, the court said, is “the essence of an employment agreement”. It also said that “some degree of limited substitution is permissible”. The court found that the right to substitution here was limited. A driver could only substitute another where he had agreed to be rostered and was unavailable to work at short notice. The driver could only substitute another driver who had signed up as a driver with Karshan.
3) Control – does the employer exercise sufficient control over the putative employee to render the agreement one that is capable of being an employment agreement? The court found that Karshan exercised the necessary control over the drivers. Factors pointing to this included the fact that Karshan had control over the manner in which the drivers dressed, the time the drivers were there, the number and extent of deliveries the drivers were to undertake, the fact that some drivers when at the premises were directed to make up pizza boxes, and that a failure to comply with that requirement entitled the manager to send the driver home for the remainder of the shift.
4) All the circumstances of employment – the court described the first three questions as filters. If any of those three questions could be answered negatively, there could be no contract of employment. If the arrangement passed the first three questions, then all of the circumstances must then be considered. The court said that this meant: (a) the contract must be interpreted in light of the factual matrix in which it was concluded; (b) the actual dealings of the parties must be taken into account; (c) this requirement is free standing, in that no presumption can be drawn from the answers to the first three questions. The onus of proof is the ordinary one on the party who asserts any proposition of fact, law, or mixed fact and law; and (d) if the contract is not of employment, it is something else. To resolve the question of whether it is an employment contract, the answer must be established as to what kind of contract it actually is – for example, independent contractor, partner, licence agreement, etc.
It would be appropriate to consider the question of control again at this stage. These factors were among those that indicated that the drivers were not independent contractors: they did not take calls from customers, 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’s premises, and their ability to maximise their own profits was very limited and constrained by the control exercised by the on-site managers.
The Supreme Court said that single stints of work are capable in law of comprising contracts of employment. Therefore, the fact that the overarching contract – the contract that applied between assignments of work – did not, itself, provide for any ongoing right to work was not relevant.
5) The legislative context – finally, the court said that it should be determined whether there was anything in the particular legislative regime under consideration that required the court to adjust or supplement any of these considerations. The court considered that this question was not relevant in this case. It said it could see no basis upon which it might be said that the language of the Taxes Consolidation Act required any modification to the standard approach, and that neither party had suggested that there was.
The Supreme Court upheld the TAC’s decision that the drivers were employees.
Wood fired
The Supreme Court considered that the concept of ‘mutuality of obligation’ has “generated unnecessary confusion”. It held that the term simply describes the consideration – the exchange of wage or other remuneration for work – that must be present before a working arrangement is capable of being categorised as an employment contract.
It said that, to be classified as an ‘employee’, it is not necessary for the worker to have an ongoing right to be offered work into the future.
However, where there is intermittent work, the question may arise of whether, during the periods where the person is not working, the person is an ‘employee’.
The Supreme Court said that the question of what consideration must be the basis of such an overarching contract, or whether it is possible for an overarching contract to be an employment contract without such promises of wage/work, must await a case in which that issue actually arises.
The Supreme Court left open the question as to whether ‘employee’ in employment legislation could be interpreted purposively – that is, to achieve the purpose of the legislation. This approach has been adopted in Britain in, for example, Uber BV and others v Aslam and others and in Autoclenz Limited v Belcher and others.
In Uber, the UK Supreme Court had to determine the employment status of taxi drivers who provided their services through the Uber smartphone app.
The drivers claimed that they came within the definition of ‘workers’ as contained in legislation relating to minimum wage, annual paid leave, and certain other protections, and so were entitled to those protections.
That definition of ‘worker’ includes those employed under a contact of employment, and also extends to some individuals who are selfemployed. Irish employment-protection legislation does not contain this concept of ‘worker’.
The UK Supreme Court upheld the drivers’ claim and held that they were ‘workers’, and so entitled to those protections. The court noted that the purpose of including ‘workers’ within the scope of the legislation was to extend the benefits of protection to workers who are in the same need of that type of protection as employees.
It noted that, once this is recognised, it can be seen that it would be inconsistent with the purpose of the legislation to treat the terms of a written contract as the starting point in determining whether an individual falls within the definition of ‘worker’.
In Karshan, the Supreme Court noted that the UK Supreme Court in Autoclenz decided that it could disregard the terms of a written contract, and not simply the description of the legal effect, and, in an appropriate case, should do this. The Supreme Court said: “This court has never adopted this position.”
It said that the question of whether there was a similar principle in Irish law would “have to await a case in which that properly arises”.
Stone baked
This Supreme Court decision leaves open two important questions for consideration in an appropriate case:
- When is an overarching contract for intermittent work an employment contract?
- Does Irish law have a principle of purposive interpretation of ‘employee’ for the purposes of employment legislation?
It also remains to be seen whether our definition of ‘employee’, as contained in protective legislation, is wide enough to protect dependent workers.
In Karshan, features such as very limited substitution powers, and extra duties such as packing of pizzas, pointed towards ‘employee’ status. Other ‘dependent’ workers without such controls might well still fall outside of the limits of the ‘employee-status’ definition and be out of the reach of employment law designed to protect such workers.
Revenue has announced that, in light of this Supreme Court decision, it will produce an updated Code of Practice in Determining Employment Status. This will be a very welcome, practical clarification of the factors to be considered in answering this question.
For now, this Supreme Court decision has given a welcome clarification of the approach to the definition of ‘employee’. For basic employment-law rights to apply to those in need of that protection, how the term continues to develop will be very important.
Maeve Regan is a consultant solicitor in employment law and human-rights law, and consultant editor and co-author of Employment Law (Bloomsbury Professional, 2009 and 2017).
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