Complainant

Respondent

Anonymised Parties

A Company Director

An Online Recruitment Company

Act

Complaint/Dispute Reference No.

Date of Receipt

Complaint seeking adjudication by the Workplace Relations Commission under section 27 of the Organisation of Working Time Act, 1997

CA-00031098-001

24/09/2019

Complaint seeking adjudication by the Workplace Relations Commission under Section 8 of the Unfair Dismissals Act, 1977

CA-00031098-002

24/09/2019

Complaint seeking adjudication by the Workplace Relations Commission under Section 11 of the Minimum Notice & Terms of Employment Act, 1973

CA-00031098-003

24/09/2019

Complaint seeking adjudication by the Workplace Relations Commission under section 6 of the Payment of Wages Act, 1991

CA-00031098-004

24/09/2019

Complaint seeking adjudication by the Workplace Relations Commission under Regulation 10 of the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 (S.I. No. 131 of 2003)

CA-00031098-005

24/09/2019

In 2014, the complainant set up a web design business with a work colleague from a previous employer.   They were both directors in the new company, with the shares divided 50/50 between them. The complainant remains a director of this company.

In June or July 2016, in addition to web design, the complainant and his colleague looked at the opportunities presented by advertising on jobs boards and another person joined them as a director. The business started to do reasonably well.

In August 2018, the three directors looked at the prospect of setting up a new company, with a focus solely on recruitment. On September 30th 2018, the third person was removed as a director of the first company and, on October 1st 2018, the three colleagues set up a new company, which is the respondent in this case. Until recently, apart from the directors, no one else worked in the company.

It is the complainant’s case that everything was going okay with the business and with the relationship between him and his co-directors until January 2019, when a process began to remove him from the company. At an extraordinary general meeting (EGM) on March 19th 2019, his colleagues voted to remove him as a director. He complains that this amounted to an unfair dismissal, that it was done without adequate notice and that he did not receive his full entitlement to holidays. He also claims that he was left short of wages, and lastly, that he did not receive his entitlements in accordance with the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003.

The respondent’s case is that the complainant was not an employee, but a company director and business owner and that he was self-employed. The first issue I must consider therefore, is whether the complainant was an employee of the respondent company.

The complainant’s case is that he set up the first company in 2015 and around July or August 2017, the income started to become regular and he became an employee of that company.   He said that his employment transferred to the respondent on October 1st 2018.

The respondent’s case is that the two companies are separate, that they do different work, have different clients, and that no clients, assets or employees were transferred. They said that no consideration was given to the transfer of the work of the first business to the second company and that both companies continued to operate as separate entities. In December 2018, the complainant continued to do work for the clients of the first company, he received a bonus from that business and, in February 2019, he provided a refund to one specific client. At the same time, he carried out the work of the second company.

At the hearing, the complainant said that he went to a meeting on February 7th 2019 at which his co-directors confirmed their intention to “discontinue the business relationship and remove me as a director of the Company and suggested paying me 2/3 months’ salary to ‘walk away.’”   This was followed by another meeting a week later, on February 14th, at which the complainant said that he told his colleagues that he would give them three months’ salary in return for them leaving the business. The EGM referred to above then took place on March 20th. In a letter sent to the complainant later that day, one of the directors referred to the meeting at which “an ordinary resolution was passed for your removal as Director of (the respondent) with immediate effect.” The complainant was informed that his “end date” with the company would be March 27th 2019, “to allow for one week’s notice period.”

On December 6th 2019, the day on which this complaint was heard, the complainant continued to be a director of the first company, although he said that it was in the process of being dissolved.

The complainant had no contract of employment, and no details of any terms and conditions of employment were submitted in evidence.

The complainant submitted copies of wage slips for the months of October, November and December 2018 and for January 2019. The gross payments were different for each month and when I queried this, the complainant explained that, at the end of each month, the profits were divided equally between the three directors. Because the profits varied from month to month, the amount paid to the directors was also variable. It was agreed at the hearing that this was the method of distributing the profits and the other directors said that they received different amounts every month, the same amount each month that was paid to the complainant.

The complainant’s payslips indicate that he paid PRSI at class S0 or S1. Guidance from the Department of Social Protection indicates that class S is the social insurance contribution category applicable to self-employed company directors and the sub-classes 0 and 1 apply to earnings of up to €500 and over €500 per week respectively. The payslips for this period also indicate that no employer’s PRSI was paid in respect of the complainant.

