Employed or Self-Employed?

A “contract of service” relates to a person in employment while a “contract for services” relates to a person who is self-employed and who provides services to clients.

However, it is not as simple as it appears in determining if a person is in fact employed or self-employed, and many cases have been brought to the courts when self-employed persons have claimed that they are a ‘de-facto’ employee.

It is important therefore to consider the legal background and the criteria for what is or is not a ‘de-facto’ employee.

Legal Background

The terms “employed” and “self-employed” are not defined in law.

The decision as to which category an individual belongs must be arrived at by looking at what the individual actually does, the way he or she does it and the terms and conditions under which he or she is engaged, be they written, verbal or implied or a combination of all three. It is not simply a matter of calling a job “employment” or “ self-employment”.

In the Irish Supreme Court case of Henry Denny & Sons Ltd. T/A Kerry Foods v The Minister for Social Welfare -[1997] the fundamental test as to whether a person who has been engaged to perform certain work performs it “as a person in business on their own account” was considered among other matters.

This fundamental test was drawn from the UK case of Market Investigations Ltd v Minister of Social Security – [1969] which has received extensive judicial approval in this country as well as in the UK and other common law jurisdictions.

This fundamental test in that case was amplified by a series of specific criteria, as follows:

Does the person doing the work:

  • assume any responsibility for investment and management in the business or
  • otherwise take any financial risk or
  • provide his own equipment or helpers or
  • have the opportunity to profit from sound management in the performance of his/her task

From consideration of such tests one is better able to judge whether the person engaged is a free agent and has an economic independence of the party engaging the service.

The Denny case which is an important precedent in the area of whether a person is engaged under a contract of service (employee) or under a contract for services (self-employed) is of assistance because of the atypical nature of the engagement.

The main features of the Denny case were:

  • The facts were fully established and articulated and relevant legal principles applied by the Social Welfare Appeals Officer. The High Court or the Supreme Court did not disturb the decision.
  • The employment was atypical – the person engaged was a demonstrator / merchandiser of food products in supermarkets
  • The employment was also casual in nature and would have included a pool of demonstrators to be drawn from
  • Because of the casual nature of the employment ‘ mutuality of obligation’ would have been an issue i.e. whether or not the person engaged had an obligation to take each engagement when offered
  • The right of substitution was an issue albeit with the approval of the employer
  • The employment included fixed term contracts
  • References were made to imposed conditional contracts
  • It was confirmed that the Appeals Officer was correct in deciding not to be bound by an unreported Circuit Court judgement, dealing with a similar issue under an unfair dismissal claim under employment law, which he did not agree with. The Appeals Officer was correct in considering “the facts or realities of the situation on the ground” i.e. to look at and beyond the written contract to arrive at the totality of the relationship.

Certain statements included in the contract and other notes of engagement such as

  • “deemed to be an independent contractor”,
  • “It shall be the duty of the demonstrator to pay and discharge such taxes and charges as may be payable out of such fees to the Revenue Commissioners or otherwise”,
  • “It is further agreed that the provisions of the Unfair Dismissals Act 1997 shall not apply etc”,
  • “You will not be an employee of Kerry Foods” ,
  • “You will be responsible for your own tax affairs”,

were not contractual terms but that “they purported to express a conclusion of law as to the consequences of the contract between the parties”.

In other words, the fact that such or similar terms are included in a contract is of little value in coming to a conclusion as to the work status of the person engaged.

Determining Employment or Self-Employment Status of Individuals

The ‘Code of Practice in Determining Employment status’ can be downloaded at http://www.revenue.ie/en/practitioner/codes-practice.html

Recommendations

Thus, we would recommend that all existing sub-contractor arrangements are reviewed as sooner or later they may be subject to scrutiny by the Revenue Commissioners or by the individuals themselves who claim to be ‘de-facto’ employees.