Abstract
In October 2023, Ireland's Supreme Court handed down its judgment in the case of The Revenue Commissioners v Karshan Midlands t/a Domino's Pizza. Following the CJEU ruling in Yodel, and that of the UK Supreme Court in Uber v Aslam, this decision is yet another addition to the debate around the employment status of gig workers that European courts have been grappling with, in common and civil law jurisdictions alike. In Karshan, the Irish Supreme Court ruled that Domino's pizza delivery drivers should indeed be treated as employees for the purposes of taxation. Importantly, however, the ruling was delivered based on a different set of facts than some of the other gig economy cases heard in Europe – notably, in Karshan there was no digital platform and, therefore, the link between the delivery drivers and Domino's was more pronounced than in cases involving a platform. The scope of comparison to Yodel is, thus, limited. Furthermore, the judgment is narrow in its scope and, disappointingly, appears to deliberately leave many questions unanswered, failing to seize the opportunity to provide more clarity for gig workers and employers alike. This is typical of the current state of affairs in employment law, which, while aware that traditional approaches are inadequate to the evolving world of work, has not yet come up with a comprehensive way of addressing these challenges. Despite these shortcomings, Karhsan offers some valuable insights into the discussion on the gig economy as the EU institutions are working to adopt the much-anticipated Platform Workers Directive.
Introduction
In October 2023, Ireland's Supreme Court handed down its judgment in the case of The Revenue Commissioners v Karshan Midlands t/a Domino's Pizza. 1 Following the CJEU ruling Yodel, and that of the UK Supreme Court in Uber v Aslam, this decision is yet another addition to the debate around the employment status of gig workers that European courts have been grappling with, in common and civil law jurisdictions alike. In Karshan, the Irish Supreme Court (hereafter: IESC) ruled that Domino's pizza delivery drivers should indeed be treated as employees for the purposes of taxation. Importantly, however, the ruling was delivered based on a different set of facts than some of the other gig economy cases heard in Europe – notably, in Karshan there was no digital platform and, therefore, the link between the delivery drivers and Domino's was more pronounced than in cases involving a platform. The scope of comparison to Yodel is, thus, limited. Furthermore, the judgment is narrow in its scope and, disappointingly, appears to deliberately leave many questions unanswered, failing to seize the opportunity to provide more clarity for gig workers and employers alike. This is typical of the current state of affairs in employment law, which - while aware that traditional approaches are inadequate to the evolving world of work, has not yet come up with a comprehensive way of addressing these challenges. Despite these shortcomings, Karhsan offers some valuable insights into the discussion on the gig economy as the EU institutions are working to adopt the much-anticipated Platform Workers Directive. 2
Background
The IESC's judgment in Karshan originated from a tax dispute between a Domino's Pizza operator and the Irish Revenue Commissioners. Back in 2014, it was assessed that Karshan owed the Revenue over EUR 200,000 in PAYE (personal income tax, which in Ireland is deducted by employers on behalf of employees) and PRSI (pay-related social insurance). Karshan contended that its delivery drivers were engaged as independent contractors under contracts for services, but the Commissioner argued that this was a misclassification of their employment status. The Revenue's assessment was upheld by the Tax Appeals Commission and the High Court, 3 but was later overturned by the Court of Appeal. 4
Karshan had signed overarching contracts with its delivery drivers, which were described by the Revenue Commissioner as ‘umbrella contracts’. They were open-ended agreements of indefinite duration, whereby Karshan subcontracted the delivery of pizzas and brand promotion. They could, however, be terminated by Karshan without notice. The contracts had provided explicitly that the drivers were to be independent contractors and, therefore, no income tax or social insurance contributions would be deducted or paid by Karshan on their behalf. The drivers’ remuneration consisted of two elements: 1) a performance-based commission depending on the number of successful deliveries, and 2) a flat-rate payment for what was described in the contract as ‘brand promotion’. Of interest is also clause 12 of the overarching contract, which allowed for substitution should a driver ‘be unavailable at short notice’, provided that the substitute was accepted by Karshan. 5 In fact, if a driver was unavailable to complete a previously scheduled shift, they were required to find a substitute. 6 Finally, another feature of the drivers’ arrangement with Karshan was that they used to fill out an availability sheet in order to be rostered for work.