When he ceased to be a director of the company, the complainant was issued with a final payment on March 31st 2019 that included €800 in holiday pay. The complainant argued that this indicated that he was an employee. At the hearing, one of the directors said that, when he and his colleague were trying to remove the complainant as a company director, they couldn’t afford a solicitor and they got advice from the Citizens Information Centre. They were advised to pay the complainant his final salary, including holiday pay and their new accountant processed a payment of €800 in respect of holiday pay. The director said that he realises now that this was an error, and he understands that no holiday pay was due.

It is evident from the jurisprudence that there is no specific test for determining the employment status of an individual whose status is unclear. At the High Court in Minister for Agriculture and Food v Barry [2008] IEHC 216 it was clear that all the tests are potential aids for identifying the nature of the working relationship and no single test is definitive. To determine therefore, if he falls under the heading of an employee or a self-employed director, I intend to examine what I consider to be the critical components of the complainant’s relationship with the respondent.

In Business on His Own Account

It is evident that the complainant established a business with his two co-directors and that they were in business on their own account. If the business did well, they profited, and if they had no clients or did no worthwhile business, they suffered. This is not the circumstance of an employee who is generally shielded from the vicissitudes of commercial risk and it points to the complainant being self-employed in a start-up enterprise.

Mutuality of Obligation

This principle refers to the obligation of the employer to provide work and the obligation of the employee to carry out the work. In the first outing of Barry at the High Court, referring to the principle of mutuality of obligation, Mr Justice Edwards stated:

“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.”

It is evident from the hearing of this complaint that the complainant carried out certain work and that his colleagues did other work and that, in collaboration, they provided a service to companies seeking to hire staff. To attract clients, he relied on his contacts and those of his colleagues. There is no evidence of the complainant taking direction from anyone and, on the contrary, it is apparent that he was offended when he discovered that his colleagues conducted a quality check of his work.

Having considered this test, it is clear to me that the mutuality of obligation that existed between the complainant and the respondent was based on their shared responsibility to seek clients and to provide a service to them. They had an obligation to each other to run the business to the best of their ability. This is not the same as the mutuality of obligation in an employer / employee relationship where work is performed to an agreed standard in return for a set wage. As determined in Nethermere (St Neots) Ltd v Gardiner, [1984] ICR 612, mutuality of obligation is the “one sine qua non which can firmly be identified as an essential of the existence of a contract of service.” The complainant’s failure to meet this test detaches him from an essential characteristic of the employment relationship.

Contract

There is no evidence of the existence of an agreement between the complainant and the respondent regarding terms and conditions of employment. No letter or any other document was produced that showed that he was to work for an agreed wage or that he would have benefits such as holidays, sick pay or pension. No information was provided to him regarding his start date, his hours of work or his place of work. He received none of the standard information that is normally provided to employees such as grievance and disciplinary procedures.

Pay

When they established their first business, the complainant and his co-directors bore the risk that, in some months, they would have no income and that, in other months, their income would be variable. Unless they have independent financial support, employees do not work in such precarious financial circumstances.

It is apparent from his evidence, and that of his former co-directors, that the “wages” paid to them each month were in fact, “drawings” from the profit made by the company each month. It is also apparent that, for the early months of his association with the first company, no money was available to pay the directors and they continued without any remuneration until revenue started to come in. This is standard practice of directors in a start-up situation, where they carry the risk that they may not make any money until their idea or product is successful.

Control

The control test is concerned with the determination by an employer regarding how and when work is to be done and the standard according to which it is to be done. The significance of the control test has diminished over time, with less emphasis on the “master / servant” relationship now compared to previous times. In the case of Roche v Kelly [1969] IR 100, Mr Justice Walsh pointed out that what counts when considering the issue of control is the employer’s right to control the work rather than the exercise of the right itself.

Regarding the complainant in the case under consideration here, I find that none of his colleagues exerted control over his work and it is apparent that he decided how, when and where it was to be done. No evidence was produced to the effect that he was in a relationship where he was subordinate to his colleagues and his performance was not subject to a review.  

