Disguise it, it is still an elephant'
Bob Dowdall, Chief Inspector of Taxes, March 2001
Not that it is not a 'valid' or 'credible' issue, just that Joan doesn't want to go there. Why ever not Joan?
Fourteen years ago I sent an e-mail to the then Chairman of the Public Accounts Committee, Mr. Jim Mitchell TD. The PAC, was at the time, conducting an investigation into the employment status of workers in the construction industry. 1 in 5 of those examined were found by the PAC to be misclassified as self-employed.
The distinction between genuine self-employment and employees misclassified as self-employed is a sometimes complicated but crucial matter. Misclassification is often the result of cost-cutting measures instituted by employers at the expense of their employees. Misclassified employees lose workplace protections, including the right to join a union; face an increased tax burden; receive no overtime pay; and may have no recourse for workplace injury violations and disability-related disputes. Misclassification also causes government to suffer substantial revenue losses as employers circumvent their tax obligations.
I had one question for Jim, why was he investigating the construction industry which was reasonably well regulated and not other unregulated industries where there was ample evidence to indicate that employees were misclassified as self-employed.
For two years I'd questioned my employers blanket classification of all workers as self-employed and it wasn't just my employer. Almost every employer in the multi-million euro industry did the same. Revenue wouldn't tell me why - initially Social Welfare refused to engage and told me it was a Revenue matter. It was only by chance that I discovered the Scope Section and was able to make a formal written request for an insurability of employment decision. I went through the formal process and a decision was awaited. The functions of Scope Section are to give decisions and information on the insurability of employment in accordance with the law. Any person, business or their representatives may apply to have an employment investigated to make sure that the correct PRSI Class is applied.
Deciding Officers in Scope Section deal with the following types of questions:
- whether employment or self-employment exists,
- whether it is insurable employment, insurable occupational injuries employment (covered for Occupational Injuries Benefits only) or insurable self-employment,
- what class of PRSI is due, and
- in the case of employment, the name of the employer.
I am directed by the Chairman to refer to your letter of 25th July 2000 concerning Mr. McMahon, motorcycle courier. Mr. McMahon's main concern seem to be health and safety in the courier business.
As regards taxation, the issue of couriers and particularly motorcycle couriers was the subject of protracted discussions between Revenue and representatives of the Courier Industry. I enclose copies of our letters of 7th March 1997 and 3rd April 1998 to (Accountants) which represented courier firms at the discussions. The letters outline the agreement reached for tax purposes.
So just how did Revenue resolve the historic non-compliance of courier companies? Revenue let them away with it, that's how. Not only did Revenue absolve non compliant courier companies of any past wrongdoing, they guaranteed that the same companies were exempt from scrutiny such as that exercised by the PAC in the construction industry. It was a total sweetheart deal for non compliant courier companies, it didn't cost them a penny. Couriers became PAYE employees, tax and PRSI deducted at source. Employees in every way yet classified as self-employed - couriers got screwed, courier companies laughed all the way to the bank.
The Revenue Chairman's letter went on to say:
For the purpose of insurability under Social Welfare law, a motorcycle courier was found to be self-employed by Social Community and Family Affairs Appeals Tribunal some years ago. This decision was not challenged further through the High Court on a point of law and consequently would stand for social insurance purposes. Motorcycle couriers are also regarded as self-employed in the UK.
Again the letter fails to reveal the full facts. In 93/94 two couriers were selected by courier companies for assessment by the Scope Section. Both were found to be employees. The decisions were appealed to the Independent Social Welfare Appeals Office by the courier companies representatives. The Department of Social Community and Family affairs was the Defendant. By the time the appeal came around in 1995, one of the couriers had emigrated. Documents in the companies office show that the person believed to be the second courier had become a director of a courier company in the intervening period. Nevertheless the appeal went ahead and the Scope decision was overturned. It is on this case alone that all couriers were secretly classified as self employed. This decision was not appealed to the High Court by the Defendant Department.
