Contractor or Employee? Welcome Guidance from the Supreme Court

Legal judge making decision

by Alan Devaney, Solicitor in the RDJ LLP Employment group.

The Supreme Court has issued its highly significant judgment in the matter of The Revenue Commissioners -V- Karshan Midlands Ltd TA Dominos Pizza. This judgment clarifies the area of law relating to employment status and whether a worker is a contractor or an employee. This will be of interest to those working, and engaging workers, in the ‘gig’ economy. The Court has reassessed the importance of mutuality of obligation, previously considered a cornerstone of the employment relationship, to now being one factor to be considered in the overall assessment of the contractual relationship.

The Court has set out a five-question framework to guide any assessment of employment status and to avoid misunderstandings of the law which have developed over time. This decision reaffirms the position as set out by the Supreme Court in Henry Denny & Sons (Ireland) Ltd v Minister for Social Welfare [1997] IESC 9 and confirms that the factors, which have developed in caselaw over 50 years, are still of relevance and should be used as guidance in determining employment status. A holistic assessment of the actual relationship between the parties is still required.

This case was an appeal taken by the Revenue Commissioners of a Court of Appeal decision which found delivery drivers for Karshan to be independent contractors rather than employees, overturning the original decision of the Tax Appeals Commission.

Mutuality of obligation

Previously ‘mutuality of obligation’ was considered an essential requirement and a ‘cornerstone’ of any employment relationship. This was the position taken by the Court of Appeal.

The Supreme Court has now determined that ‘mutuality of obligation’ is not the defining feature that differentiates a contract of service from a contract for services. Instead, it should be viewed as doing no more than describing the consideration that has to be present before a working arrangement is capable of being categorised as an employment contract.

Five-Question Framework

The court has helpfully set out a five-question framework to guide any assessment of employment status but this is not to be considered a legal test per se. Murray J said it was useful to identify “factors that will be usually be relevant to the inquiry.”

Below I will consider the questions and how these were applied in the Karshan case:

Question 1 – Remuneration & Contract Type

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

The first question which must be asked is whether the relationship is one of labour in exchange for payment. In furtherance of this question, the contract type must be identified and fall into one of the following categories:

  1. A contract for a regular wage for work with ongoing obligations to pay and work.
  2. A series of employment agreements governing the discharge of particular tasks.
  3. An agreement to complete one identified task.
  4. An ongoing agreement defined by an umbrella contract.
  5. Any combination of the above.
  6. Is the agreement one for the exchange of labour for pay at all?

Applied to the Karshan delivery drivers:

The Court found that there was an umbrella contract between the Karshan and the delivery drivers engaged. They also found that remuneration was fixed by one side (Karshan) and the price for each pizza delivery could not be negotiated.

Question 2 – Personal Services

“If so, is the agreement one pursuant to which the worker is agreeing to provide their own services, and not those of a third party, to the employer?”

If the contractual relationship for labour has been established, then the next factor to be considered is whether it is one in which the worker is agreeing to provide their own services, and not those of a third party. The Court found that personal service is a requirement and not merely a factor. While some degree of substitution is permissible, such as where the worker is unable to carry out work, it must be consistent with personal performance to be an employment relationship. Any significant qualification placed on substitutes or discretion to refuse any proposed substitutes is more consistent with an employment relationship.

Applied to the Karshan delivery drivers:

The Court found that the requirement for personal service was met and that the substitution clause in the contract did not involve an unqualified power to delegate work contracted for. The Court noted the facility for substitution on certain conditions, but the fact the substitutes were being paid directly by Karshan and not by the driver, meant it was more akin to an employment relationship.

Question 3 – Control

“If so, does the employer exercise sufficient control over the putative employee to render the agreement one that is capable of being an employment agreement”

This question relates to the party deciding the who, what, where, when, how, as follows:

  • Who determines the way in which the work is to be done
  • What work is required to be done;
  • Where the work is to be done;
  • When the work is to be done;
  • How the work is to be done;

The question is whether the company imposes control over the worker such as working hours, location of work, and methods of completing the work. In most employment situations, the employer has residual authority of how work is done. However, independent contractors usually retain autonomy on deciding the method and this is often linked to completing the task in the most efficient manner, to the satisfaction of the other party, to maximise the return for the contractor. Therefore, it is often difficult to look at control without looking at whether the contractor is carrying on business on their own account.

