Authored By: Jake Nolan
TU Dublin
Abstract
The 2023 Supreme Court ruling of Revenue Commissioners v Karshan (Midlands) Ltd t/a Domino’s Pizza [2023] IESC 241 represents a major milestone within Irish employment law, with particular regard to the doctrine of mutuality of obligation and its role in resolving future disputes. Additionally, the difference between contracts “for services” and “of services” is discussed in detail. This article critically analyses the Court’s reconfiguration of historic tests of employment status, particularly regarding mutuality of obligation. It argues that while the Supreme Court sought to clarify the legal tests for employment status, the reformulation of mutuality of obligation may create new interpretative complexities, particularly within a modern age of ‘gig work’. Part II outlines the development of employment status jurisprudence in Irish law prior to Karshan. Part III examines the reasoning of the three Courts in detail, while Part IV considers the broader consequences of the decision for employment classification in the context of modern labour markets. Part V offers concluding observations.
Introduction
The binary divide between two contracts has come under increasing scrutiny — in today’s digital age more than ever — due to the highly fluid nature of modern employment and working life, with Freedland eloquently describing modern employment laws as “highly problematic”2 given the complex minefield of terminology that must be navigated. The term “employee” refers to a person who has “entered into or works under a contract of employment.”3 The classification of someone as an ’employee’ carries significant legal consequences, with differing rights and obligations arising from a contract of employment instead of a contract for services. One instance of this arises within the tortious doctrine of ‘vicarious liability,’ as seen in the Lister4 case, which held the employer vicariously liable for the acts of its employee, those acts being sufficiently within the course of employment. Such claims would not be upheld had the wrongdoer been engaged under a ‘contract for services.’ Mutuality of obligation is a central theme of the Karshan5 case, with Bruton6 outlining how “there must be mutuality of obligation between employer and employee” in order for a contract of employment to exist. Farnsworth7 explains this concept expertly: if two parties are bound by an “exchange of promises, neither one is bound until the other is bound.” It is an essential element of any contract of employment; however, its mere existence is not “determinative of the nature of the relationship”8 and requires further examination.
Part II — Context and Legal Background
Control Test
There are four separate test approaches used to ascertain whether a person is an ’employee’ or an ‘independent contractor,’ the first being the control test, which emerged in the 19th and 20th centuries.9 Historically framed as a “master-servant”10 relationship, it essentially evaluates whether the employer has control over what the employee does and how they carry out their work. In Roche,11 Walsh J detailed how the master must have the right to control not only what is done, but also how it is done. This test has come under scrutiny, particularly in the modern work environment, as employers may not be exercising much control over an employee’s day-to-day activities. Bodie remarks how the control test is “not the unanimous answer,” and may be losing its “grip” on the category of employment.12 In the more recent Troutbeck13 case, the Employment Tribunal held on appeal that treating the “absence of control as a determinative factor”14 was an error, as control alone was insufficient to decide the nature of the relationship.
Integration Test
The second test is the Integration test. First proposed by Denning LJ in Stevenson,15 it outlined how an independent contractor’s work is not integrated into the business but is merely an accessory to it. This test was then applied in Re Sunday Tribune Ltd,16 which involved three reporters. Carroll J, applying both the control test and the integration test, held that two reporters were employees — one on the basis of sufficient control, the second on the basis of her work being integral to the business — but found the third was not an employee, as her work was not integral to the business. The drawback that emerged from this test lies in the ambiguity of clearly defining ‘integration.’
Enterprise Test
The Enterprise test deals first with capital investment and then with an element of risk. First introduced in Market Investigations,17 it received a ringing endorsement18 from Keane J in Denny,19 which dealt with a shop demonstrator who was held to be an employee, despite her contract describing her as an independent contractor. Henry Denny’s provided her with the necessary equipment, and her replacement was required to be approved by Henry Denny. In more modern times, a hybrid ‘multi-factorial test’ was created by McKenna J in Ready Mixed Concrete.20 This test requires three conditions to be met: remuneration (or other consideration) in exchange for the worker’s own services; a sufficient degree of control exercised by the employer over that work; and all other contractual terms being consistent with a contract of service.
