Two recent cases in Ireland apply new Supreme Court test for determining employment status

In the first case, Lauren McBride v FSR Atlantic Ltd t/a ADHD Now, the Complainant was interviewed by the Respondent, an online platform providing ADHD counselling and services, for the position of an Assistant Psychologist. While initially believing she was being hired as an employee, upon receiving the contract, she understood she was being hired as an independent contractor under a contract for services and that she could work for anyone else. It was agreed that she would charge €30 an hour and that she would be responsible for her own tax and invoicing the Respondent.

According to the Complainant, the CEO of the Respondent confirmed that she would be offered full time hours of 7 hours per day / 35 hours per week, but this did not materialise. Instead, the Complainant only worked 8 hours’ work in total over a two-month period. The Complainant was required to maintain a minimum availability of 10 hours each week on the Respondent’s online platform but was given no work, despite making herself available. She was unable to carry out any other activities during these periods of time.  

The Complainant acknowledged that, on one occasion, she refused hours offered to her as she was unavailable to work, but that there were no adverse consequences for this refusal, with the hours instead being offered to someone else on the panel of psychologists retained by the Respondent. She alleged several breaches of her statutory employment rights and so the question of her employment status was key. 

The Respondent submitted that the Complainant was at all times engaged as an independent contractor, having signed a commercial agreement which included a clause which explicitly excluded an employment relationship with the Complainant, or any mutuality of obligation.

The Respondent also confirmed that they did not, in fact, employ anyone - all individuals engaged by them were working under contracts for services, and none of the psychologists retained on their panel worked exclusively for them.

Definition of “contract of employment” 

The Complainant made several complaints of alleged breaches of her statutory employment rights including:  

Complaints under the Payment of Wages Act 1991 

With respect to her complaints under the Payment of Wages Act 1991, the Respondent made the case that the Complainant was not an employee and so was not covered by the 1991 Act. However, the Adjudication Officer noted that the definition of “contract of employment” under the 1991 Act is very broad and includes any contract where the “individual agrees to do or personally perform any work or service for a third person…whose status by virtue of the contract is not that of a client or customer of a profession or business carried on by the individual”. It further provides that the person liable to pay the wages of the individual in respect of the work or service is the employer for the purpose of the legislation. 

The Adjudication Officer was therefore satisfied that the Complainant was working under a contract of employment for the purpose of the 1991 Act and, as the Respondent was liable to pay the wages of the Complainant, it was regarded as the employer. As such, her complaints under this legislation could be considered (although only one of them succeeded based on the facts).  

Complaints under the Terms of Employment (Information) Act 1994 

The Adjudication Officer found that the definition of a contract of employment under the 1994 Act was also broad enough to extend to the Complainant as she had agreed to “personally execute work or services” for the Respondent. However, for various other reasons, her specific complaints under the 1994 Act were not upheld.  

Complaints under the Organisation of Working Time Act 1997

Unlike the 1991 Act and the 1994 Acts above, the definition of a contract of employment under the 1997 Act refers only to a “contract of service” or someone who is engaged by an agency within the meaning of the Employment Agency Act, 1971. Clearly this was not an agency arrangement and so the Adjudication Officer had to determine whether the Complainant was engaged under a ‘contract of service’ rather than a ‘contract for service’ by reference to the various tests set out in caselaw. 

What is the test for determining employment status? 

The Adjudication Officer noted the Supreme Court ruling in Revenue Commissioner v Karshan (Midlands) Ltd t/a Domino’s Pizza [2023] IESC 24 which essentially reformulated and restated the law for determining employment status and rejected the over-reliance placed on “mutuality of obligation” between the parties in determining this. 

The Supreme Court concluded that the question as to whether a contract is one “of” service or “for” service can be resolved through answering the following five questions:

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

(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?

(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?

(4) If these three requirements are met, then the decision maker must determine whether the terms of the contract, interpreted in the 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.  This is determined by having regard, to whether the arrangements point to the putative employee working for themselves or for the putative employer.

(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 the foregoing.

The first three questions are to be viewed as a filter. If any of these are answered negatively, there cannot be a contract of employment. If the first three questions are answered affirmatively, questions four and five must then be considered to determine if a contract of employment exists. 