The overarching contract, coupled with the way it was operated in practice, constituted the grounds of Karshan's contention that the relationship with its drivers was not one based on the common law concept of ‘mutuality of obligations’. This was understood by the defendant as a necessary and defining requirement (sine qua non) of an employment contract. 7 While the Revenue concurred with that argument, it estimated that by agreeing to be rostered for specific shifts, Domino's drivers had in fact entered a relationship that entailed a certain level of mutuality of obligations.
The Supreme Court's decision
Elaborated eloquently over no less than 191 pages by Mr. Justice Brian Murray, the IESC judgment begins by carefully scrutinising the relevant common law case law, including on the contested concept of ‘mutuality of obligations’, to conclude that Karshan has misinterpreted it. The judgment then argues that the existence of an ongoing reciprocal commitment between the parties, while relevant in the overall assessment, is not a sine qua non test for distinguishing a contract for service from a contract of service. Instead, Murray J. proposes a staged approach to determining the existence or otherwise of an employment relationship, yet only in the limited context of the employer's taxation and pay-related social security obligations. The judgment concludes that in the circumstances at issue, Domino's Pizza delivery drivers should indeed be treated as employees.
Mutuality of obligations test debunked
The reasoning in Karshan is based on careful examination of more than 40 cases representing various common law jurisdictions, from the 19th century Yewens v Noakes
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case to the recent UK Supreme Court ruling in Uber v Aslam.
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The defendant's theory of mutual obligations was based on four components: 1) ongoing commitment; 2) extending into the future; 3) the employer's obligation to provide work; and 4) the employee's obligation to perform work.
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Yet, Murray J. observes that: The parade of carters, dockers, cattle drovers, delivery drivers, railroad unloaders, market researchers, supermarket demonstrators and homeworkers who have marched through the earlier cases show the common law grappling with the application of the principles applied to differentiate a contract of service from a contract for services to what is now called the ‘gig economy’ long before that phrase was invented, but – until the 1980s – without any reference to ‘mutuality of obligation’ in the sense in which Karshan uses that term.
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The new test
Having demystified Karshan's mutuality theory, Murray J. proceeds to explain the correct approach to differentiating a contract for service from a contract of service – one originating from the RMC case
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and subsequently developed in Market Investigations.
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This is to be determined by answering the following five questions one by one: Q1 Is there a wage or other remuneration for work? Q2 Is the worker committing to provide their own services personally? Q3 Does the employer exercise enough control for the contract to be capable of being an employment contract? Q4 Are the factual working arrangements, as disclosed by evidence, consistent with an employment contract? Q5 Is there anything in the current legislative context that should also be taken into consideration?
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Comments
There are several elements in the above test, as well as in the way in which it has been applied in Karshan that warrant further consideration. As a general remark, there is some degree of overlap with the definition of a worker coined by the Court of Justice of the EU (hereafter: CJEU) in Lawrie-Blum 17 and developed in later case law. However, this similarity is hardly deliberate; in fact, Murray J. does not mention EU Law at all in Karshan. Rather, the core of the employment relationship, regardless of the jurisdiction at issue, appears to be grounded in universal common sense: work is to be remunerated and there must be some element of control (the form and degree of this control have evolved over time, particularly with the rise of remote work in recent years, which Murray J. acknowledges). 18 The IESC observes that the approach followed by the Revenue Commissioner in Karshan can be ‘easily accommodated’ within the new test. 19
There are some aspects of the Karshan judgment, where, on the surface, the IESC appears to depart from the EU's approach developed by the CJEU in Yodel, particularly with regard to the issue of substitution. Upon closer consideration, however, this appears to be due mainly to the difference in facts between Yodel and Karshan, which was to some extent also reflected in contractual arrangements.
