Joanne Hyde: Jig up for the gig economy?
Joanne Hyde, partner and head of employment at Eversheds Sutherland, examines a recent Irish court ruling on Sunday work.
The emergence of businesses like Deliveroo, Buymie, and Uber Eats in the Irish market has created the so-called “gig economy” where individuals are engaged as self-employed contractors, rather than employees.
There is no doubt that this model can be an effective business solution (for businesses and individuals alike) when used correctly and appropriately. However, quite serious repercussions can arise where an individual is miscategorised as a contractor.
In this scenario, the business which engages the contractor could face significant exposure on a number of fronts. If a business is found to have incorrectly categorised an individual as an contractor (when in reality he/she is more akin to an employee), that business may find itself liable for the tax and social insurance elements which should have been applicable in relation to this individual as an employee. Further, a business may also find itself on the hook for employment-related entitlements which should have been honoured such as holiday pay, notice, redundancy pay etc.
With the media, Department of Social Protection, Workplace Relations Commission and the Revenue Commissioners all very alive to this issue, miscategorisation is not something which is likely to go under the radar indefinitely. Therefore, the most important question is how do we make the distinction between a self-employed contractor and an employee? Over the years, the Courts have developed a number of tests to assist in making this distinction. Helpfully, these key tests were considered by the Irish High Court recently in deciding whether Domino’s Pizza delivery drivers were self-employed contractors or employees.
In this case, Domino’s argued that its delivery drivers were engaged as self-employed contractors and that the contractual documentation reflected this intention. However, the Irish High Court made it clear that it will look behind the written contract to the reality of the situation.
One of the key tests considered in this case was the “mutuality of obligation test” which comes from the basic idea that, in an employment relationship, an employer is obliged to provide the employee with work and the employee is obliged to accept and perform the work. In seeking to rely on this test, Domino’s tried to argue that there was no mutuality of obligation as the drivers were engaged via an umbrella contract which made it clear that (a) Domino’s was not required to provide them with any deliveries and (b) the drivers were not required to accept work if offered. However, when the Court looked more closely at the reality of the situation, it found that mutually of obligation did exist. Interestingly, the Court noted that, although Domino’s did not have to provide work and the drivers did not have to accept work on an ongoing basis, a mutuality of obligation did arise in relation to the individual rosters when these were put in place with the drivers.
The High Court also looked at the “integration test” which examines how integrated the individual is into the business. Generally-speaking, the more integrated the person is, the more likely it is that they are an employee. In this case, the drivers wore Domino’s uniforms, displayed the Domino’s logos on their cars and even greeted customers as personnel of Domino’s. Again, these factors led the High Court to form the view that the drivers were employees of Domino’s.
Finally, the High Court looked to the “entrepreneur test” which looks at whether the individual could truly be regarded as a self-employed individual in business on his/her own account. This test involves looking at factors such as whether the person supplies their own equipment, works out of their own premises and has control of the way they manage their business profits such as the ability to hire staff or freely appoint a substitute. In this case, Domino’s was keen to point to a contractual term which permitted the drivers to appoint a substitute. However, when the Court looked at the realities of this arrangement, it found that generally, if a driver was unavailable, another driver was selected from a pool of drivers and that, even where a substitute was appointed, that person had to be pre-approved by Domino’s and was paid through Domino’s.
Ultimately, the High Court found that, while on paper, the drivers appeared to be independent contractors, the ongoing reality of how the parties engaged with each other indicated that the drivers were operating as employees of Domino’s.
The Dominos case highlights the very real difficulties for businesses operating in the gig economy, or those engaging independent contractors generally, as the lines often blur between employment and self-employment.
Over the years, the Courts have made it abundantly clear that it comes down to more than just a label. The Courts will look behind the contract itself to the realities of the relationship and will scrutinise this against the legal tests which have developed over the years.
As significant financial exposure may arise from misclassification, businesses should adopt a cautious and measured approach when engaging independent contractors. As well as getting it right from the outset, businesses should also continue to monitor the situation to ensure that the lines do not become blurred as the relationship progresses.