In reality, this single case should not have had any impact on the employment status of other couriers, the Scope Section had no reason to believe that this secret case held in a secret court would become the defining 'test case' for the entire industry. In '93/'94 Scope had made both decisions based on their own individual merits in accordance with the general precedents of Irish Law. They were not 'test cases'. In the '95 appeal, the Appeals Officer claimed that his decision "was of wider significance to the trade". Skip forward to the secret tax deal in the Burlington where Revenue stated that the use of the '95 Appeal decision as a justification to classify all couriers as self employed was "a non binding decision that does not override the statutory rights of couriers". The final metamorphosis of this single decision came from the Secretary General of the Department of Social Community and Family Affairs. In reply to inquiries from the PAC, the Secretary General outright called the single '95 Appeal decision a 'Number of Test Cases'.
Less than one month after the letter to the PAC from the Chairman of the Revenue Commissioners,
the Insurability Decision from the Scope Section on my case came through:
Having considered all the evidence on file and the Social Welfare Inspector's report, I am satisfied that Mr. McMahon is employed under a contract of service (employee) by the Company. He is an integral part of the business, has to render personal service and is subject to control, direction and dismissal by the company.
Even before the Scope decision the possibility of a devastating financial impact to courier companies and the knock on effect across countless other businesses had prompted unprecedented collusion at the very highest levels of state, industry and union to prevent a change to the status quo. Pandora's box was well and truly open and the speed with which non-compliant employers and State authorities moved to close it was truly breathtaking.
The first evidence of this collusion was exposed in the letter from the Revenue Commissioners Chairman to the PAC which stated:
The taxation of couriers is not currently an issue....
The issue of couriers was also raised at a recent inaugural meeting of an 'employment status' group set up under the auspices of the Programme for Prosperity & Fairness. The Group consists of representatives from ICTU, CWU, IBEC, Revenue and the Departments of Finance and Social Community and Family Affairs. It is envisaged that representatives of the Department of Enterprise Trade and Employment will be invited to the next meeting.
(The NUJ was also invited and attended).
- reverse the Scope decision that I was an employee
- prevent any other worker from receiving a favourable 'insurability of employment' decision.
(Taken from Chapter 9 of 'Ramshorn Republic, To Hell or the High Court')
Jerome's letter confirmed what I already suspected. I'd requested an Insurabiltiy of Employment decision from the Scope Section in July 2000, shortly after a courier company representative requested and was refused an 'off-the-record' meeting with the deciding Scope Officer. A few weeks later in August 2000, the Chairman of the Revenue Commissioners was able to write to the Chairman of the Public Accounts Committee and tell him that the issue of couriers had been discussed by an 'employment status' group. All of this happened while the Scope decision in my case was sub-judice. It took 51 days from the time of request to the 6th of September 2000 when the Decision was issued and in this short period IBEC, ICTU, Finance, Revenue and Social Community & Family Affairs had met and 'discussed' my specific case. Nowhere in the Revenue Commissioners' Tax Briefing issue 43 is this mentioned.
Some time later I managed to obtain a copy of the 'Hidden Agenda' of the ESG from the Communications Workers Union who had been present at all the meetings:-
Employment Status Forum
The Employee Status Forum has been established to deal with the paragraph under Employment Status in the Programme for Prosperity and Fairness. This paragraph is written into the PPF in Framework 1 for Living Standards and Working Place Environment. The Paragraph reads as follows-
'The Office of the Revenue Commissioners and the Department of Social, Community and Family Affairs, in consultation with the Social Partners, will seek a uniform definition of employee based on clear criteria, which will determine the employment status of an individual'.
The participants on the side of the Irish Congress of Trade Unions are Tom Wall (ICTU Assistant General Secretary), Chris Hudson (Organising Officer CWU), Eoin Ronayne (Regional Secretary, National Union of Journalists) and Kevin Mulligan and Tommy Devlin (Dublin Motor Drivers Branch and Organising Committee CWU).
