“Bogus” contracts for service – new law proposed to tackle employment status

Speed read

A new private member's bill, the Prohibition of Bogus Self-Employment Bill 2018 (the Bill), put forward by Solidarity – People Before Profit, was published on 12 March 2018.

While the Bill passed the First Stage of the Seanad unopposed, it will be subject to greater scrutiny and to further edits post-debate. In summary as currently drafted it:

• Defines the concept of "bogus self-employment" for the first time.
• Prohibits misrepresenting employment as a contract for services or falsely inducing a person to enter into a contract for services (rather than an employment arrangement).
• Provides for compensation awards for such "bogus" employees, coupled with potential liability, on the part of the employer, to the Revenue for consequent losses.

The question of the true nature of a working relationship is already under the legislative spotlight - a separate private member's bill, the Protection of Employment (Measures to Counter False Self-Employment) Bill 2018 was put forward by the Labour Party in November 2017 and passed to the Second Stage of the Seanad on 28 February 2018 (the Counter False Self-Employment Bill).

As these Bills have similar objectives, it is uncertain whether either or both Bills will ultimately be enacted or whether an amalgamated version of the two Bills, revised post-debate, may eventually make its way through the legislative process. For now, from an employer's perspective, it is useful to be aware that the issues of identifying and remedying allegedly false self-employment status are gaining traction.

Rationale behind the Bill

The Bill aims to address situations where workers are classified as "self-employed" but do not possess the characteristics or features of self-employment – i.e. on paper they have a contract for services, but are treated for all intents and purposes as an employee under a contract of services.

Supporters of the Bill have focused on the significant reduction in PRSI contributions to the Social Insurance Fund as well as a loss of tax revenue, coupled with the denial of employment rights to the affected workers, as the motivation for introducing new legislation. High profile employers including Deliveroo, Uber and Ryanair have all been involved in costly litigation recently where the correct legal status of certain of their workers has been put under the microscope.

What's in the draft Bill?

As currently drafted, the Bill aims to:

(i) disincentivise employers from entering into "bogus contracts for services";

(ii) prohibit dismissals in order to induce workers to enter into contracts for services;

(iii) prohibit misrepresenting employment as a contract for services;

(iv) prohibit false inducements for contracts for services; and

(v) provide for a right to redress for workers party to a bogus contract for services.

The Bill introduces a wider definition of "employee", to include a person who "performs work or provides services under the guise of a bogus contract of services" and goes on to define a "bogus contract of services" as existing where "notwithstanding that the parties or one or other of them purports to confer some other description to the engagement, in truth a contract of employment subsist between the parties".

Section 2(3) of the draft Bill lists 19 characteristics to be considered when determining the existence of such a bogus contract of service, ranging from the degree of autonomy and control by the worker over his/her work and the extent to which he/she has invested capital into the work, to the economic dependency of the person performing the work and whether he/she advertises his/her availability for performance of that work. The majority of these "tests" have previously been considered before the courts in assessing true employment status in substance.

Significantly, section 7 of the draft Bill proposes redress options where an employee is, or has been, party to a bogus contract of services before the Workplace Relations Commission (WRC) and the Labour Court. Such redress includes reinstatement, re-engagement and compensation to the employee that is "just and equitable having regard to all the circumstances", whether or not the employee suffered "financial loss attributable to the contract for services". While the Bill does not provide for any monetary cap or limit on the extent of such a compensatory award, by way of comparison it is useful to note that the Counter False Self-Employment Bill suggest that such an award should not exceed "2 years remuneration in respect of the employee's employment".

As currently drafted section 7 of the Bill also provides for a number of directions which would require the employer to pay all contributions under the Social Welfare Consolidation Act 2005 and all payments, taxes, charges and penalties under the applicable tax legislation (due by both the employer and the worker). Section 7(6) of the Bill expressly provides that the Revenue Commissioner may view the use of a bogus contract of services as a "tax avoidance transaction" under the Taxes Consolidation Act 1997 and places an obligation on the WRC and Labour Court hearing any such case to notify the Revenue Commissioners or the Minister for Employment Affairs and Social Protection of the matter.

The full picture

While the Bill aims to put in place greater protections for workers engaged under such bogus contracts for services, it is important to recognise the ever expanding diversity of the Irish labour market and the more varied interpretations of "employment" relationship in today's society. The "gig" economy and the rise in workers wishing to be engaged as contractors/entrepreneurs (rather than employees) to maximise their own flexibility, must be taken into consideration in order to understand the "full picture" of this issue.

Watch this space

As set out above, both the Bill and the Counter False Self-Employment Bill are still working their way through the Houses and their respective content will likely be subject to much debate and revision in an effort to balance the inherent competing interests in safeguarding workers from the adverse social welfare and employment protection consequences associated with such false contracts of service, with the need to ensure that Ireland's approach to accommodating and supporting new and diverse working arrangements keeps pace with today's more flexible society.

For more information in relation to the above please contact Ailbhe Dennehy, Senior Associate, or a member of the Employment team at A&L Goodbody.

Date published: 14 March 2018