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Insurability Case 3

Question At Issue:

Whether the appellants are engaged under a contract of service as employees, insurable at the Class A rate of social insurance, or a contract for service as self-employed persons, insurable at the Class S rate.

Background:

The case involved four appellants, all founders and equal shareholders in a private limited company established in 2000 to supply props to television companies. In 2003, their accountant noted that Class A contributions had been returned but contended that

Class S was the appropriate rate and sought a refund of the difference. Following investigation, a Social Welfare Inspector reported that he considered the appellants to be self-employed. The Deciding Officer determined, however, that they were insurable at the Class A rate. While he accepted that none was subject to control and direction, he considered that the employment was under a contract of service as each supplied labour only, rendered personal service and could not hire a helper or send a substitute. In his decision, he referred to the High Court Judgment in the case of Stakelum v. Canning [1976] IR 314 where it was held that a director was deemed to be a salaried employee.

Oral Hearing:

One of the appellants attended, along with the accountant representing all four. The Deciding Officer and Social Welfare Inspector attended at the request of the Appeals Officer.

On behalf of the appellants, their accountant submitted that there was no overall boss; no specific job was allocated to any one of the appellants; no one individual was answerable to the others for specific tasks, and none was obliged to report to the others. He contended that all decisions were made by consensus, that each of the appellants took holidays as they wished, merely informing the others for practical reasons. He asserted that there were no stated minimum hours of work, that remuneration was dependent on the level of profitability and that no individual was entitled to an agreed sum irrespective of the profitability level. He contended that the individuals concerned were artists who were highly motivated and adopted a collegiate approach to work, as was evident in the participation of all four in negotiations to purchase a workshop

The Deciding Officer outlined the grounds on which he had held that the appellants were insurable as employees, at the Class A rate. He stated that all the appellants were minority shareholders and that any one of them could, therefore, be out-voted. He referred to the principle, established in Stakelum v. Canning [1976] IR 314, that a director and shareholder could be regarded an employee.

Their accountant did not accept that the fact that the appellants were minority shareholders necessarily meant that they could not be regarded as self-employed. He argued that in the legal field, partnerships could contain partners with both full and junior status, with junior partners being required to report to a managing partner and to account for their work. He referred also to a High Court case involving three brothers who were joint shareholders and directors of a hotel. One of the brothers considered that the actions of the others were prejudicial to his interests and took an action against them. The Court held that he had a right of redress on the grounds of repression of a minority interest and ruled that his brothers should purchase his interest. (The Appeals Officer noted that he might have had in mind the Murph’s Restaurant case, involving proceedings to wind up the company.)

The appellant who attended the oral hearing said that he and the three others had wanted to go into business together. He reported that they had set up as a limited company, without any great forethought, as a means of limiting their personal financial exposure. He stated that there were no other workers, although they contracted out work from time to time.

Consideration of the Appeals Officer:

The Appeals Officer considered that the points made by the Deciding Officer were not without merit but concluded that it was necessary to take a wider view and to look behind the formal structure of the company concerned. He considered that what had transpired was that four individuals with artistic talent came together and were advised to form a limited company in order to limit their financial exposure. In doing so, they were setting up in business themselves and not with the intention of working for someone else as employees. He considered that each enjoyed personal autonomy in their work, that all were founders and investors in the business, all participated in management and investment decisions and stood to gain from its success, or to incur losses if it failed. He concluded that the appellants were, in effect, partners working together under the guise of a limited company. Accordingly, he was satisfied that the employment was under a contract for service and that Class S, in respect of self-employed status, was the appropriate rate of social insurance contribution.

Outcome:

Appeal allowed.

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