UD33/2013

EMPLOYMENT APPEALS TRIBUNAL

CLAIM OF:                                                                                                         CASE NO.

Terry McDonagh                                                                                           UD33/2013

           -claimant                           

Against

Iarnród Éireann - Irish Rail

-Respondent

under

UNFAIR DISMISSALS ACTS, 1977 TO 2007

I certify that the Tribunal

(Division of Tribunal)

Chairman:       Mr. D. Hayes

Members:       Ms J. Winters

Ms M. Mulcahy

heard this claim at Dublin on 7th February 2014 and 23rd May 2014

Representation:

Claimant:       Mr Brian Conroy BL instructed by Mr Marc Fitzgibbon, Lavelle Coleman Solicitors,                   20 On Hatch, Lower Hatch Street, Dublin 2

Respondent:   Ms Cathy Maguire BL instructed by Mr Hugh Hannon, CIE Solicitors Office,                                     Bridgewater House, Bridgewater Quay, Islandbridge, Dublin 8

Preliminary Determination:

It is common case between the parties that the claimant was engaged in October 2007 by the respondent to work in its Drogheda depot. This relationship continued until the summer of 2012. It is the claimant’s case that he was an employee. It is the respondent’s case that the claimant was an independent contractor engaged under a contract for services. This issue falls to be determined by the Tribunal as a preliminary issue.

The question of whether a person is an employee or otherwise is one in which the Courts have given considerable assistance. Some value might attach to setting out the relevant principles here.

The matter was considered, in the context of the Social Welfare (Consolidation) Act, 1981 by the Supreme Court in the case of Henry Denny & Sons (Ireland) Limited v. The Minister for Social Welfare [1998] 1 I.R. 34. For the present purpose, the judgements of the Court were given by Keane and Murphy JJ. It might be said that the essence of the judgements can be found in the course of the judgement of Keane J at page 49:

“However, there is a consensus to be found in the authorities that each case must be considered in the light of its particular facts and of the general principles which the courts have developed.”

At page 50 of the report, Keane J considered this further in saying as follows:

“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.”

As will be discussed further below in the context of the judgement of Edwards J in The Minister for Agriculture and Food v. Barry & ors [2009] 1 I.R. 215 [hereinafter referred to as Barry (No.1)], the use of the term “in general” makes it clear that there are exceptions to these situations. That an inference can be more readily drawn in certain circumstances does not mean that the absence of such circumstances requires that the opposite inference be drawn.

One of the circumstances of the instant case to which the Tribunal must have regard is the existence of a written contract between the parties purporting to regulate their relationship. In the Denny case, the relevant contract contained a clause to the effect that the worker (for want of a neutral phrase) in question was to be regarded in law as an independent contractor. In this regard Keane J commented as follows at page 51:

“The written agreement was undoubtedly drafted with understandable care with a view to ensuring, so far as possible, that Ms. Mahon was regarded in law as an independent contractor. However, as I have already pointed out, although this was a factor to which the appeals officer was bound to have regard, it was by no means decisive of the issue. When he took into account all the circumstances of her employment, he was perfectly entitled to arrive at the conclusion, as he did, that she was employed under a contract of service.”

In the course of his judgement, Murphy J discussed three particular provisions of the contract between the parties. Firstly, as discussed above, that the worker was deemed to be an independent contractor; secondly, that it was agreed that the provisions of the Unfair Dismissals Acts did not apply to the contractual relationship; and thirdly, that it was the worker’s duty to pay taxes to the Revenue Commissioners. The learned judge then commented as follows at page 53:

“On behalf of the appellant it was conceded that these provisions were not of decisive importance. In my view their value, if any, is marginal. These terms are included in the contract but they are not contractual terms in the sense of imposing obligations on one party in favour of the other. They purport to express a conclusion of law as to the consequences of the contract between the parties. Whether Ms. Mahon was retained under a contract of service depends essentially on the totality of the contractual relationship express or implied between her and the appellant and not upon any statement as to the consequence of the bargain. Certainly the imposition of income tax and the manner of its collection falls to be determined in accordance with the appropriate legislation and the regulations made thereunder as they impinge upon the actual relationship between parties and not their statement as to how liability should arise or be discharged.