WRC’s application of the new five factor test

The Adjudication Officer found that the parties in this case had entered into a binding contract involving the exchange of remuneration for work and that the Respondent exercised sufficient control over the Complainant that their agreement was capable of being a contract of service.  In reaching this decision, the Adjudication Officer took a number of things into consideration, including that the Respondent:

• directed the Complainant on when, what and how the assessments were to be done; 
• solely determined how the clients were to be assessed and the duration of the assessment;
• required the Complainant to use the Respondent’s tools for the assessments;
• directed the duration of assessments and time spent on administration. 

The Complainant had no control over what she could invoice the Respondent for and the fact she was contractually required to maintain a minimum of 10 hours availability was also deemed to be more indicative of an employer/ employee relationship. 

The Adjudication Officer noted that, while control is a mandatory element of the contract of employment, it does not just extend to operational direction but also economic risk and the position of the worker in the business of the employer. The Adjudication Officer was satisfied that the Complainant was not in business on her own account, particularly as she had no opportunity to vary the level of profit derived from the work she performed, no capacity to profit in any material way from her own skill and the assessment work she performed was integral to the work of the Respondent and not an accessory to it.

Also, despite the Complainant’s freedom to work for others and the discretion to make herself unavailable for work, she did not risk her own capital and her opportunity to generate or maximise profit did not in any way depend on the way she managed her work. Instead, the amount of money the Complainant earned was determined exclusively by the extent to which her services were availed of by the Respondent.

It was also noted that the contract wording is not decisive of the issue and did not reflect the reality of the relationship. Taking into consideration all the facts, most of the evidence pointed towards the Complainant being engaged under a contract of service (i.e. a contract of employment) rather than as a self-employed contractor under a contract for services.

In a second recent decision by the WRC, Matthew McGranaghan v MEP Music Ltd, the Complainant, a former musician for a country music star, was found to be an employee, not an independent contractor or “gig” worker.

This was the first time the principles of the Supreme Court’s ruling in Karshan were applied to the entertainment industry – referred to by the representatives acting for the band’s management as the “the original form of the gig economy”. The Respondent had argued that the Complainant had been able to decide whether he wished to take up a gig and so there had been no “mutuality of obligation” between the parties to provide work or to work when work was given. 

However, the Adjudication Officer in this case again noted that the Supreme Court in Karshan had rejected the over-reliance on the “mutuality of obligation” test and that, instead, the new test considers factors such as the exchange of money for work, the level of control exercised by the alleged employer and whether the purported employee was providing personal services or had the right to engage a substitute.

It was noted that the relationship between the parties involved the weekly exchange of money for work as well as the provision of the Complainant’s personal services as the band’s “resident fiddle player”, with substitutes only an “exception”. It was also noted that sufficient control was exercised by the company over the Complainant – he wore a uniform when he played, he had no flexibility on when or what he played, and he took direction from the company.

Takeaway for Employers

The cases are an important reminder for businesses that the definitions of “employee” and “contract of employment” contained in the certain pieces of the employment legislation may be broad enough to extend to independent contractors.

Where the definitions are not clear, these two cases serve also as a stark reminder for businesses engaging independent contractors that the reality of any workplace relationship will be carefully scrutinised by the courts in determining employment status. 

The cases show the emphasis placed on the control element of the relationship. If a contractor is providing personal service to the business (i.e. only they can carry out the services) and there is a high level of control over the contractor, especially in circumstances where the contractor conducts a critical part of the business, there is a significant risk these individuals will in fact be considered employees.

While the monetary amounts involved in the first case were low, (primarily because of the very short duration of the contract), it was a more costly misclassification in the second case where the Complainant was awarded nearly €44,000 in respect of his unfair dismissal and other breaches of employment legislation.  

Businesses should carefully review any existing contractual or service arrangements they have in place with independent contractors, by reference to the new five-step test set out in Karshan, to determine whether there is risk that they might be deemed to be employees of the business. It is also important to be mindful that the relationship between businesses and independent contractors can change over time and businesses should regularly take stock of arrangements they have in place to ensure they continue to reflect the reality of the working relationship.

For more information or assistance, contact a member of our team.

Lauren McBride v FSR Atlantic Limited t/a ADHD Now – link to WRC decision available here.

Matthew McGranaghan v MEPC Music Ltd – link to WRC decision available  here.