27 November 2023
The Supreme Court recently delivered its judgment in the Revenue Commissioners – v – Karshan (Midlands) Ltd T/A Domino’s Pizza [2023] IESC 24. The central issue being whether drivers who provide delivery services for the pizza business operated by the Respondent Karshan (Midlands) Ltd T/A Domino’s Pizza (‘Karshan’) were employed by Karshan as employees or were independent contractors under contracts for service.
The pertinent difference in this particular case being the tax treatment of the individuals. Although the court did not address this issue with specific reference to its implications on employment law, this decision will most likely have the effect of potentially granting more rights and protections to workers previously classified as independent contractors.
KPMG Law’s Employment Law team provides more detail below.
This case dated back to the tax years 2010 and 2011. Karshan initially appealed the assessment of its PAYE and PRSI liabilities in respect of its delivery drivers to the Tax Appeals Commission within the Revenue Commissioners (the ‘TAC’).
This was on the basis that Karshan asserted its delivery drivers were independent contractors and not employees and therefore they were not required to pay PRSI or PAYE on the drivers’ pay. The TAC found the drivers to be employees of Karshan.
This decision was appealed to the High Court, which upheld the decision of the TAC, while the Court of Appeal, in a May 2022 decision, found against Revenue and allowed an appeal to the Supreme Court, finding the TAC erred in their finding.
The appeal was granted based on the following issues to be determined:
Karshan had engaged its delivery drivers on an open ended, indefinite duration agreement which specified their engagement as that of an independent contractor requiring them to acknowledge that Karshan had no responsibility or liability for deducting and/or paying PRSI or tax on any monies they received under the agreement.
When challenged, to reinforce their independent contractor assertion, Karshan relied on their engagement with the delivery drivers as lacking the “mutuality of obligation” required for an employment relationship (this being one of the well-established tests which has long been relied on by the courts to distinguish between employees and independent contractors).
Karshan’s arguments included that the drivers chose their hours; they could choose not to provide the services despite being rostered to do so (without risk of sanctions); and that Karshan was not required to provide work to any of the drivers. It was noted that the drivers were required to provide their own vehicles for deliveries, and they were required to use their own mobile phones in contacting customers. They were also required to have their own business use car insurance, or to avail of Karshan’s policy for a charge.
Revenue contended that the legal elements of a contract of employment were present, including the control of Karshan over the drivers; the fact the drivers operated under Karshan’s direction; that they were not carrying on business on their own account; and they were fully integrated into Karshan’s business.
The Supreme Court of seven judges, delivered a significant and instructive judgment which analysed the historical application and development of the determining factors in the question of employee status as distinct from independent contractor status.
This involved the court’s analysis of legislation such as the Master and Servants Acts, the Employers and Workmen Acts, early twentieth century national insurance legislation, the Workmen’s Compensation Acts, and its evolution through twentieth century caselaw focusing on social security and tax legislation, and different modes of statutory protection of employees’ rights.
The judgment also analyses the various tests used to determine employment status over the decades including the ‘control’ test, the ‘economic reality’ test, the ’integration’ test, and as referenced above, the most notable in this case being the ‘mutuality of obligation’ test.
The central issue at play in this case, being what is the proper approach to differentiate between a contract of employment from a working arrangement which does not involve the relationship of employer and employee (which from an employment law perspective would bring further rights and entitlements under employment legislation).
Mr Justice Murray determined that key to this question is whether it is a necessary condition (a sine qua non) of the engagement that there be an ongoing reciprocal commitment extending into the future to provide and perform work on the part of the employer and worker respectively, as was argued by Karshan. Mr Justice Murray stated that this may be of particular importance in deciding if there is continuous employment for the purpose of statutory regimes, but that it is not a necessary condition of an employment relationship.
Mr Justice Murray determined that the Tax Commissioner was entitled to conclude that the drivers were employees of Karshan for the purposes of the relevant provisions of the Taxes Consolidation Acts (‘TCA’). The Judgment acknowledged that there were elements of the engagement indicating that of an independent contractor, however the overall evidence disclosed a relationship of close control by Karshan over the drivers when at work.
The evidence indicated that the drivers were obliged to attend for work when they agreed to be rostered. They were also not permitted to arrange for another individual to carry out the work, rather the shift would be covered by another driver arranged by Karshan. Mr Justice Murray determined that the extent to which the activities of the drivers comprised an important part of Karshan’s business were also relevant to the issue.
Furthermore, it was found that the drivers’ activities were so restricted by the terms and conditions imposed by Karshan, that they could not be said to have engaged in their own business - their work was in every sense work for Karshan and was directed towards advancing its business, not their own.
Regarding the mutuality of obligation test, Mr Justice Murray, in an effort to avoid confusion in the future as to the need for ‘mutuality of obligation’, clarified the question of whether in any given case a worker is an employee by reference to the following five questions:
Mr Justice Murray, in finding that Karshan was the employer of its drivers for the purposes of the relevant provisions of the TCA, stressed that the findings in the judgment are particular to the proceedings between Karshan and Revenue.
Mr Justice Murray stated that the judgment cannot bind any driver who may wish to contend that they were not an employee for this or any other purpose. He also stated that the relevant provisions of the TCA do not impose a requirement of continuity of service before the sections in question are engaged, however noting that:
“the question of whether the drivers have continuous service for the purposes of other legislation, and in particular employment rights legislation cannot be decided here.”
In reference to a 2008 decision of a Social Welfare Deciding Officer on similarly positioned drivers, Mr Justice Murray stated that “it strikes me at a very general level that Karshan would have a legitimate grievance if it were to be penalised by one arm of the State for conducting its business in accordance with the law as interpreted and applied by another department of government.”, and he directed that Revenue must account for any income tax already paid by Karshan’s drivers and, if necessary, abate the assessments to take account of such payments.
This judgment emphasises the importance of examining the actual nature of the working relationships beyond how it is defined or reflected in an agreement. This decision may now be viewed as setting a precedent for gig economy and similar arrangements, potentially granting more rights and protections to workers previously classified as independent contractors. We expect to see this judgment strongly feature in many Workplace Relations Commission and Labour Court cases to come.
In light of this judgment, employers who rely on independent workers (in particular in the gig-economy) are advised to review the root nature of their existing independent contractor engagements, particularly now that certain practical matters such as workers’ own insurance, phones, vehicles etc. may no longer give employers comfort of independent contractor status.
Advice as to how to conduct a review of workers’ status can be sought from our experienced employment law team at KPMG Law LLP.