The Yodel case, decided just after Brexit, concerned the employment status of a neighbourhood parcel delivery courier in the UK. 20 Having examined the Working Time Directive, 21 the CJEU concluded in Yodel that a contractor could not be classified as a worker within the meaning of EU Law where they were able to fix their own hours within certain parameters, decline an assignment or use substitutes without limitation. 22 In the case at issue, neighbourhood couriers were remunerated exclusively per delivery. Parcels had to be delivered at any stage between 7.30 a.m. and 9 p.m., and the neighbourhood couriers were free to decide when to deliver them and what to do for the rest of the day. 23 Notably, couriers were free to perform other work on the days they were delivering parcels for Yodel. Furthermore, while Yodel could technically object to substitution, it was unlikely that they would have even been aware of substitutions as long as there had been no issues with the deliveries, given that all communication with the couriers took place by mobile phone. 24
In Karshan, conversely, the umbrella agreement envisaged two types of remuneration: the delivery commission was to be supplemented with a flat-rate payment. This was because, while working a shift for Domino's, delivery drivers had to wear a branded uniform and in between deliveries they used to return to the pizzeria to engage in other work, such as folding pizza boxes. 25 Therefore, there was an element of exclusivity in the relationship with Karshan as during the shift drivers were unable to engage in work for other employers. Substitution was also different from Yodel, where parcels could in theory have been delivered by anyone. In Karshan, delivery drivers could replace each other with prior notice (as in any type of rostered work), and during the shift it was the employer who decided who was going to do each delivery. This is why the IESC believed that delegation was limited in a manner that was sufficient ‘to maintain the element of personal service required’ 26 (Q2). Furthermore, Murray J. was satisfied that Karshan had control over its drivers in matters such as the dress code, the number and extent of pizza deliveries, the preparation of invoices etc. (Q3). 27 The IESC's approach here is consistent with the UK approach in Pimlico Plumbers Ltd. v Smith, 28 which was widely relied upon in Karshan.
Another important UK reference in Karshan is the Supreme Court's judgment in Autoclenz, 29 which embraced a ‘holistic’ approach to determining the employment status, and the principle of primacy of facts over contract. Where the IESC stands vis-à-vis Autoclenz is, unfortunately, rather unclear. In the above test, Murray J. explicitly postulates a ‘threshold’ approach, whereby examination of the facts of the case in line with Autoclenz (Q4) is to take place only where the first three steps suggest an employment relationship. This, however, appears be inconsistent with the reasoning in Karshan, where facts were taken into consideration from the very beginning, including to answer Q1-Q3. In fact, it would be impossible to detect any kind of ‘sham’ self-employment by answering Q1-Q3 solely based on contract.
The IESC judgment makes it clear that its findings are limited to personal income taxation and pay-related social security, and explicitly leaves aside the question of whether Karshan's delivery drivers may be subject to any employment rights legislation. 30 Consequently, Murray J. argues that Karshan should not be penalised for not being aware of its drivers’ status, nor should the drivers be forced to be treated as employees against their wishes. 31 Indeed, it is conceivable that for some of them it may be preferential to remain classified as self-employed.
Conclusion
The IESC judgment may offer some interesting insights into the ongoing debate around the regulation of non-standard work in Europe, including platform work. Murray J. convincingly argues that the obligation for the employer to provide work is not the essence of the employment relationship. Indeed, this requirement appears to be a misconception and thus, the fact that platform workers’ services may not always be required should not be an obstacle to them claiming employee status – and the same should apply to zero-hour contracts. Conversely, what undoubtedly constitutes a defining feature of the employment relationship is the employee's obligation to be available for work and to accept work when required. Thus, the possibility to turn down work or provide substitution may indeed stand in the way for those in the gig economy who wish to be classified as employees.
This article has argued that the IESC in Karshan and the CJEU in Yodel are, really, on the same page when it comes to drawing the line between employment and self-employment; and the apparent differences in the outcomes are due to the different facts in each of the cases. Even though the IESC judgment is not a platform work case as such, it does address the difference between employment and self-employment which lies at the heart of the platform work debate. Consequently, it has raised several important questions for this debate, such as the difference between the ‘holistic’ and the ‘threshold’ approaches to determining the employment status. Unfortunately, the IESC did not seize the opportunity to answer those questions with sufficient clarity and precision.
As for the workers, if they are to be classified as employees for tax and pay-related social security purposes on one hand, yet do not have any employment rights on the other hand, the inevitable question that follows is: what is their employment status? Ireland is, of course, one of many jurisdictions where courts have been grappling with this issue, and in some of them the answer has been to invent an intermediate category of ‘workers’, separate from both ‘employees’ and the ‘self-employed’. Notably, this was the solution proposed in the UK in the aforementioned Uber v Aslam case. While the IESC in Karshan does not endorse this solution, it effectively enables it by saying that the same working arrangements may be treated differently for different purposes. However, the danger of following this path is that it will likely lead to a great deal of uncertainty for employers without necessarily addressing the workers’ precarity.
Footnotes
Acknowledgement
The author is grateful to Professor David Mangan for his insightful comments, and to the anonymous reviewers for their inspiring feedback.
Declaration of conflicting interests
The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author received no financial support for the research, authorship, and/or publication of this article.
