FULL RECOMMENDATION
SECTION 28(1), ORGANISATION OF WORKING TIME ACT, 1997 PARTIES : EUROCOMMERCE PAYMENT SOLUTIONS LIMITED (REPRESENTED BY A & L GOODBODY, SOLICITORS - AND - DWAYNE KEOGH DIVISION : Chairman: Ms Jenkinson Employer Member: Mr Murphy Worker Member: Mr Shanahan |
1. Appeal against a Rights Commissioner’s Decision Ref-090020-WT-10/GC
BACKGROUND:
2. The Company provides payment solutions and infrastructures to its clients which include airlines and financial institutions. It allows clients to process customer payments by integrating Company software and the clients' software .
The worker's claim is that the Company was in breach of the Organisation of Working Time Act, 1997, (the Act) by requiring him to work excessive hours and by not giving him break/rest periods. His case is as follows: he was employed by the Company as a Professional Services Manager from 4th December, 2006 to 18th September, 2009. When the Operations Manager resigned from 1st June, 2007, the Company's CEO asked the worker to take on the Manager's role and duty. The worker agreed to this after negotiations/discussions with the CEO and he ceased to be paid on the payroll on 31st May, 2007, and started invoicing the Company from 1st June, 2007, for labour only. In April, 2009, the worker was asked to sign an indepentent contractor's agreement as he had not done so previously. He felt pressurised into doing so and, along with the amount of work he was doing, he went to his doctor feeling "burnt out". He was told that his condition was work-stress-related. He was on leave from the 4th May, 2009, to 1st June, 2009, on a combination of sick/paid/annual leave. He resigned on 18th September, 2009, and claims that the only change in his status was the method of payment from 1st June, 2007.
The Company's case is that the worker specifically asked to be employed as an independent contractor from 1st June, 2007, as he could offset his operating and personal expenses to reduce his tax bill. As such, he was not an employee of the Company from that point onwards. He was issued with a P.45. on 31st May, 2007.
The worker referred his case to a Rights Commissioner whose decision was as follows:
"In relation to the preliminary issue as to whether the claimant was an employee of the respondent I find as follows:
The claimant was initially employed by the Company from 2006 to 2007 and by his own request in 2007 entered into an "Independent Contractor's Agreement" with the respondent. On reviewing this contract I find that it specifically refers to the claimant as an "Independent Contractor" with his own VAT number. The contract states that the claimant would provide services, that he would be paid a daily rate for his services and that he had the responsibility for providing services "that provides global transaction processing services for its customers on a 24X7X365 basis"
The contract further provides for the potential for the claimant to "use a subcontractor or employee in the performance of his obligations under this agreement, then in the event of the Independent Contractor using such a third party (subcontractor/employee) in the performance of his obligations under this agreement, the Independent Contractor is fully responsible for duties regarding this agreement as if he/she performed obligations himself/herself". I note the issue of a P45 ceasing the employment of the claimant as an employee on 31st May 2007. The claimant invoiced the Company on a monthly basis thereafter, for different amounts depending on days worked, for his services, initially in the name of a Company "Crinniu Consultant". There are a number of tests which have been used to determine whether a contractual relationship is a contract for service or a contract of service. One of the critical tests is the level of control which the Company had over the claimant. Based on the evidence and submissions, I find that while he reported to the CEO, the claimant was not subject to the same controls and employment rules as others in the company. Evidence of this is the 40 days time off he took and his refusal to work on certain contracts.
I find, therefore, on balance that the claimant here operated on a contract for service with the respondent. He does not fulfil the definition of "employee" as provided for in the Act. I find, therefore, there is no jurisdiction for his complaint to be entertained under the Act".
The worker appealed the decision to the Labour Court on the 28th October, 2010, in accordance with Section 28(1) of the Organisation of Working Time Act, 1997. A Labour Court hearing took place on the 16th February, 2011. The following is the Court's determination:
DETERMINATION:
Dwayne Keogh (“the Complainant”) brought a complaint before a Rights Commissioner pursuant to the Organisation of Working Time Act 1997 (“the Act”) alleging breaches of Sections 11, 12, 13, 14, 15 and 19 of the Act. The Complainant sought an extension of time as provided under Section 27(5) of the Act for referral of a claim to the Rights Commissioner. This was not granted by the Rights Commissioner.