Part III — Case Analysis
In Karshan,21 disputes arose over the tax treatment by the respondent of their delivery drivers. Karshan claimed the drivers were merely independent contractors, not PAYE employees, which would result in a different pay structure. This case was the first in the Irish courts to deal with short-term “gig economy” work of the kind associated with services such as Deliveroo and Uber Eats.22 The High Court acknowledged that there was “no comprehensive statutory or common law definition”23 of a contract of service, and instead took four concepts — mutuality, substitution, integration, and the terms of the written contract — as the basis for a “bespoke consideration”24 in each individual case.
High Court Decision
The High Court was satisfied that there was a mutuality of obligation, as drivers were required to complete an availability sheet a week in advance, which constituted a contract containing mutual obligations for both employer and driver. Secondly, it was held that the substitution arrangement was insufficient, as drivers themselves did not have the ability to substitute freely but could nominate a replacement driver who was, critically, approved and paid by the employer. With regard to integration, the Court rejected the respondent’s claim that the drivers were a “mere accessory”25 to the business, finding that several factors — including the requirement to wear Domino’s branded clothing and to take orders directly from Domino’s rather than from the customer — demonstrated sufficient integration. Lastly, the Court rejected the respondent’s claim that the Tax Appeals Commissioner had erred in “giving proper weight”26 to the terms and conditions of the contract. Ultimately, the High Court upheld the ruling of the Tax Appeals Commission in classifying the drivers as employees. While the point of mutuality of obligation was addressed in the High Court decision, many critics would argue it was not examined to the depth its importance warranted.
Court of Appeal Decision
This criticism was subsequently addressed when Karshan appealed to the Court of Appeal, which focused on the doctrine of ‘mutuality of obligation’ as an “essential component of a contract of employment.”27 In Carmichael,28 the claimants were casual tour guides who worked only when called upon, and even then could refuse. There were no guaranteed hours and no obligation on either side. The Court coined the phrase “irreducible minimum of mutual obligation necessary to create a contract of service.” In essence, the first focus of any dispute should be to ascertain whether a mutuality of obligation exists. Should this requirement fail to be satisfied, there could never be a contract of service.
In the UK case of Autoclenz,29 the Supreme Court grappled with the issue of mutual obligation in relation to car valets who were described by the company as ‘self-employed subcontractors.’ Autoclenz argued there was no mutual obligation, as their contract was structured so that there was no obligation on the company to provide work and no obligation on the valets to perform any work offered. However, this written contract was not reflective of the real relationship: the valets worked regularly, personally, and under the firm’s control. Lord Clarke underlined how the “bargaining power” of both parties must be analysed, as “written terms may not reflect the true agreement.”30 The Supreme Court subsequently found there to be mutual obligation, ruling in favour of the valets. The Uber31 case reaffirmed this ruling, emphasising the importance of examining the external situation rather than treating the written contract as gospel, with the Court detailing how “the written terms were devised by Uber and presented to drivers without any possibility of negotiation.”32
In Karshan,33 the Court of Appeal ultimately held that the Tax Appeal Commissioners had erred in finding mutual obligation, despite individual contracts being signed with Karshan, as mutuality of obligation had to be ongoing and exist throughout the entire employment period.34 While ultimately finding there to be insufficient evidence of mutual obligation, it is clear that the Court of Appeal applied a similar line of reasoning to those in the UK Autoclenz35 and Uber36 cases, overruling the High Court verdict on a 2-1 majority. Indubitably, the Court of Appeal made strong efforts to place mutuality of obligation at the forefront of any contract of employment dispute.
Supreme Court Decision
Unsurprisingly, the Revenue Commissioners appealed this decision to the Supreme Court. The appeal centred on the importance of mutuality of obligation to a valid contract of service, and whether it was a critical component. The defendant’s theory of mutual obligation focused on four elements: an ongoing commitment, an extension into the future, the employer’s obligation to provide work, and the employee’s obligation to perform that work.37 Murray J commented pointedly38 that the phrase “mutuality of obligation,” through “a combination of overuse and under analysis,”39 had been moulded into something entirely separate from its original meaning. He drew upon Keane J’s judgment in Denny,40 specifically noting the absence of any reference to mutual obligation and the lack of any requirement for a continuing obligation to provide or accept work.
