The On-Going Analysis of Employees and Contractors in Ireland

by Joanne Hyde, Partner and Head of the Employment Law Unit and Head of Commercial, Eversheds Sutherland Ireland

The Court of Appeal has overturned the decision of the Tax Appeal Commission and the High Court in relation to the status of pizza drivers for a Domino’s pizza franchise. The previous decision makers had deemed that the drivers were employees of the company each night that they turned up to deliver pizzas. This week, the Court of Appeal decided by a 2 to 1 majority that the drivers were contractors and not employees.

This is a very significant decision for businesses in Ireland. To date, the Domino’s decision has caused much uncertainty about the use of contractors on short term and even one off engagements.

The question for employers is how this decision impacts on your use of contractors in your business. The short answer is the decision is decidedly more supportive of the use of contractors in certain circumstances. A number of key themes arise from the decision and are explored in this article.

Mutuality of Obligation

There are many tests used by both the courts and the Revenue Commissioner to analyse whether an individual is more appropriately deemed an employee or a self-employed contractor. Traditionally the “control” test was the most important, i.e. how much control did the master exert over the servant. If the company was not in direct control of the worker then they couldn’t be an employee. Over time, this test became less applicable as the methods in which employees did their work became less subject to day to day control of their employer.

The test which is currently most relied on is that of mutuality of obligation; namely is the company required to provide work and is the individual required to carry out the work?

The decisions of the Court of Appeal (in the unapproved judgements which have been published) review the significant cases in this area to date. Ms Justice Costello quotes at length the decision of Edwards J in the Barry case which related to veterinary inspectors engaged by the Minister of Agriculture.

“The requirement of mutuality of obligation is the requirement that there must be mutual obligations on the employer to provide work for the employee and on the employee to perform work for the employer. If such mutuality is not present, then either there is no contract at all or whatever contract there is must be a contract for services (contractor) or something else, but not a contract of service (employee).”

In essence, this means that unless there is mutuality of obligation, then there cannot be a contract of employment. The courts to date have found that if this hurdle is not surmounted, then no further analysis is needed, the individual cannot be an employee. On the other hand, if this hurdle is overcome, they must then look to the other factors to further analyse the relationship (such as control, integration into the business and ability to make profit in their own right).

A separate contract arose “each night”

In the initial analysis of the Domino’s case, it was held that although there was no mutuality of obligation in the overarching agreement, it arose each night that the drivers opted to work.

The overarching written contracts were clear that there was no obligation to work, that the drivers could indicate when they were available and the company would then roster the work accordingly. When they arrived to work, there was no guarantee of available hours; it depended on how many pizzas were ordered that night. They were paid per delivery but also received a brand payment regardless of the number of deliveries. The brand payment reflected that they were required to wear a Domino’s uniform and place Domino’s signage on their delivery vehicle. Once they indicated that they were available, they could still decide not to turn up on the night or to send someone else in their place. There was no evidence offered that the drivers suffered any setback for not coming to work after they indicated that they would.

In her analysis of the mutuality of obligation, Costello J outlined

“Counsel submitted that the Commissioner and the High Court erred in merely looking at the obligations between the parties as they arose at the moment when “the [driver] turns up in the depot [of the appellant] and is assigned a particular delivery job”.  At that point, there was an obligation on the driver to deliver the pizza and on the appellant to pay the agreed fee.  Counsel submitted that these obligations were not the obligations that are necessary to satisfy the mutuality of obligation test in this context.  If that were so, then every contract for services would be converted into, and treated as, an employment contract because even in a contract for services, both parties assume obligations to each other.  I agree.”

The Court of Appeal held that the requirement of mutuality of obligation was absent from the delivery arrangements. It was, therefore, not necessary to consider whether the further tests of a contract of employment were satisfied.

“Irish authorities on mutuality of obligation are unambiguous in requiring an ongoing reciprocal commitment to provide and perform work on the part of the employer and the employee respectively.”

This is a very helpful summary and conclusion by the judge. Based on the previous conclusion by the High Court, it had become very difficult to find a key difference between, at one end of the spectrum, a window cleaner who was genuinely self-employed but who may turn up to clean the windows of a company’s office every six months and, on the other,  a graphic designer who may blur the tests from time to time when they were used for bespoke projects.

Cautionary note in relation to over-application of UK cases

We have watched with interest how the Deliveroo and Uber cases proceeded through the English courts. In her decision, the Tax Appeals Commission relied heavily on the UK case of Weight Watchers UK v Revenue & Customs. The Court of Appeal was critical of the over-use of the case. Costello J observed that there has been significant statutory intervention in England and many English cases analyse the statutory definition of a “worker”. This is a category in between an employee and an independent contractor and one which does not exist in Irish law. Therefore the application of English cases are not as relevant to those in Ireland.

What does this mean for employers?

This decision is a welcome reset of the mutuality of obligation test. There must be an ongoing and reciprocal commitment to provide and perform work in order to overcome the first hurdle to establish an employment relationship.

Top tips:

• Continually review your contracts – they are not definitive on their own but they should reflect the relationship.
• Ensure contractors are not integrated into your business, they shouldn’t have email addresses or business cards, their LinkedIn should reflect that they are self-employed.
• Contractors should be able to work with multiple other companies and have the ability to make profit in their own right.
• Finally if there is an obligation to give them a certain amount of work (even on a part-time or regular short-term basis) and they are obliged to do it once offered, then they may well be employees.
• Remember the elephant test; employees are like elephants, they are very hard to describe but easy to spot when you see one.

About the author 

Joanne Hyde is a Partner and Head of Employment Law at Eversheds Sutherland Ireland. She is also Head of the Commerical department. Joanne is a pragmatic and business focused employment lawyer. Her experience as in-house employment lawyer for Intel Corporation, one of Ireland’s leading multi-national employers has given her a strong insight into the HR concerns and complexities facing clients. In addition, Joanne has many years’ experience advising both international and indigenous clients on a wide range of employment and industrial relations issues. Her comprehensive experience includes advising on employment law challenges arising from commercial transactions, employment disputes and litigation as well as providing strategic and proactive advice on HR issues.