In Karshan (Midlands) Limited Trading as Domino’s Pizza v The Revenue Commissioners1 the appellant appealed the High Court ruling that the pizza delivery drivers working for the Domino’s Pizza franchise were employees. The Court of Appeal overturned the High Court’s decision in a two-to-one majority judgment on 31st May 2022, noting that the delivery drivers were independent contractors and not employees.
Facts: The context of this case concerned a decision of the Revenue Commissioners (“Revenue Commissioners”) that the appellant’s pizza delivery drivers were to be treated as employees for the purposes of PAYE. The Appellant’s position was that its delivery drivers were independent contractors who were responsible for their own tax affairs. The Commissioner of Tax Appeals (“Commissioner”) agreed with the Revenue Service and the High Court upheld the Commissioner’s decision in its entirety.
The delivery drivers in this case each signed a written “umbrella” contract with the appellant which clearly described them as independent contractors. Drivers filled out an availability sheet about a week before a list was drawn up indicating their availability for work. Store managers would compile lists based on these availability sheets. The High Court agreed with the Commissioner that the overall contract was supplemented by “discreet individual contracts” that arose once a driver was signed up for one or more shifts and reciprocity of obligations existed in those individual contracts.
Problems: The main issue considered by the Court of Appeal was the question of reciprocity of obligations. The principle of mutuality of obligations refers to the obligation of an employer to provide work for an employee and the corresponding obligation of an employee to perform work for his employer. It is well established that reciprocity of obligations is an essential characteristic of an employment relationship and that, in its absence, a contractual relationship cannot be a contract of service (i.e. it cannot not be a contract of employment) and there is no need for the courts to further the relationship. It is only in cases where reciprocity of obligations is present that it is necessary for the courts to consider other criteria for determining an individual’s employment status.
The Commissioner and the High Court relied heavily on the UK Upper Tribunal decision in Weight Watchers (UK) Limited and others in concluding that there was a reciprocity of obligation in the separate individual contracts between the appellant and its delivery drivers. In so deciding, they concluded that drivers were required to do the following when canceling a shift:
- Notify the caller in advance
- Find a caller-approved substitute
- Calculate the rest of the agreed shifts.
Decision: The Court of Appeal disagreed. Judge Costello, delivering the principal judgment, held that the commissioner “erred in law in his assessment and conclusion that reciprocity of obligations existed in the multiple individual contracts in this case and that the trial judge erred in law when he failed to identify this mistake “. She found that the commissioner misinterpreted the contract between the appellant and the drivers and erred in concluding that there was a mutual obligation between the parties, primarily because she misapplied Weight Watchers business “without fully appreciating or giving due weight to the differences between the facts in the two cases and also because she misinterpreted the written agreement.”
Justice Costello concluded as follows:
- There was no obligation for the drivers to work and no requirement for them to initiate an agreement with the caller contrary to the position in Weight Watchers where there was an express contractual obligation for the managers to initiate the individual contracts.
- There was no requirement for drivers to report for an agreed shift and they were free not to attend a particular shift for any reason or no reason. There was no penalty if a driver did not show up. Referring to the Commissioner’s decision, Justice Costello made the following comments:
“She addressed the clauses by saying that they did not expressly state the circumstances in which a driver is not free to report for a shift, without really wondering if he was in fact required to “show up for a shift”. If there were no such obligation, then the clause would not address the circumstances in which a driver might not report for work, so to say that it does not address that point does not answer the question. The central question remained whether the driver was obliged to perform work.
- The obligation for the drivers to inform the caller in advance of their unavailability to carry out a previously agreed delivery did not imply that they had to present themselves without a valid reason:
“there is no implied term that if he is simply unavailable for any reason and does not show up, that he will breach his contract… The clause only requires the driver to notify the caller if he will not be available to make a previously agreed delivery, he does not oblige him to undertake delivery in the absence of a good reason not to do so.
- The right conferred on the drivers by clause 12 of the written agreement to engage a replacement driver in the event of short-term unavailability did not impose obligation required drivers to do so and in no way restricted their freedom not to make themselves available for work, whether on short notice or otherwise.
Justice Costello held that there was no reciprocity of obligation “for the relevant period of multiple individual contracts” nor was there any reciprocity of obligations in the overall agreement. “It follows that as a matter of law the agreements cannot have been contracts for service and the drivers were therefore not employees.”
Carry: This case highlights the essential requirement of mutuality of obligations in an employment contract. It also highlights the importance of ensuring that service contracts clearly state that there is no obligation for independent contractors to carry out work and that the arrangement works accordingly in practice. Likewise, it should be clear that a company is not required to provide work to its independent contractors and companies should be able to demonstrate that this was indeed the case. The implications of an individual being considered an employee rather than an independent contractor are significant not only from a labor law perspective, but also from an income perspective. Although there are a number of criteria for employment status, the reciprocity of obligations functions as an important filter and this case reiterates that in the absence of reciprocity of obligations, a court or other adjudicative body cannot is not required (and should not even be) to consider other tests for employment status.