The terms and conditions governing the engagement of Ms. Mahon were not "the unique source" of the relationship between her and the appellant. I am satisfied that the appeals officer was correct in his conclusion that he was required to consider "the facts or realities of the situation on the ground" to enable him to reach a decision on the vexed question whether the respondent was an employee or an independent contractor. In seeking to ascertain the true bargain between the parties rather than rely on the labels ascribed by them to their relationship the appeals officer was expressly and correctly following the judgment of Carroll J. In  In re Sunday Tribune Ltd.  [1984] I.R. 505. Of course the appeals officer was not entitled to ignore the terms and conditions under which the demonstrator was engaged nor did he do so.”

This is to be taken to mean that the terms of a contract are not a relevant consideration, rather that they are not, of themselves, determinative of the matter.

The Supreme Court considered the matter further in Castleisland Cattle Breeding Society Limited v. The Minister for Social and Family Affairs [2004] 4 I.R. 150. In that case the judgement of the Court was given by Geoghegan J. He commented on the question of the written contract, in the context of the Denny case, as follows, at page 158:

“Keane and Murphy JJ. with whom Hamilton C.J. agreed made it clear that while obviously the terms of the written contract had to be examined, the appeals officer was nevertheless bound to examine and have regard to what the real arrangement was on a day to day basis between the parties. Indeed, Murphy J. pointed out that a sentence of the kind as set out above is not a contractual obligation at all but is merely a statement which may or may not be correct of what the legal relationship between the parties is.”

In the Castleisland case, the workers in question had been employees of the appellant. In 1989 they had all accepted redundancy and were subsequently offered contracts to provide their services as independent contractors. In 1999, pursuant to an application by one of the workers, a Social Welfare appeals officer determined that he was employed under a contract of service. In this regard, Geoghegan said as follows at page 160:

“For reasons which I will explain, I have come to the conclusion upon carefully reading the full report of the appeals officer of the proceedings before her in Tralee and without having to pay any regard to points made in correspondence subsequently by the appellant that the case for Mr. Walsh being an independent contractor was so overwhelming that it was not open to the appeals officer to arrive at the decision which she made, even assuming her report accurately reflects what exactly was said at the hearing. I arrive at this view on the facts as a whole but in this connection I regard two factors as being fundamental. First of all, Mr. Walsh, as did the other men at the time, 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 to happen 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. Even more importantly the inseminators under the new contractual arrangements had to carry their own insurance. It is true that apparently in one instance a loss which would otherwise have been covered by insurance was met by the appellant and the appeals officer seems to have attached some importance to this. Apparently, this was done merely because the particular inseminator did not have proper insurance cover and this does not seem to have been contested. It would not be justified, in my view, to attach any significance whatsoever to that incident. On the other hand, the fact that the men had to carry their own insurance was of huge importance in considering the nature of the contract. Another consequence was that Mr. Walsh lost his pension entitlements. 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.”

Later in his judgement, at page 161, Geoghegan J commented on the role of the wording of a contract as follows:

“… 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.”

The issue was more recently considered by the High Court in the Barry (No.1) case. In that case Edwards J held that it was an incorrect interpretation of the ratio decidendi of the Denny case to regard it as a formulation of a single composite test either for determining the nature of the work relationship between two parties. At page 237 of the report, the Learned Judge commented as follows:

“The ratio decidendi in any particular case consists of the general reasons given for the decision or the general grounds upon which it is based, detached or abstracted from the specific peculiarities of the particular case which gives rise to the decision. I have considered with great care the judgments in  Henry Denny & Sons (Ireland) Ltd. v. Minister for Social Welfare  [1998] 1 I.R. 34 and I consider the ratio decidendi of it to be encapsulated in the statement of Keane J. that in considering whether a particular employment is to be regarded as a contract "for services" or "of service" … "each case must be considered in the light of its particular facts and of the general principles which the courts have developed". I believe that the general principles referred to are those which have been identified as potentially being of assistance to a court or tribunal in the drawing of appropriate inferences.”