Code of Practice for Determining Employment or Self-Employment Status of Individuals

Issued by the Department of Social Protection, this document provides helpful guidance when considering the matter of an individual’s status in respect of whether they are self-employed or an employee. The criteria listed to determine if an individual is self-employed include the following:

§    Owns his or her own business;

§    Is exposed to financial risk by having to bear the cost of making good faulty or substandard work carried out under a contract;

§    Assumes responsibility for investment and management in the enterprise;

§    Can profit from sound management in the scheduling and performance of engagements and tasks;

§    Has control over what is done, how it is done and whether he or she does it personally;

§    Is free to hire other people, on his or her terms, to do the work which has been agreed to be undertaken;

§    Can provide the same service to more than one person or business at the same time;

§    Provides the equipment and materials for the job;

§    Has a fixed place of business, where materials and equipment are located;

§    Costs and agrees a price with clients and customers;

§    Provides his or her own insurance cover, for example, public liability insurance;

§    Controls the hours during which work is to be done.

From the complainant’s perspective, it appears to me that his relationship with the respondent corresponds to a significant degree with the criteria set out in this list, leading to the conclusion that he was self-employed.

Tax and Social Insurance

As a class S PRSI contributor, the complainant is regarded by the Revenue Commissioners and the Department of Social Protection as a self-employed individual. I note also that no employer’s PRSI was paid in respect of his employment, indicating that he was not an employee. The Code of Practice for Determining Employment of Self-Employment Status of Individuals referred to above notes that,

“An office holder, such as company director, will be taxed under the PAYE system. However, the terms and conditions may have to be examined by the Scope Section of the Department of Social Protection to decide on the appropriate PRSI class.”

As the Department has decided that the complainant was to pay class S PRSI contributions, if follows that he is regarded by them as a self-employed individual. He did not challenge this designation. If the complainant was convinced of his status as an employee, before he submitted these complaints, he could have applied to the Scope Section of the Department of Social Protection for a decision regarding his relationship with the respondent. This would have provided certainty for him and would have avoided the need to conduct this preliminary investigation.

Conclusion

I have considered the evidence of the complainant and the respondent and I have examined the documents submitted by both sides at the hearing. It is evident that the complainant was engaged with his colleagues in a start-up enterprise in which they shared equally the risk of failure and the fruits of their success. No argument was presented by the complainant to suggest that he was employed on a contract for service, and his case is that, in addition to being a company founder, owner and director, he was also an employee. For the reasons set out above, I have concluded that, contrary to his assertions, his status was confined to that of a self-employed director.

CA-00031098-001: Complaint under the Organisation of Working Time Act 1997

Under this heading, the complainant alleges that he did not receive his entitlement to annual leave in accordance with the provisions of section 19 of the Organisation of Working Time Act 1997 (“the OWT Act).”

CA-00031098-002: Complaint under the Unfair Dismissals Act 1977

The complainant alleges that he was unfairly dismissed when he was removed as a director of the respondent company on March 27th 2019.

CA-00031098-003: Complaint under the Minimum Notice and Terms of Employment Act 1973

The complainant claims that he was not given adequate notice of his removal as a company director and an employee.

CA-00031098-004: Complaint under the Payment of Wages Act 1991

It is the complainant’s case that “Thesalary paid in February 2019 and March 2019 was intentionally decreased to make sure I was underpaid before my constructive dismissal and I am quite certain that once my job was terminated, the level of pay for all employees was restored to previous levels.”

CA-00031098-005: Complaint under the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003

The complainant is a director of a company that he and a colleague set up in 2014. In 2018, he and his colleagues set up another company.   He claims that, in September 2018, his employment transferred and that, in breach of the Transfer of Undertakings Regulations, his entitlements, such as holidays, did not transfer.

CA-00031098-001: Complaint under the Organisation of Working Time Act 1997

The respondent’s case in relation to annual leave is that the complainant was not an employee on a contract of service, and therefore, he had no entitlements to annual leave in accordance with section 19 of the OWT Act.

CA-00031098-002: Complaint under the Unfair Dismissals Act 1977

It is the respondent’s case that the complainant was not an employee and that he has no standing to make a complaint under the Unfair Dismissals Act.

CA-00031098-003: Complaint under the Minimum Notice and Terms of Employment Act 1973

It is the respondent’s case that the complainant was not an employee and that he has no standing to make a complaint under the Minimum Notice Act. At the hearing, the directors said that they were advised by their local Citizens Information Centre to issue the complainant with one week’s notice. When they received legal advice in advance of this hearing, they learned that the complainant had no entitlement to notice.

CA-00031098-004: Complaint under the Payment of Wages Act 1991

The directors who gave evidence at the hearing of this complaint said that they paid themselves the same wages each month as the complainant. In February and March 2019, they said that they retained some funds to cover costs that they expected to incur.

