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When contract work is employment in disguise

Monday, August 13, 2018

As published in The Sunday Business Post 2018.

The rise of the gig economy has seen many people who work for one employer classed incorrectly as independent contractors. Happily, this is changing.

Employment relationships can be neatly divided into two categories – the employee and the independent contractor. The legal distinction between the two is clear in theory, but can easily become blurred in practice.

As a general rule, an employee is typically working under the direct control of an employer in return for remuneration. Once that employee is available for work, they are entitled to be paid. Employees don’t tend to enjoy much discretion as to when and how the work is done: their employer will decide this for them and they are expected to comply with their employer’s instructions to the letter.

An independent contractor, on the other hand, is not under the direct control of the employer and is only paid for services actually provided.

A contractor, unlike an employee, is usually permitted to sub-contract the work to another party and enjoys greater control over how and when the work is performed. A contractor will typically also be able to perform similar services for multiple parties at the same time.

The debate as to who is an employee and who is not has been ongoing for decades. However, we have a timely reminder of the significance of these issues – highlighted very recently in the case of RTÉ. An independent review found that out of a total of 433 contracts reviewed, up to 157 workers in RTÉ were wrongly classified as independent contractors.

This could have significant implications when it comes to tax and employment rights. It’s a salutary lesson as to how easily the distinction between worker and contractor can be blurred.
It is most unlikely, if not impossible, that RTÉ is an isolated case. We need look no further than the fact that there are increasing instances before the Workplace Relations Commission (WRC) of workers classified as independent contractors who are employees in reality. There have also been a plethora of cases in the courts in recent years on this topic.

It’s easy to understand why an employer might be tempted to avail of the services of so-called ‘independent contractors’ rather than employees; from an employer’s perspective those arrangements may minimise obligations and costs arising from employment law and reduce social insurance costs.
They may be less palatable for the individuals concerned, especially if they are expected to perform in a manner akin to employees (and in particular devote themselves exclusively to the service of the employer concerned).

Public Consultation
Efforts have been made to address the issue. In 2016, the government announced a public consultation into the use by employers of mechanisms to avoid employment and tax liabilities.
A report based on the findings – ‘The use of intermediary-type structures and self-employment arrangements: Implications for Social Insurance and Tax Revenues’ – was published by the Department of Employment Affairs and Social Protection, the Department of Finance and the Revenue Commissioners in January 2018.

It will be interesting to see what the government does on foot of this report and consultation process. One of the recommendations in the report is that a greater awareness of the remit of the Department of Employment Affairs and Social Protection Scope Section among workers and employers could help to reduce the prevalence of ‘disguised employment’.

PRSI class
If a worker believes they are wrongly classified as an independent contractor, they can apply to have their work status investigated by the Department of Employment Affairs and Social Protection Scope Section to ensure that the correct PRSI class is being applied.
The department’s Scope Section has the power to make a determination on a worker’s employment status under social welfare legislation.

Another avenue, of course, is the courts and the WRC. Both bodies have frequently struck down so-called independent contractor relationships because they were employment in disguise.
Where an independent contractor works exclusively for someone under their day-to-day control, the law is likely to intervene and it’s now quite common for an individual to enter the tribunal as a contractor and emerge as an employee.

There are also recent developments in this area across the water. Already this year, a number of cases have come before the English courts including claims against Deliveroo, Uber and most recently Pimlico Plumbers Limited.

English unions and worker representative groups are likely to continue to push this issue and it’s expected that more judgments will be handed down in the coming months.
This is not an issue that is going to go away either in Britain or at home. In particular, the prevalence of workers in the so-called ‘gig economy’ means that employment status is going to continue to occupy the courts and tribunals for the foreseeable future.

Any questions or queries on this topic, please contact Patrick Walshe.


Patrick Walshe