Murray J also commented that the level of control is often determined by how integral the work carried out, is to the business.

Applied to the Karshan delivery drivers:

The Court found that Karshan exercised a high level of control over the delivery drivers, including the operation of the rosters and weekly allocation of work, the manner in which the drivers dressed and advertised the brand and the number and extent of deliveries the drivers were to undertake.

Murray J also commented that the delivery drivers conducted a critical part of the Karshan’s business – delivering pizzas and advertising the business as they were doing it – so considered them an integral part of the business.

Question 4 – Working Arrangement

“If these three requirements are met the decision maker must then determine whether the terms of the contract between employer and worker interpreted in the light of the admissible factual matrix and having regard to the working arrangements between the parties as disclosed by the evidence, are consistent with a contract of employment, or with some other form of contract having regard, in particular, to whether the arrangements point to the putative employee working for themselves or for the putative employer.”

It is only if Question 1 to 3 are answered in the affirmative, that the question is required. This question requires the evaluation of the actual dealings between the parties and the working arrangements in practice rather than the label placed on them. Important here is the contractor’s ability to make a profit from their own skills, and the need for investment on the part of the contractor, particularly in terms of tools and equipment used to carry out the work. Which party drafted the agreement and whether it was negotiated will be also important. The tax affairs of the contractor are of relevance, but only marginally according to Murray J.

Applied to the Karshan delivery drivers:

In his judgment, Murray J conducted an extensive analysis of the working arrangement between Karshan and the delivery drivers. Of the factors which indicated a contractor relationship, he noted the terms and condition entered into, the fact the drivers were not required to work and the fact that drivers did not have to take orders from customers. On the other hand, he noted the following which indicated an employment relationship:

  • One party had drafted the agreement and there was no negotiation. The unequal bargaining power between the parties was also noted.
  • The drivers must commit to work a week or so in advance and if they were not required they would still receive pay for being rostered;
  • They took little or no economic risk and there was very limited opportunity to increase the profitability of their work;
  • They could not substitute themselves or employ their own labour;
  • They worked exclusively from Karshan’s premises and wore uniforms and carried branding on their vehicles.

Question 5 – Legislations

Finally, it should be determined whether there is anything in the particular legislative regime under consideration that requires the court to adjust or supplement any of the foregoing”.

This question relates to the specific piece of legislation in which the employment status is being determined, for example any difference in the definition of employee, employer and contract of services under the relevant piece of legislation,


In finding in favour of the Revenue Commissioners, the Supreme Court overturned the Court of Appeal decision and found that the Karshan drivers were employees.

However, the Court was keen to stress the limited application of this decision and warned against a broad application of this decision to delivery drivers and workers in the gig economy. Any determination of employment status will still depend on the facts of the individual case. In fact, the Court only went as far as determining that the Karshan delivery drivers were employees for taxation status only and that employment status, for the purposes of employment laws, would have to be determined in the relevant forum.

Key Takeaways

  • This is a welcome decision because it provides a framework to follow when determining the employment status of a worker. However, the underlying factors and criteria which have developed over 50 years of caselaw remain relevant. Each working relationship will have to be assessed in a holistic manner to determine the relationship in practice.
  • It is hoped that a more uniform approach to determining employment status will now be taken by employment rights forums, tax authorities and social welfare authorities.
  • It is important for businesses engaging workers on an independent contractor basis to review their existing practices and working arrangements to determine whether they are indeed independent contractors or more akin to employees.

About the author
Alan Devaney is a solicitor in RDJ’s employment group. He represents employers of all sizes and across all industries, advising on a wide range of employment relation matters including reviewing company policies and procedures, employment related due diligence, redundancies and wrongful and unfair dismissals. Alan has acted in the defence of claims in employment-related proceedings and understands the critical importance of adopting a pragmatic and commercially sensible approach to defending these type of claims.