In Barry and Ors,41 the concept of mutuality was central to the dispute between temporary veterinary inspectors and the plaintiff. The High Court held there was no mutuality, as the government had not guaranteed any work, but it failed to distinguish clearly between the wage/work bargain and the requirement for a continuing contractual obligation.42 Karshan had defined mutual obligation as “an ongoing reciprocal commitment extending into the future to provide and perform work on the part of the employer and employee respectively,”43 relying on the Barry44 approach — which was, per Murray J, a “fundamental error” of reasoning. Murray J detailed how a great “parade”45 of contracts of service had been navigated before 1980, without “any reference” to the mutual obligation concept upon which Karshan so heavily relied.
Effectively, Murray J held that the first and second elements of Karshan’s mutuality theory are not required, provided the delivery drivers are employees for the periods during which they are rostered and paid.46 Murray J also identified the employer’s obligation to provide remuneration for work, dismissing the third and fourth elements of Karshan’s theory. Ultimately, mutuality of obligation, while typically present in an employment relationship to some extent, is not a conditio sine qua non of an employment relationship.47 As Bell summarises: “Mutuality of obligation, the Court held, means no more than the ‘wage/work bargain’ that is satisfied when a worker agrees to undertake a particular item of work in return for pay.”48
Part IV — Broader Implications
Murray J began with a discussion of the two leading English cases on employment status. He first referenced Ready Mixed Concrete,49 in which McKenna J introduced the hybrid, multi-factorial approach to determining whether a contract of employment or contract for services was in place. As previously noted, McKenna J’s multi-factorial approach hinged on three ideas: remuneration in exchange for work; sufficient control over the employee without direct supervision; and contractual terms consistent with an employment agreement. Murray J also took the opportunity to restate and clarify that mutuality of obligation plays no role in this test in the manner that Karshan had argued.50
In addition, Murray J drew upon the Market Investigations51 case, which developed and complements McKenna J’s test from Ready Mixed Concrete.52 That case concerned casual interviewers who carried out surveys on an occasional basis. The question arose as to whether they were employees or independent contractors. Rather than relying solely on the control test, the Court raised the question of whether the person performing the services was doing so “as a person in business on his own account?”53 While the Court acknowledged that control as a concept would “always have to be considered,”54 it was inadequate as the sole differentiator. Applying the multi-faceted ‘in business’ test, the Court held the interviewers to be employees, solidifying McKenna J’s test within the foundations of modern employment law.
Subsequently, Murray J and his six colleagues set out a new, five-stage test for assessing the validity of a contract of employment. The first element is that there must be a wage or other remuneration for the work. Secondly, the worker must commit to providing their own services personally. Thirdly, the employer must exercise sufficient control for the contract to be capable of being an employment contract. The penultimate element requires that the factual working arrangements — supported by evidence — be consistent with an employment contract. Lastly, any relevant legislative provisions must be taken into consideration.
In light of this new test, the Supreme Court was satisfied to conclude that the delivery drivers were in fact employees of Karshan, despite certain features of their activities being consistent with those of an independent contractor.55 The Court held that there was sufficient exchange of consideration in return for labour,56 and that the circumstances of substitution and control were indicative of an employment relationship. In addition, the drivers did not take calls directly from customers; their work was “in every sense work for Karshan.”57 The written contract suggested a laissez-faire approach to mutual obligation, yet the Court rejected this argument, having taken the broader scope of the situation into account. Finally, there being no specific legislative considerations to address, the ruling in favour of an employment contract was confirmed.
The landmark decision underscores the extent to which mutuality of obligation can influence the classification of a worker, particularly in differentiating contracts of service from contracts for services. While not as absolute as the Court of Appeal verdict, mutual obligation still plays an instrumental role alongside the five-part test in assessing contracts of employment.