Eurocommerce Payment Solutions Limited (“the Respondent”) submitted that the Complainant was an independent contractor working under a contract for services and that, therefore, he was not an employee as defined by the Act.
The Rights Commissioner found that she had no jurisdiction to hear the case as the Complainant was not an employee within the definition of Section 2 of the Act. The Complainant appealed the Decision of the Rights Commissioner.
Background
The Complainant was employed by the Respondent as a “Deployment Manager” from 4th December 2006 until 31st May 2007. In May, 2007, the parties entered into negotiations and his contract changed from one of an employer/employee relationship to one of an independent contractor providing a service to the Respondent as a “Senior Line Management, Project Management and Professional Services”.
The Complainant sent a formal letter of resignation to the Respondent on 20th August 2009 and his contract terminated on 18th September, 2009. He referred claims under the Act to the Rights Commissioner on 10th February, 2010.
The Complainant’s Case
The Complainant submitted to the Court that despite the independent contractor’s agreement he had entered into in May 2007, that he was in fact “an employee” as defined by Section 2 of the Act. He submitted that when his status is examined and compared with that of a self-employed person using the guidelines provided in the "Code of Practice for Determining Employment or Self-Employment Status of Individuals"it will be seen that his status is in fact one of an employee.He submitted that when consideration is given to the reasoning behind the change in employment status in 2007, the Court will find that the method of payment may have changed but the work and element of employer control did not.
He explained to the Court that in May 2007 when the Operations Manager resigned from the Company, the CEO requested the Complainant to take over the Operations Manager’s duties and responsibilities, however, as it was not possible to increase his salary, the CEO suggested constructing a “contract for services” as Board of Management approval would not be needed in such circumstances. Furthermore, to do so would not interfere with the due diligence process ongoing at the time (as it would not be perceived as a salary increase) as the Respondent Company was being sold to another company in the UK. The Complainant maintained that he was happy to remain as an employee, however, he agreed to facilitate the CEO and they jointly discussed the situation and negotiated a deal.
The Complainant maintained that the independent contractor’s agreement was not signed at the time it was negotiated in May, 2007, and that it was not signed until April 2009 when he claimed that the Respondent pressurised him into signing it. He submitted that by that time due to the pressure of his work, he was not in a proper frame of mind.
The Complainant maintained that when due consideration is taken of the real nature of his working relationship with the Respondent and when an examination of the reasoning for the change in status is undertaken, the Court will find that the reference to him no longer being an employee after May, 2007, has little or no contractual validity and it only expresses an opinion of minimal value in determining his work status.
The Complainant submitted that he continued to supply labour only to the Respondent in the same fashion as he did from the commencement of his employment in 2006 until the cessation of his employment in 2009. The relationship was a continuous one without any termination or finalisation date. The only factor that changed was the method of payment.
He submitted that the nature of his work was a continuous activity across all customers and all projects. He was responsible for delivering on all commitments that the Respondent made to their customer base and that he was required to efficiently balance and use the staff resources that were available to do the work while at the same time managing his own team of staff.
The Complainant submitted that the reason for the failure to refer his claim under the Act to the Rights Commissioner at an earlier date was due to the belief he held at the time that he was not an employee and that he was under a contract for services and therefore had no statutory right to refer a claim under the Act. He maintained that this situation changed in November 2009 when he sought to sign on for unemployment benefits and the Scope Section of the Department of Social Welfare questioned his status.
