Key Contacts: Patrick Walsh – Partner

The Supreme Court has handed down an important decision relating to delivery drivers and those who work in the gig economy.

The case taken against Karshan (Midlands) Ltd, trading as Domino’s Pizza related to certain delivery drivers engaged under independent contractor contracts by the Company.

The facts arose from a 2018 decision of the Tax Appeals Commissioner where the Commissioner stated that delivery drivers should be treated as PAYE workers as opposed to independent contractors.

Karshan appealed this decision to the High Court, which was rejected. However, the Court of Appeal then went on to overturn the decision. The Revenue Commissioners then further appealed to the Supreme Court who on Friday decided that delivery drivers are in fact employees and not independent contractors.

The heart of the Supreme Court appeal was whether the relationship between an employer and employee is one where “mutual obligations” are owed and if these mutual obligations are necessary to establish an employment relationship.

Karshan argued that mutuality of obligation meant that mutual commitments between the employer and employee requires a type of continuity and forward-thinking element. They further argued that mutuality of obligation meant that the obligation for an employer to provide work meant there is an obligation by the employee to perform work. This was rejected by the Supreme Court who said this is not a part of Irish law.

Central to the case was the difference between a contract for service or a contract of service. Of course, there is an important distinction between the two in terms of employment law rights in Ireland. A contract of service arises as between the employer-employee relationship but a contract for service is that between an independent contractor and their client.

Mr. Justice Murray outlined five questions to be answered to establish whether a contract is a contract for service or contract of service. He said that these were well established in case law.

1. Does the contract involve an exchange of remuneration for the work?

In Karshan, the court ruled that there is no doubt that a binding agreement came into being between the drivers and Karshan whereby the drivers in consideration for their services were paid (a) an hourly rate for branding and (b) the fee due as and when pizzas were delivered by the drivers.

2. If the contract involves an exchange of remuneration for the work, is the agreement written so the worker is agreeing to provide their own services and not a third party to the employer?

In examining how a substitution clause contained in the contract operated in practice, the court held that the delegation of duties was sufficiently limited to maintain the element of personal service required.

3. If the above two criteria are satisfied, does the employer have sufficient control over the employee to make the agreement capable of amounting to an employment agreement?

The court noted that the operation of the rosters and weekly allocation of work, the fact that Karshan had control over the manner the drivers dressed, that some drivers when at the premises were directed to make up pizza boxes a failure to comply with that requirement entitled the manager to send the driver home for the remainder of the shift, all strongly pointed to a high level of control on the part of Karshan.

4. The next step is to look at whether the terms of the contract between the parties (and having regard to the arrangement between the parties) is consistent with an employment contract or some other type of contract and to consider is whether the evidence points to the employee working for themselves or for the employer.

The court ruled that the economic activities of the workers were so restricted by the terms and conditions imposed by Karshan that the work was in every sense work for Karshan and was directed towards advancing its business.

5. Lastly, it should be considered whether any legal reasonings mean a court should adjust any of these requirements.

Mr. Justice Murray noted that he could see no basis on which the language of the Taxes Consolidation Act 1997 required any modification to the standard common law approach as regards to the definition of “employee” and “contract of service”.

The Supreme Court ultimately decided that the evidence in the case pointed to Karshan having a “close control” over the drivers in their employment which created an employee and employer relationship between the parties.

What does this mean for Irish employers going forward?

While the decision arose in the context of a dispute over the Taxes Consolidation Act 1997, it has wide ramifications in the employment law context. For Irish employers, it may be important to note that going forward, the courts will look to whether the employer has a “close control” over an individual acting in the course of employment to establish an employment relationship.

What does this mean for employees/independent contractors going forward?

Where the five questions are answered to establish that a worker is in fact an employee, this obviously comes with the more robust rights afforded to employees under various pieces of legislation such as the Organisation of Working Time Act 1997, the Employment Law (Miscellaneous Provisions) Act 2018 and the Terms of Employment (Information) Act 1994. They may also seek redress in the Workplace Relations Commission for employment related disputes.