The other representatives are as follows - Department of Finance-Colm Sweeney , Revenue-Bob Dowdell, Social Community and Family Affairs-Vincent Long.
Progress so Far
The Forum has met on approximately four occasions, initially the Congress side was led by Patrica Donovan, Deputy Secretary General. Patrica has now taken up a position with the International Labour Organisation. The main task was to get all those represented around the table to engage in a constructive look at the whole issue of employment status and to progress toward some criteria which will resolve the issue. This was a difficult task as generally the view of IBEC, Finance and Revenue was that the status quo should remain. The status quo is where a worker has a disagreement over his/her employee status they can take their case to the High Court and seek a legal definition. This has happened in many cases such as the famous Denny case.
With regard to Motor Bike Couriers, there is an ongoing case involving one of the CWU members Martin McMahon with Social Welfare. In this case Martin McMahon claimed to be an employee and not self-employed and took an Appeal to the Scope Section of Social Welfare against his alleged employer, Securicor Omega. Martin's case was upheld and now Securicor Omega are appealing this through the Social Welfare Appeals Board. ICTU and the CWU are very involved in this case. A separate report on this case will be presented to the National Executive Council.
The Way Forward
ICTU presented a document to the Forum which set out certain criteria for establishing the employment status of a worker. As can be expected this document was disagreed with by most of the other parties around the table. However the most important aspect of this document is that it set out the agenda for future discussions. All the other parties later presented documents which to a greater extent incorporated some of the thinking of ICTU's initial document.
The position to date is that the parties have agreed to establish a code of practice along the lines of defining criteria on employment. The Congress side is looking for for this code of practice to be statutory whereas IBEC wish it to be a voluntary code of practice. There has been a drafting committee established which is to meet on 12th February 2001 in the first instance to draft appropriate wording for the Code of Practice. Once the formula of words had been agreed, the mechanics as to how to deal with this Code of Practice will have to be debated. A number of suggestions may arise including writing the Code of Practice into various legislation such as legislation affecting Social Welfare. This would impact on other legislation. Another idea would be to look at the possibility of writing the definition into the Working Time Act.
This is a very important Forum dealing with a very specific part of the Programme for Prosperity and Fairness. Whilst initially the CWU involvement was because of our recruitment drive with Motorbike Couriers, the issue of employment status will effect other people we may recruit to the union. It should be noted that many of the construction companies dealing with cable and jointing employ people on a self-employed status and this could possibly be challenged if a criteria is set by the above Forum. This also explains the involvement of Eoin Ronayne from the National Union of Journalists (NUJ) because the NUJ has been dealing with some difficult cases where employee status was challenged by employers. It is interesting to note that even in RTE the NUJ ran into difficulty in trying to establish the employee status of one of its members.
It is not expected that an immediate result from these discussions will take place but Congress is determined to extract from this Forum a criteria which is acceptable to trade unions with regard to employment status. It should be noted that in the United Kingdom up to 15% of alleged employees are now registered as self-employed and the number is growing. With the development of technology many companies will try to establish a new working criteria for the people it employs on whatever basis they deem acceptable to themselves. The obvious reason why employers seek to have a registered employee on a contractual or self-employed basis is because it puts the onus on the employee regarding tax, annual leave etc.
Congress has been concerned for some time about the operation of the courier sector, particularly in the Dublin Area. The number and scale of operation of courier firms has expanded enormously in recent years. While it is clear that some of these firms are operating fully within the formal economy, there is growing evidence that this is not the case in relation to many of them. Serious allegations of tax evasion and non-compliance with PRSI have been made to Congress about many firms in this sector. As the number of employees with these firms continues to expand rapidly, it is essential that the necessary steps are taken by both Revenue and Social Welfare to ensure that all firms in this sector are fully compliant with relevant tax legislation and PRSI obligations.
