Independent Contractor or Employee: The new 5 step test

Independent Contractor or Employee: The new 5 step test

The year 2023 witnessed a pivotal moment in the realm of employment law, as a high-profile case unfolded involving delivery drivers contracted with Karshan (Midlands) Ltd, better known as Domino's Pizza ("Karshan")

This case involved delivery drivers under contracts with Karshan (Midlands) Ltd (trading as Domino’s Pizza) (“Karshan”). The drivers brought a case in 2018 arguing that they were employees for tax purposes. Karshan argued that they were independent, self-employed contractors. The Tax Appeals Commissioner initially found in 2018 that the drivers should be classified as employees. A seven-judge Supreme Court recently handed down their judgement, overturning the decision of the Court of Appeal, and found that the delivery drivers were employees.

In its decision, the Supreme Court found that the term “mutuality of obligation,” which has been one of the key factors used in Irish law to determine whether or not an individual is an independent contractor or an employee, has been overused and under-analysed in Irish law and has generated unnecessary confusion such that the use of this term should be discontinued going forward.

The Supreme Court formulated a new 5-step test, based on previous case law, to be used to determine whether or not an individual is an independent contractor or an employee.

Does the contract involve an exchange of wages or remuneration for work?

If so, is the agreement written so the worker is agreeing to provide their own services and not a third party to the employer?

If so, does the employer have sufficient control over the worker to make the agreement capable of amounting to an employment agreement?

Whether the terms of the contract between employer and employee are consistent with a contract of employment or some other form of contract, and whether the arrangement appears that the employee is working for themselves or for the employer.

Whether there is anything in the legislation that the court should consider.

The Supreme Court found that, on the facts of this case, while there were some features of the work that were consistent with the delivery drivers being independent contractors engaged in business on their own account, the evidence pointed to the drivers carrying on Karshan’s business as opposed to on their own account. The Supreme Court noted that Karshan had close control over the workers, which created an employment relationship, and, in addition, the delivery drivers worked at Karshan’s premises, conducted a critical part of Karshan’s business (as delivery drivers), wore uniforms (as directed by Karshan), and advertised Karshan’s business.

The Supreme Court’s decision has considerable implications for employers, both from a tax and employment law perspective. As a result, employers are encouraged to familiarise themselves with the Court’s findings and review the nature of any arrangements in place with any contractors, sub-contractors, or other workers engaged on a self-employed basis in light of the Court’s 5-step test. Crucial to this exercise will be looking at all relevant aspects of the arrangements in place with a view to identifying the aspects that are, and those that are not, consistent with a contract of employment.