The Supreme Court decision in the "Domino's Pizza" case is one of the most significant Irish tax decisions in recent years. The case is technically called The Revenue Commissioners v Karshan Midlands Ltd T/A Domino's Pizza [2023] IESC 24. The seven-judge Supreme Court unanimously held that delivery drivers of a Domino's Pizza franchise were employees and not independent contractors.  As a result, the employing company ("Karshan") is required to account for payroll taxes on the earnings of drivers. 

The judgement is based on the facts of one case, but it is clear the court is seeking to bring clarity to the employment and tax status of workers participating in arrangements where work is offered on an ad-hoc basis (the so called "gig economy").

The Facts

Karshan engaged delivery drivers to deliver its pizzas. Drivers entered an open-ended written agreement with Karshan for an indefinite duration. This agreement stipulated that all delivery work undertaken was "strictly as an independent contractor". Drivers were also required to acknowledge that Karshan had "no responsibility or liability whatsoever for deducting and/or paying PRSI or tax on any monies [they] may receive under this agreement". Drivers were required to provide their own insured delivery vehicle. They were required to wear a fully branded uniform and display Domino's logos on their vehicle. Payment was based on the number of successful deliveries made by a driver and for brand promotion. Before being rostered, drivers submitted their availability to the manager. Drivers were permitted, but not required, to nominate a substitute if they were unavailable for shifts. In the event of unavailability, they were obliged to notify Karshan.

The Appellant ("Revenue") asserted that the delivery drivers were employees under contracts of service. They contended that Karshan should have been operating payroll taxes (PAYE and PRSI) in respect of the payments that were being made to the drivers. In June 2014, Revenue raised a tax assessment totalling €215,718 in respect of the tax years of assessment 2010 and 2011.

Path to the Supreme Court

The path to the Supreme Court took a number of years. In 2018, the case reached the Tax Appeals Commissioner ("TAC") who determined that the drivers were employees. She concluded that the tax estimates raised by Revenue in the sum of €215,718 should stand. The High Court endorsed the Commissioner's approach. In a majority decision, the Court of Appeal reversed the findings of the High Court. The Court of Appeal accepted the argument of Karshan and this was then appealed to the Supreme Court. 

Supreme Court Decision

The Supreme Court decision stretches to over 190 pages. It is a detailed examination of caselaw stretching back to prior centuries, examining the position in both Ireland and the UK. Justice Murray noted that the common law has grappled with the application of the principles to differentiate a contract of service from a contract for services to "what is now the 'gig economy' long before the phrase was invented".

One central issue which occupies the Supreme Court is whether a contract of employment can exist where there is no "mutuality of obligation". This rather tortuous phrase appears over 111 times in the judgement. It refers to "an ongoing reciprocal commitment extending into the future to provide and perform work on the part of the employer and employee respectively". A "gig economy" job typically does not have this ongoing commitment. It typically involves a series of "one-off" engagements. The individual does not know when work will be provided, and does not actually have to do any work, if they don't want to.  Justice Murray crucially stated that "[t]he fact that the employer has no obligation to offer further work, or that the worker is under no obligation to work if it is offered, does not prevent the agreement between them from being a contract of employment". Thus it rejected the idea that an ongoing commitment is determinative of whether an employment relationship exists. The court noted that "single stints of work are capable in law of comprising contracts of employment even if not accompanied by a commitment by the employer to actually give work in advance of the specific engagement".  It was highlighted that the relevant provisions of the TCA do not impose a requirement of continuity of service before the sections are engaged. This finding undermined the arguments of Karshan that no employment relationship existed.

The Supreme Court set out the correct approach going forward to determine whether a contract is one of service or for services in the form of five questions which take into account the well-established caselaw:

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 the decision maker must then determine whether the terms of the contract between employer and worker 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 having regard, in particular, 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 any of the foregoing.

There is a focus on "control" and great emphasis was laid on the level of close control exercised by Karshan over the drivers. 

Some Key Learning Points

The Supreme Court is a 7-0 decision. It reflects the firm view of the Court on this most complex area. Not all pizza delivery drivers have become employees as a result of the decision. However, companies which use workers on an ad-hoc basis should engage in a re-examination of their position. 

The Revenue Commissioners are likely to be very pleased with the decision, which represents several years of litigation effort on their part. In response to the judgment, Revenue issued a press release on the 27 October 2023. In it they highlight that all businesses who currently engage contractors, sub-contractors or other workers on a self-employment basis should review of any such arrangements to ensure that individuals are classified correctly and the relevant taxes paid. It would not be surprising if there was a greater amount of Revenue activity and investigation in this sector in coming months. 

The tax implications of incorrect classification can be significant as Revenue will clearly seek to pursue the employer for tax which should have been withheld, rather than the employees. The penalties and interest associated with underpayment, as well as the prospect of payments being “regrossed” for tax purposes can add meaningful sums to the overall tax liability. In many gig economy jobs, the staff are mobile and therefore any prospect of recouping monies from the employees may be remote or extremely difficult.

The “gig economy” will not be eliminated by the decision, but it will be impacted. The legislative test indicates that the threshold to establish employment is now focused principally on the level of control during the engagement.