CA-00031098-005: Complaint under the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003

The respondent’s position is that a transfer of an undertaking did not take place and that the two companies continued in business doing specific work with separate clients. At the time of the establishment of the second company, no discussions took place between the directors concerning the transfer of the first undertaking.   The complainant worked for both companies at the same time. Evidence was submitted by the respondent to show that, in February 2019, the complainant refunded one of the clients of the first company with an amount of €1,290.27 in respect of website maintenance charges.  

CA-00031098-001: Complaint under the Organisation of Working Time Act 1997

This legislation provides that, to avail of the statutory entitlement to four weeks’ annual leave, a person must be an employee engaged on a contract of service. At section 2 of the OWT Act, “employee” is defined as,

“…a person of any age, who has entered into or works under (or, where the employment has 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…”

Under the heading above concerning the preliminary issue of the status of the complainant, I have concluded that he was self-employed. For this reason, I find that he has no entitlement to statutory annual leave as provided for under the OWT Act and his complaint is not upheld  

CA-00031098-002: Complaint under the Unfair Dismissals Act 1977

To avail of the protection of the Unfair Dismissals Act, a complainant must be in an employee employed under a contract of employment. Section 1 of the Unfair Dismissals Act defines a contract of employment as “a contract of service or of apprenticeship, whether it is express or implied and (if it is express) whether it is oral or in writing.”

I have previously concluded that the complainant was not employed on a contract of service, and, for this reason, I must also conclude that he is not entitled to have his complaint adjudicated upon under this legislation.

CA-00031098-003: Complaint under the Minimum Notice and Terms of Employment Act 1973

Similar to the definition in the Unfair Dismissals Act and the OWT Act, the Minimum Notice and Terms of Employment Act 1973 (as amended) provides that an employee is “…an individual who has entered into or works under a contract with an employer.”

As I have concluded that the complainant was not employed on a contract of service, I must therefore also conclude that he is not entitled to the statutory minimum periods of notice for employees provided for upon under this legislation.

CA-00031098-004: Complaint under the Payment of Wages Act 1991

This Act is concerned with the entitlement of an employee, in accordance with his or her contract of employment, to the payment of an agreed sum in wages. The complainant was not issued with a contract of employment and, it is my understanding that when he agreed to collaborate with his co-directors to set up a company, neither he nor they intended to be employees of the company.

Aside from this finding, the complainant is prevented from bringing a complaint about the non-payment of wages after a period of six months from the date he submitted this complaint to the WRC. As he submitted this complaint on September 24th 2019, if he was entitled to pursue a complaint, I can consider a breach of the Payment of Wages Act only from March 25th 2019. On March 31st 2019, the complainant received a sum of €800 through the respondent’s payroll in respect of what the respondent erroneously thought was his entitlement to holiday pay. When the complainant queried this calculation, he received a further €451.18, bringing his total additional pay to €1,251.81. As this sum was paid in error, it is my view that the complainant did not suffer any shortfall in wages in respect of the month of March 2019.

CA-00031098-005: Complaint under the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003

As I have concluded that the complainant was not an employee, but a self-employed company director, I find that he has no standing to make a complaint under the Transfer of Undertakings Regulations. I find also that his decision and that of his co-directors, in September 2019, to establish a new company, was not associated with the transfer of assets, clients or customers and I find therefore, that a transfer did not occur.

CA-00031098-001: Complaint under the Organisation of Working Time Act 1997

As I have concluded that the complainant was not an employee and that he was not employed on a contract of service, I decide that his complaint regarding his entitlement to annual leave is not upheld.

CA-00031098-002: Complaint under the Unfair Dismissals Act 1977

I have concluded that the complainant is excluded from the provisions of the Unfair Dismissals Act and, for this reason, I have no jurisdiction to adjudicate on this complaint.

CA-00031098-003: Complaint under the Minimum Notice and Terms of Employment Act 1973

I have concluded that the complainant was not an employee and that he was not employed on a contract of service. I decide therefore, that his complaint regarding his entitlement to minimum notice is not upheld.

CA-00031098-004: Complaint under the Payment of Wages Act 1991

Based on my findings that the complainant was not an employee of the respondent, I have concluded that no wages were due to him and payments from the company were in the form of “drawings” to the directors. I decide that this complaint under the Payment of Wages Act is not upheld.

CA-00031098-005: Complaint under the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003

I have concluded that a transfer of an undertaking did not take place in September 2019 and furthermore, that, as the complainant was not an employee of the respondent company, he has no entitlement to make a complaint under the Transfer of Undertakings Regulations. I decide that this complaint is not upheld.

Status of employee