About this case:

• Citation:
  [2023] IESC 24
• Judgment:
  External link
• Court:
  Supreme Court
• Judge:
  Mr Justice Brian Murray

Delivering judgment for the Supreme Court, Mr Justice Brian Murray cautioned that the judgment did not bind any driver who wished to contend that they were not an employee, and that in circumstances were the relevant provisions of the Taxes Consolidation Act 1997 did not impose a requirement of continuity of service, the question of whether the drivers have continuous service for the purposes of other legislation, in particular employment rights legislation, could not be decided in the context of this case.

Background

The respondent appealed to the Tax Appeals Commission in respect of assessments in respect of PAYE and PRSI raised by the appellant pursuant to s.990 of the Taxes Consolidation Act 1997. The respondent contended that its delivery drivers were independent contractors working under contracts for services.

The respondent argued that as drivers could choose not to work despite being rostered with no risk of sanction, and as the respondent did not have to provide work to the drivers, no mutuality of obligation existed.

The appellant found that as drivers were operating under the control and in accordance with the directions of the respondent, they were not carrying on business “in their own account” and so the legal requirements of an employment contract were present.

The High Court

The respondent requested the Commissioner to state a case for the opinion of the High Court, which agreed with the Commissioner that it was not a sine qua non of an employment contract that it impose an obligation to provide work and to complete that work on an ongoing basis in the manner contended for by the respondent. Accordingly, the respondent appealed to the Court of Appeal.

The Court of Appeal

The Court of Appeal reversed the decision of the High Court, finding that there was no mutuality of obligations between the drivers and the respondent, that the drivers were independent contractors who were liable to be taxed under Schedule D of the Taxes Consolidation Act.

Ms Justice Caroline Costello giving judgment for the majority of the Court of Appeal agreed with the respondent that no mutuality of obligation existed and found that even where (as contended for by the appellant) a series of discrete contracts exist, an “irreducible minimum” of mutual work-related obligations must subsist for each rostered period, and a mutuality of obligation must subsist throughout the entire rostered period.

Ms Justice Máire Whelan, dissenting, found that the necessary mutuality of obligation had been clearly established — the roster, once agreed, obliged the respondent to engage the drivers for shifts, and the freedom of a driver to reject those shifts was not unfettered, and agreed with the Commissioner and the High Court that the driver was obliged to trigger individual contracts.

The Revenue appealed to the Supreme Court.

The Supreme Court

Mr Justice Murray firstly considered the respondent’s “theory of mutuality of obligation” as having four components – that the mutual commitments must be ongoing, with a forward-looking element, that the employer must have an obligation to provide work, and that the employee must be obliged to perform the work.

On the requirement of continuity, the Court found that the authorities did not support an obligation to offer work of a kind that would ensure “future stability”, and stated that the Court could not identify any reason why such a requirement should be necessary, that this would “encourage the assertion of legal fiction over factual reality”.

Turning to the forward-looking element of the respondent’s “theory”, Mr Justice Murray noted that in any executory contract the agreement predates its execution, but “how far into the future these future obligations had to extend was not clear”. Finding that where an overarching agreement of the kind at issue existed, the employment was not as transitory or impermanent as a worker turning up at an employer’s premises and agreeing to do a job in exchange for payment and then starting work.

On the purported obligation on the employer to provide work, Mr Justice Murray found that this contention was misplaced — observing that irrespective of whether the respondent was required to give the drivers work, “if it had agreed to pay them when they attended at its premises and were thus available to do work, the contract was capable of being an employment contract. There was no requirement for any additional ‘mutuality’.”

Concluding that the term “mutual obligations” was best reflected by the decisions in McMeechan v. Employment Secretary [1997] ICR 549 and Cornwall County Council v. Prater [2006] EWCA Civ. 102, Mr Justice Murray proceeded to set out an adjusted version of the three-limbed test posited in Ready Mixed Concrete (South East) Ltd. v. Minister for Pensions and National Insurance [1968] 2 QB 497 (RMC) for identifying the existence of an employment contract.

1. Does the contract involve the exchange of wage or other remuneration for work?

Mr Justice Murray found that the consideration must involve a promise of some kind by the worker to work for the putative employer, whether for a defined or undefined period, immediately or in the future, for the purpose of completing specific tasks.

2. 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?

Stating that “this is the essence of an employment agreement”, the court recognised that some degree of limited substitution is permissible — in the case before it, the worker could not both accept an offer of work in accordance with the contract, and then unconditionally delegate it.

3. 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?

Remarking upon the evolution of the meaning of ‘control’, the court found that Roche v Patrick Kelly & Co Ltd [1969] IR 100 authoritatively restated it as “the master’s right to direct the servant not merely as to what is to be done but as to how it is to be done. The fact that the master does not exercise that right, as distinct from possessing it, is of no weight if he has the right.”

Finding that the RMC test had not been supplanted by a “business on his or her own account” test as a result of Henry Denny & Sons (Ireland) Ltd. v. Minister for Social Welfare [1996] 1 ILRM 418, the court found that whether a person is in business on their own account is relevant to the question of control, as an employer will have less control over a self-employed person than an employee.

The court then proceeded to highlight two further elements for consideration where the three prior elements were established.

4. The decision-maker must then determine whether terms of the contract between employer and worker interpreted in 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.

Mr Justice Murray expressed that, although not new in Irish law, the third limb of the RMC test must be reframed so that it expressly states that the contract must be interpreted in light of the factual matrix in which it was concluded. The court also stressed that the actual dealings between the parties must be accounted for, and that it is useful to remember that the question of whether a contract is one of service cannot be resolved without identifying what the contract actually is, noting that it is appropriate to consider control at this stage again, along with the extent to which the worker is integrated into the employer’s organisation.

5. 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.

In this regard, the court warned that it is “easy to overlook” that when a phrase such as “contract of service” appears in legislation, the ascertainment of its meaning involves an exercise in statutory construction, as there may be provisions in which it is intended to carry a different meaning.

Conclusion

Applying the above analysis to the facts and allowing the appeal, the Supreme Court found that whilst certain elements of the drivers’ activities were consistent with engaging in business on their own account, the evidence disclosed close control by the respondent over the drivers whilst at work.

The Revenue Commissioners v. Karshan Midlands Ltd t/a Domino’s Pizza [2023] IESC 24