The Respondent’s Case
Ms. Karen Killalea, Solicitor, instructed by A & L Goodbody, Solicitors, for the Respondent contended that the Court had no jurisdiction to hear this appeal as the Complainant was an independent contractor and not an employee at the time of the alleged breaches and he was therefore not entitled to the protection of the Act. Further, and in the alternative, it submitted that any alleged breaches, which may have occurred prior to 11th August 2009, are now time-barred under Section 27 of the Act. Thirdly, the Respondent submitted that even if the Court were to find that the Complainant was an employee, then he was operating at such a senior and autonomous level that he was in a position to determine his own working hours and therefore was encompassed by Section 3(1)(c) of the Act, which excludes him from Part II of the Act. Lastly, the Respondent denied the allegations that it was in breach of the Sections 11, 12, 13, 14, 15 and 19 of the Act. It submitted that the Complainant worked 14 days per month in the relevant period covered by the claim, he did not work in excess of an average of 48 hours per week and was not denied any rest breaks during this period. Furthermore, he availed of 40 days’ annual leave during that period.
Ms. Killaleatold the Court that from 5th December, 2006, the Complainant was employed under a contract of employment as a Project Manager earning €80,000 per annum. After the six-month probationary period was over the Complainant asked the CEO if he could change his status to one of an independent contractor, as he had previously acted as a contractor for many years, and he could offset his operating expenses and personal expenses to reduce his income tax bill. Furthermore, he preferred to have an independent status. The CEO agreed to this request and on 7th May 2007 the parties entered into an independent contractor’s agreement. He was issued with a P45 to signify the cessation of his status as an employee in May, 2007, and a new arrangement as an independent contractor commenced from 1st June, 2007.
Ms. Killaleasubmitted that the independent contractor’s agreement entered into provided for an agreed daily rate of €475.00 plus VAT; each working day to equate to 8 hours Monday to Friday during normal company business working hours but with some flexibility; it provided for the payment of a bonus on the delivery of specific targets; a declaration that he was responsible for his own taxes and social welfare contributions and nothing in the contract prevented him from working for any other business. After he resigned as an employee in May 2007 he was removed from the payroll and he submitted invoices for the days he worked, he was removed from the VHI Group Scheme, and he organised his own work and leave schedule. He availed of an average of 37 days’ annual leave per year. He worked for another business on at least one occasion, in May 2009, while he was on a break from the Respondent.
Ms. Killaleasubmitted that the relationship between the Respondent and the Complainant was characterised by a considerable degree of freedom and autonomy on his part. He was free to decline work which in fact he did with a Client based in Hungary and he declined to travel to meetings in the UK in respect of another Client. He was free to perform the work according to his own schedule provide he delivered the services by the agreed deadline. He earned significantly more in fees that he did as an employee on a salary. He had six staff members reporting to him.
Initially he submitted invoices using the company name “Crinniu Technologies” and later submitted them in his own name.
The Respondent totally refuted the reasoning given by the Complainant for the origins of the independent contractor’s agreement in May 2007. The ex-CEO told the Court that the fact that the previous Operations Manager had left the company had nothing to do with it. As CEO he had total discretion to increase an employee’s salary if that was required and he did not need Board approval to do so.
Findings of the Court
Section 2 of the Act defines an "employee" as
- means a person of any age, who has entered into or works under (or, where the employment ceased, entered into or worked under) a contract of employment and references, in relation to an employer, to an employee shall be construed as references to an employee, employed by that employer; and for the purposes of this Act, a person holding office under, or in the service of, the State (including a Civil servant within the meaning of the Civil Service Regulation Act, 1956) shall be deemed to be an employee employed by the State or Government, as the case may be, and an officer or servant of a local authority for the purposes of the Local Government Act, 1941, or of a harbour authority, health board or vocational education committee shall be deemed to be an employee employed by the authority, board or committee, as the case may be;
Legal complexity surrounds the area of the distinction between a contract of service and a contract for services. A series of tests have evolved at common law to assist in this identification process. It is accepted that the distinction is a fine one and may be difficult to apply in borderline cases.
Traditionally, the existence of a contract of employment was dependent in part on the amount of control exercised by the employer but the Court accepts that this test is not an absolute one.