Edwards J then proceeded to quote the passage of Keane J at page 50 in the Denny case, which is set out above. He then commented, at page 238, as follows:

“This particular passage was subsequently quoted, and relied upon, in the judgments in Tierney v. An Post  [2000] 1 I.R. 536, Castleisland Cattle Breeding v. Minister for Social Welfare  [2004] IESC 40, [2004] 4 I.R. 150 and Electricity Supply Board v. Minister for Social Welfare  [2006] IEHC 59, (Unreported, High Court, Gilligan J., 21st February, 2006). However, although it represents an important summary of some of general principles that the courts have developed, it cannot be said to fully encapsulate the ratio decidendi of Henry Denny & Sons (Ireland) Ltd. v. Minister for Social Welfare  [1998] 1 I.R. 34. It does not do so because it omits one very important general principle developed by the courts which assumed a significant importance in that case and also, coincidentally, in  Tierney v. An Post , Castleisland Cattle Breeding v. Minister for Social Welfare  and  Electricity Supply Board v. Minister for Social Welfare  respectively. A very important "particular fact" common to those cases, respectively, was that in all of those cases there existed a contractual document which purported to contain the expression of an agreed intention of the parties that their relationship should be governed by a contract for services. The existence of that particular fact brought into play the "general principle" that a characterisation or description as to the status of a party contained in a contract intended to govern a work relationship is not to be regarded as decisive or conclusive of the matter. That principle was uncontroversial in  Henry Denny & Sons (Ireland) Ltd. v. Minister for Social Welfare  [1998] 1 I.R. 34, having been accepted by the parties from the outset. Although it was referred to by Keane J. elsewhere in his judgment, it is not referred to in the passage under consideration. It is in fact dealt with in greater detail in the judgment of Murphy J. who points out that the principle in question was first enunciated in the judgment of Carroll J. in  In re Sunday Tribune Ltd.  [1984] I.R. 505. Accordingly, the celebrated passage from the judgment of Keane J. contains only part of the ratio for the court's decision. However, the earlier statement that "each case must be considered in the light of its particular facts and of the general principles which the courts have developed" can be regarded as the true ratio , though admittedly it lacks specificity with respect to identification of the general principles referred to.”

Edwards J also considered the role that the concept of mutuality of obligation should play and commented as follows, at page 230 of the report:

“The requirement of mutuality of obligation is the requirement that there must be mutual obligations on the employer to provide work for the employee and on the employee to perform work for the employer. If such mutuality is not present, then either there is no contract at all or whatever contract there is must be a contract for services or something else, but not a contract of service…. Accordingly the mutuality of obligation test provides an important filter. Where one party to a work relationship contends that that relationship amounts to a contract of service, it is appropriate that the court or tribunal seized of that issue should in the first instance examine the relationship in question to determine if mutuality of obligation is a feature of it. If there is no mutuality of obligation it is not necessary to go further: whatever the relationship is, it cannot amount to a contract of service. However, if mutuality of obligation is found to exist, the mere fact of its existence is not, of itself, determinative of the nature of the relationship and it is necessary to examine the relationship further.”

It seems to the Tribunal that the correct approach for it to take is to, in the first instance, determine whether there exists mutuality of obligation in this particular contractual relationship. If there were not, then that would be the end of the matter as the contract in question would not be a contract of service. If there is mutuality of obligation, it is then necessary for the Tribunal to examine the relationship further in line with the guidance given by the Superior Courts and as discussed above.

While a blank contract was presented to the Tribunal, the claimant accepted that he had signed a contract. Further, the respondent’s contention that the executed contract was in the terms of the blank contract furnished was not challenged on his behalf. The contract provided that the respondent would appoint the claimant to perform services and would, in consideration of the provision of the services, pay to the claimant the charges agreed between them. The claimant agreed to carry out all duties and responsibilities associated with the contract. It was a term of the contract that the claimant would raise invoices in respect of services provided by him. The claimant was required to take out his own insurance. He was entitled to sub-contract the work, with the consent of the respondent. He was required to furnish a tax clearance certificate.

The Tribunal is satisfied that there was mutuality of obligation between the parties. Indeed, the contrary was not contended in the course of the hearing. Consequently, the Tribunal must examine the relationship further to determine whether the claimant was an employee or an independent contractor.

In essence, the claimant says that while, his contract was ostensibly one for services, in reality he was engaged as an employee. It is his case that he was employed in this way so as to avoid a recruitment moratorium then extant. He had initially been engaged in October 2007 as a storeman through a recruitment agency. In the Spring of 2008 he was being offered other employment through the same agency. He said that he discussed it with CMcC, the depot manager, who counselled against it as he would be made permanent with the respondent. Some months later, in June 2008, he met CMcC and AS, one of the respondent’s HR managers. He told the Tribunal that, when AS left the meeting momentarily, CMcC told him that they wanted to keep him but that there was a moratorium on recruitment. The claimant said that CMcC said that the moratorium could be circumvented if the claimant were to set himself up on a self-employed basis and tender for the job. He said that he was guided through the tender process by CMcC. CMcC disputed this version of events. He told the Tribunal that the recruitment moratorium only came into effect in 2009 and that the tender process was run from Dublin and that he had no input into it.