Part V — Conclusion
The Supreme Court’s new definition of mutuality of obligation represents a “bright line adaptation” of Irish common law, as Bell58 reflects. While it is undeniable that the doctrine of mutual obligation has undergone a series of adjustments throughout history — but particularly within the modern landscape of “gig economies” — it now rests on considerably more stable ground than it has before. While not the sole determinative factor, it remains an important component in resolving any dispute between a ‘contract of’ and a ‘contract for’ employment. The judgment highlights that rigid adherence to a single factor, such as mutuality of obligation, may obscure the practical realities of modern work relationships, emphasising the importance of a broader analysis of the employment relationship. With that said, the Supreme Court expertly frames mutuality of obligation as a useful lens through which contracts of employment should continue to be examined.
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Footnote(S):
1 [2023] IESC 24.
2 Mark Freedland, The Contract of Employment (Oxford University Press, 2016).
3 Terms of Employment (Information) Act 1994.
4 Lister v Hesley Hall Ltd [2001] UKHL 22.
5 Karshan (n1).
6 Claire Bruton, Employment Law (2nd ed, 2017).
7 Allan Farnsworth, “Mutuality of Obligation in Contract Law” (1978) University of Dayton Law Review.
8 Bruton (n6) 25.
9 Ibid.
10 Gerald M Stevens, “The Test of the Employment Relation” (1939) Michigan Law Review.
11 Roche v Kelly [1969] IR 100.
12 Matthew T Bodie, “Participation as a Theory of Employment” (2014) Notre Dame Law Review.
13 White and anor v Troutbeck SA [2013] IRLR 949.
14 Ibid.
15 Stevenson Jordan and Harrison Ltd v MacDonald and Evans [1952] 1 TLR 101.
16 Re Sunday Tribune Ltd [1984] IR 505 (HC).
17 Market Investigations v Minister for Social Security [1969] 2 QB 173.
18 Bruton (n6) 31.
19 Henry Denny & Sons (Ireland) Ltd v Minister for Social Welfare [1998] 1 IR 34.
20 Ready Mixed Concrete Ltd v Minister of Pensions and National Insurance [1968] 1 All ER 433.
21 Karshan (n1).
22 William Fry, “Employed or Self Employed? High Court Delivers First Judgment on Employment Status in the Gig Economy” (2020).
23 Karshan (n1).
24 William Fry (n22).
25 Karshan (n1).
26 William Fry (n22).
27 Nuala Clayton, “Part 1: Revenue to get a ‘pizza the action’ following successful appeal” (2023).
28 Carmichael v National Power plc [1999] 1 WLR 2042.
29 Autoclenz Ltd v Belcher [2011] UKSC 41.
30 Ibid.
31 Uber BV v Aslam [2021] UKSC 5.
32 Ibid [76].
33 Karshan (n1).
34 Clayton (n27).
35 Autoclenz (n29).
36 Uber (n31).
37 Marta Lasek-Markey, “Irish Supreme Court rules pizza delivery drivers are employees for tax purposes: What’s the takeaway for the gig economy in Europe?” (2024) European Labour Law Journal.
38 Kevin Bell, “Employees or Contractors? Delivery Drivers vs the Gig Economy” (2023) The Bar of Ireland.
39 Karshan (n1).
40 Denny (n19).
41 Minister for Agriculture v Barry and Ors [2008] IEHC 216.
42 ACL Davies, “Putting Mutuality of Obligation in its place: the Revenue Commissioners vs Karshan (Midlands) t/a Domino’s Pizza” (2025) Irish Supreme Court Review.
43 Karshan (n1).
44 Barry (n41).
45 Karshan (n1).
46 Lasek-Markey (n37).
47 Ibid.
48 Bell (n38).
49 Ready Mixed Concrete (n20).
50 Davies (n42).
51 Market Investigations (n17).
52 Ready Mixed Concrete (n20).
53 Market Investigations (n17).
54 GovUK, “Case Law: Market Investigations Ltd v Minister of Social Security” (2016).
55 Clayton (n27).
56 Elaine Egan, “Part 2: Supreme Court Delivers Test for Determining Employment Status” (2023).
57 Karshan (n1).
58 Bell (n38).