The fundamental test for determining the question of whether the contract is oneof serviceorfor serviceswas set down in the English decision ofMarket Investigations v Minister of Social Security [1969] 2 Q.B 173. Here it was held that the Court should consider if the person was performing the service as a person in business on his own account. If the answer to that question is yes then the contract is one for services. If the answer is no then the contract is one of service.
That approach was adopted in this jurisdiction by the Supreme Court inHenry Denny & Sons v Minister for Social Welfare [1998] IR 34. Here Keane J (as he then was) quoted with approval the following passage from the judgment of Cook J inMarket Investigations:
- “The observations of Lord Wright, of Denning L. J and of the judges of the Supreme Court suggest that the fundamental test to be applied is this: 'Is the person who has engaged himself to perform these services performing them as a person in business on his own account '. If the answer to that question is 'yes', then the contract is a contract for services. If the answer is 'no', then the contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors which may be of importance are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task."
- It is, accordingly, clear that, while each case must be determined in the light of its particular facts and circumstances, in general a person will be regarded as providing his or her services under a contract of service and not as an independent contractor where he or she is performing those services for another person and not for himself or herself. The degree of control exercised over how the work is to be performed, although a factor to be taken into account, is not decisive. The inference that the person is engaged in business on his or her own account can be more readily drawn where he or she provides the necessary premises or equipment or some other form of investment, where he or she employs others to assist in the business and where the profit which he or she derives from the business is dependent on the efficiency with which it is conducted by him or her.
Ms. Killalea referred the Court to the Supreme Court Decision inCastleisland Cattle Breeding Society Ltd. v. Minister for Social and Family Affairs[2004] IESC 40 (15 July 2004), where the Appellant contended that Mr. Walsh, the notice party, was engaged by Castleisland Cattle Breeding Society on a contract of service and not a contract for services. She cited in particular the judgment of Geoghegan J in that case in which he held:
“…. knew well the reason why their contracts of service were terminated and that the redundancy arrangements were entered into entirely in the context of what was happening in the way of new arrangements involving contracts between the appellant and independent contractors.
The change of contractual arrangements had obvious consequences. The most important of these were that the Inseminators, including Mr. Walsh, became self- employed for tax purposes. Mr. Walsh made returns on that basis and claimed tax allowances under the self-assessment system.
….. It seems quite clear that these Inseminators fully understood the position in 1990 and in no sense did they enter into a bogus contract, whether as a consequence of exploitation or otherwise. The appellant made no secret of its reasons for changing its method of procuring the artificial insemination services. As far as the appellant was concerned, it was with a view to cutting losses in the appellant. There is nothing unlawful or necessarily ineffective about a Company deciding to engage people on an independent contractor basis rather than on a “Servant” basis but, as this court has pointed out in Henry Denny & Sons (Ireland) Ltd – v- Minister for Social Welfare [1988] 1 I.R. 34 and other cases, in determining whether the new contract is one of service or for services the decider must look at how the contract is worked out in practice as mere wording cannot determine its nature. Nevertheless the wording of a written contract still remains of great importance. It can, however, emerge in evidence that in practice the working arrangements between the parties are consistent only with a different kind of contract or at least are inconsistent with the expressed categorisation of the contract. In this case, apart from matters of minor detail, the written contract seems to have been the contract that was actually worked. Furthermore, in the case of Mr. Walsh it was worked by him between the 1st March, 1990 and the 8th September, 1999, without any claim being made by him and he was subject to the Social Welfare Acts and was under a contract of service.”
In arriving at a decision in this case, the Court notes the following facts:
�The Complainant was initially employed on a contract of service and there was no dispute between the parties that up until June 2007 he was “an employee” of the Company.
�There is no dispute that in May 2007 the parties entered into discussions which included negotiations on the terms of the contract and both parties agreed to change his status from one of an employee/employer relationship to one of an independent contractor providing services to the Respondent as a “Senior Line Management, Project Management and Professional Services”. The contract quoted the Complainant’s VAT number.
�The agreed arrangement provided that he was to be paid on the presentation of an Invoice for the number of days’ work he completed on a monthly basis. The Complainant described his work as a continuous activity with no set starting and finishing times. The Respondent did not question the Invoices submitted and the amount of which varied depending on the number of days the Complainant submitted each month.