The Tribunal accepts the evidence adduced on the respondent’s behalf that the recruitment moratorium came into effect in 2009. Consequently, the Tribunal does not accept that a recruitment moratorium in 2008 necessitated the claimant’s employment to be structured as a contract for services as an evasive device.

His initial contract lasted for two years. In 2010 there was again a tender process. This time it appears that the claimant was the only person that tendered. In the end it was decided that a new contract was not required and the claimant was retained by way of a series of purchase orders on a, mostly, three-monthly basis.

When the claimant joined the tendering process in 2008 he was furnished by the respondent with a document entitled “Standard Conditions of Tendering for Contract for Services” and a draft contract for services. The letter accompanying these documents requested, inter alia, that tenderers include a CV for the person that they intended to use to carry out the assignment.

He accepted that he invoiced the respondent for his services through his own registered trading name and that he charged VAT, paid taxes as a self-employed person and that he retained an accountant for this purpose. He furnished his tax clearance certificate to the respondent. He accepted that his contract with the respondent allowed him to, with the consent of the respondent, subcontract the work. He was also, under the terms of the contract, entitled to engage employees of his own to perform the work on his behalf, although he said that he had been told that this did not apply. He acquired both public liability and products liability insurance as required under the contract. He was not required to acquire employees liability insurance having told the respondent that he would not have any employees.

The claimant told the Tribunal of a number of features of his relationship with the respondent. He was provided with a staff locker; he was provided with a staff email address; he used work equipment supplied by the respondent, principally a computer and a forklift truck; he was allowed use the staff canteen; he was provided with personal protective equipment by the respondent; he was trained by the respondent; he was required to sign the code of ethics for employees; he had a staff travel pass; he was a member of the staff social club; and he required the permission of his manager to take annual leave.

It was suggested that contractors engaged by the respondent in its Drogheda depot were not allowed to use the staff canteen. The inference from that would appear to be that the claimant was treated as an employee rather than a contractor. However, the Tribunal is satisfied on the basis both of the respondent’s evidence and on evidence adduced on the claimant’s behalf that this was not the case but that there was a temporary ban placed on one set of contractors due to their messiness. In respect of the provision of personal protective equipment, again on the evidence of the respondent and evidence adduced by the claimant, the Tribunal is satisfied that contractors were in the main provided with such equipment other than one particular set of contractors whom it was felt were unduly high users of it.

It was the respondent’s evidence that the claimant was provided with a staff email address as one was needed to log onto the respondent’s computer network, which he required to do in the exercise of his duties. This explanation was not contradicted by the claimant and it is accepted by the Tribunal.

It does not seem remarkable to provide a contractor with a locker at his workplace, given that he was there at least on a two-year contract.

While it is a standard condition of employment that annual leave is taken with the consent of an employer, it does not seem to the Tribunal that such a situation is, therefore, necessarily an incident of employment. Situations could easily arise where a contractor forms a necessary part of a project in association with employees that the contractor could be allowed to take leave as and when he liked.

The claimant furnished to the Tribunal a letter that CMcC accepted that he signed. The letter related to a staff social club and it identified a number of people as employees to facilitate the opening of a bank account. One of those people was the claimant. CMcC told the Tribunal that the staff wanted to run a number of vending machines. The claimant was going to be a regular user of them. He said that it was in that context that the letter was signed and that he did not view it as in any way central to the business of the respondent. The Tribunal is satisfied that this letter is no more determinative of the issue that the CV prepared by the claimant in 2010 in which he described himself as a self-employed contractor with the respondent.

The Tribunal must look to the contractual arrangements agreed between the parties. That the contractual relationship is described as being a contract for services is far from determinative of the matter. As Murphy J indicated in the Denny case, such a description could be a misunderstanding on the part of the parties of the legal effect of the relationship that they have created. The Tribunal must take into account all the circumstances of the employment. It must consider the facts or realities of the situation on the ground. As the authorities above make clear, this does not entitle the Tribunal to ignore the contractual terms and conditions and the Tribunal does not intend to do so.