Having regard to growing concern about employment and other practices in this sector, Congress is requesting that this matter be placed as a priority item on the agenda for the next meeting of the Hidden Economy Group scheduled for January 2001. In this context, it would be very helpful if both Revenue and Social Welfare were prepared to brief the Group at the January meeting on its understanding of the operation of the Courier sector in the Dublin area.
It doesn't matter what case a worker makes to places like Scope or the LRC, the defined policy of the State in the ESG's secret agenda is to force a worker to the High Court to overturn a misclassification of self-employment. At the same time non-compliant employers can mis-classify workers as self-employed en masse in free secret courts like the Social Welfare Appeals Office or over lunch in the Burlington Hotel with the Revenue Commissioners. Not only was my case discussed by the ESG, it was discussed in the context of overturning the Scope decision. The ESG was a machiavellian piece of fuckery on so many levels, Scope - Pointless, LRC - Likewise, uniform definition of employee - not worth the paper it's written on. None of it was ever going to make a difference - To Hell or the High Court for misclassified workers is the legacy of the ESG.
The other significant impact of the ESG was the ending of widescale unfettered investigations of self-employed misclassification. Prior to the Revenue Commissioners' Tax Briefing Issue 43, such investigations had occurred as is explained in a 2002 letter to me from the Comptroller and Auditor General, Mr. John Purcell. In his letter John stated:
My Office has been concerned about this issue and, partly as a result of that concern, the Revenue Commissioners in 1988 undertook a special programme of 6,200 visits to principal contractors in the construction industry. During the visits the status of 63,000 sub contract situations was examined and 12,000 were reclassified as employees. Because concerns were expressed at the Committee of Public Accounts last year that misclassification could still be rife, a similar campaign was commenced in the second half of the year as you have noted in your letter.
I wouldn't agree that contractors in the courier industry are exempt from taxation laws. What can be said is that the arrangement employed is administratively efficient in collecting tax from a sector which traditionally recalcitrant when it comes to paying tax. All concerned recognise that it is far from being an ideal system and that there is room for improvement.
Jim Mitchell lost his seat in the 2002 General Election and the PAC ceased to have any interest in the widespread misclassification of workers as self-employed. No similar widespread investigations into self-employed misclassification have taken place since the ESG's voluntary Code of Practice. The last communication I received from the PAC after the GE informed me that misclassification of workers as self-employed was "Not currently an issue".
According to CSO figures the number of self-employed workers with no employees in the third quarter of 1999 was 197 thousand. By the time it reached it's peak in 2008 231.5 thousand workers without employees were classified as self-employed. Two years ago the number stood at 196 thousand despite the fact that the construction industry was practically decimated. One in five workers are classified as self-employed and from John Purcell's and Jim Higgins' investigations we can credibly estimate that one in five of those classified as self-employed are misclassified. This represents an ongoing and substantial loss to the exchequer.
Perhaps the most insightful comment on the activities of the ESG and the Hidden Economy Group came from the late great Chairman of the Pubic Accounts Committee, Mr. Jim Mitchell. In a letter to Patrica O'Donovan Jim asked:
I would appreciate the views of Congress on this issue, on what Congress hope to achieve through the Hidden Economy Group.
When Senator Hannigan totted up his back-of-an-envelope figures, he wasn't including 'Local Arrangement', 'Secret Tax Deals' or any other cosy cabals. Dominic was calculating based on Jim Higgins' and John Purcell's findings. One in Five of those classified as self-employed being misclassified adds up to a very conservative figure of 60 million a year in losses to the state.
Misclassification of workers as self-employed is the elephant in the employment figures, that it is also the elephant in the unemployment figures is reason enough for Joan Burton to insist that it is 'not currently an issue'. Misclassification hurts everybody, compliant employers and genuinely self-employed people carry the burden of non compliant employers.
Despite decades of attempts to disguise the elephant, every dog on the street knows that abuse of self-employment status has been the elephant in the room for a very long time.