�Termination of the agreement by either party was subject to the giving of three months’ notice in writing.
�It is not disputed that the Complainant was fully integrated into the Respondent’s organisation, he was part of the management team, he reported to the CEO, he was required to provide coverage for other members of the Senior Management Team when they were absent, he worked in a team and had six staff members reporting to him. He was allocated a training/development budget for those staff reporting to him. He was listed on the Company’s website as a member of the Executive Team, included on the Company’s organisational structure chart and provided with a Company business card indicating that he was the Respondent’s “Professional Services Manager”. A review of his performance was carried out by the CEO each year.
It is clear that the Respondent exercised control over the Complainant in terms of the allocating projects and he was required to work on setting up new customers into the company’s business. It is equally clear that he was integrated into the Respondent’s business. These factors are undoubtedly relevant in attempting to determine his status either as an employee or as an independent contractor. However, there are other aspects of the relationship which are equally significant in so determining his status.
The Court accepts from the evidence submitted that the Complainant had the autonomy to direct his own work, to decide how many days’ work to submit per monthly Invoice, he had discretion on how many days’ leave to take and availed of an average of 37 days per annum when the maximum for employees was 25 days per annum taken at the discretion of management. Furthermore, he had the freedom to decline certain work unlike employees who could be disciplined for refusal to undertake certain tasks.
It is very clear to the Court that the intent of the parties in May 2007 was to alter the status of his employment with the Respondent so as to suit the Complainant’s requirement to work as an independent contractor. There was no benefit to be gained for the Respondent in changing his status from that of an employee. The Complainant had spent a substantial period of his previous working experience operating as an independent contractor, and he clearly sought to gain the benefits of that arrangement while working for the Respondent. In the IT sector, in which the Respondent and the Complainant operated, such arrangements were not unusual. The Complainant benefited financially from the arrangement, however, when he resigned from the Respondent’s company to pursue an alternative career, he discovered that it would have been more beneficial if his status had been one of employee/employer for the purposes of social welfare benefits and employment rights generally.
In theHenry Dennycase the Supreme Court found that the statement in the Appellant’s contract stating that"I am not an employee of Henry Denny & Sons"did not reflect the reality of the situation and found that she was not self-employed as stated in the contract but was employed under a contract of employment. In the instance case, the Court is of the view that the intent of the parties is of particular importance in determining the status of the Complainant.
The Court notes that the intent of the parties was very specific when an independent contractor’s agreement was negotiated and finalised in May 2007. The Complainant was issued with a P45 effective from 31st May 2007 and the new independent contractor’s agreement became effective from 1st June 2007. The Court is satisfied that the purpose of changing the Complainant’s status from that of employee to one of an independent contractor was designed to be of assistance to the Complainant and oblige his request to become an independent contractor in order to secure financial benefits. It is equally significant that during the currency of his tenure with the Respondent, at no time did he subsequently seek to invoke or revoke his status as one of an independent contractor to the Respondent.
The Court is of the view that the Complainant cannot seek to"approbate and reprobate”,i.e. it cannot be ignored that he claims to be self-employed when it is to his advantage and yet attempts to disclaim his self-employment status when it may be a liability. The Complainant cannot derive a benefit from his status as an independent contractor where he was paid at a significantly higher rate and paid tax at as a self-employed person and seek to be classified as as employee for other purposes.
Determination
For all of the above reasons the Court is satisfied that at the time of referral of his claims under the Act, the Complainant was an independent contractor and therefore not “an employee” as defined by Section 2 of the Act. Consequently the Court has no jurisdiction to hear the case.
The Court concurs with the findings and Decision of the Rights Commissioner and upholds her Decision.
The appeal fails.
The Court so determines.
Signed on behalf of the Labour Court
Caroline Jenkinson
11th March, 2011______________________
CONDeputy Chairman
NOTE
Enquiries concerning this Determination should be addressed to Ciaran O'Neill, Court Secretary.