To consider the oft-quoted observations of Keane J, the claimant was performing services for the respondent. He was under the control of the respondent with regard to matters such as the work to be done, the hours of work and his holiday leave. These are not, of course, decisive matters and, in the circumstances of this case, are not of great assistance.

There was no significant investment by the claimant in setting up his business, he employed no others, his profit was not dependent on the efficiency of his work, and he provided no premises or equipment. As noted above, the presence of these factors allows an inference of a person being in business on their own account to be more readily drawn. Their absence does not necessarily entail the contrary.

It seems to the Tribunal that there are a number of fundamental aspects to the relationship between the parties. These derive from the terms of the contract. Further, the Tribunal is satisfied that they were in reality performed by the parties. The claimant told the Tribunal that he knew that he had participated in a tendering process. He registered a business name for that purpose. He subsequently used the business name in his dealings with the respondent. He accepted also that he had signed a contract for services. Although he performed the services contracted for personally, he was entitled to use nominated employees for that purpose. Had it been the case that the claimant had been told that he was not allowed to have employees, he would have had no requirement to ask the respondent to waive the requirement for him to carry employer’s liability insurance. He did carry both products liability and public liability insurance, as required by the contract. He also invoiced the respondent on a monthly basis and charged VAT on the invoices. He looked after his own tax affairs. The Tribunal is satisfied that these are the factors of importance in determining the nature of the contract. The Tribunal has considered the wording of the contract and considers that it is largely consistent with how it operated in practice.

The Tribunal does not consider the existence of matters such as the claimant having a staff travel pass, nor any of the other matters discussed above, to be of such significance as to displace the contractual arrangements and the substantial factors that, in the circumstances of this case, indicate that this was a contract for services.

It was submitted on the claimant’s behalf that the Tribunal should have regard to a document entitled “Code of Practice for Determining Employment or Self-Employment Status of Individuals”. It was drawn up by the Employment Status Group set up under the Programme for Prosperity and Fairness. This Code of Practice provides a list of criteria to help decide whether an individual is an employee. The Tribunal notes that in its introduction to the Code of Practice, the Employment Status Group notes as follows:

“The criteria below should help in reaching a conclusion. It is important that the job as a whole is looked at, including working conditions and the reality of the relationship, when considering the guidelines.”

The Code of Practice was considered by the High Court in Barry & ors v. The Minister for Agriculture & Food [2011] IEHC 43 (otherwise referred to as Barry (No.2)). Hedigan J said as follows at page 19 of his judgement:

“The appellants sought to rely on the "Code of Practice for Determining Employment or Self-Employment Status of Individuals" a document prepared by the Employment Status Group. Mr Barry gave evidence that his circumstances complied with each of the nineteen criteria on whether an individual is an employee as set out in the code. The code however is not a binding statement of law therefore such compliance is not determinative of the issue. The code does not refer to mutuality of obligation which the High Court has held is necessary to establish the existence of a contract of service.”

The Tribunal is satisfied that, while the Code of Practice might provide, in certain circumstances, some assistance, it is not a binding statement of law and that the correct statement of law is as set out in the judgements of the Superior Courts discussed above.

The Tribunal is satisfied that were it to consider it insignificant or unimportant that the claimant had engaged in the way that he did with the tendering process, it would have to find that the tendering process was a sham. The Tribunal was invited to go down this road by the claimant. However, the Tribunal is not satisfied that evidence was adduced that would allow it to make such a finding. In particular, the Tribunal notes the evidence of LG, who is a procurement manager employed by the respondent and based in Dublin. He gave evidence about the way in which the tender was run. Of note was his evidence that the local depot in Drogheda was not involved and that submitted tenders were all opened at the same time after the closing date. This would belie the suggestion that the claimant was given assistance by the managers in Drogheda to ensure that his tender won. The Tribunal accepts LG’s evidence that he could not have allowed a sham process either for his own reputation or that of the respondent.

For the reasons outlined above, the Tribunal is satisfied that the claimant was not an employee within the meaning of the Unfair Dismissals Acts, 1977 to 2007. Accordingly, on determination of the preliminary issue, this claim must fail.

Sealed with the Seal of the

Employment Appeals Tribunal

This   ________________________

(Sgd.) ________________________

     (CHAIRMAN)