IBEC thanks the joint committee for the opportunity to address the issue of false self-employment. Such situations arise where a working relationship is misclassified as a contract for services or commercial agreement when it should, according to common law, be considered a contract of service or a contract of employment. False self-employment can arise in a variety of contexts. It can arise where a commercial agreement between parties develops over time and what started as a genuine case of self-employment has morphed into an employment relationship. It sometimes arises where a de facto employer wishes to avoid the rigours of the employment rights legislation. It can also arise where a highly qualified individual whose skills are much sought after in a buoyant jobs market insists on being treated as self-employed for his or her own purposes, often for the personal freedom it allows the individual and for favourable tax treatment. It is important to make one thing clear: it is not always an act perpetrated by business against individual workers, which is the common subtext to discussions on the subject. IBEC is manifestly opposed to the practice of false self-employment.
It provides a competitive advantage to those who would flout the law at the expense of the majority of compliant individuals and businesses who observe existing laws. Individuals who are falsely described as self-employed may be at greater risk of exploitation and left vulnerable when the working relationship is ended. However, based on evidence referred to as follows, the practice of false self-employment is not as widespread a problem as has been suggested before this committee, and where it does arise, there is an existing legal framework to address it, provided it is invoked.
IBEC is concerned that a narrative is developing in relation to self-employment, even genuine cases of self-employment, to suggest that it is somehow an inferior form of work. This is a persistent narrative which has the potential to become very damaging to the Irish economy. It is vital both for the business community and for individuals that Ireland has a legislative framework that facilitates and encourages entrepreneurship. The reality is, despite assertions from some interest groups to the contrary, that not everyone wants to be an employee. There is a risk of creating of a framework which removes for all practical purposes genuine self-employment as an option for individuals. Oversimplified legislation with draconian penalties, such as have been proposed in the recent past, will cause clients and customers to flee from self-employed service providers for fear that they will find themselves captured by the proposed new laws. It will damage small indigenous businesses most and drive consumers of goods and services towards large well-established companies in respect of which no consumer could be accused of being the employer.
Despite assertions to the contrary, the prevalence of false self-employment cannot be as widespread a problem in Ireland as some assert. This is because the number of self-employed in Ireland amounted to 14% of the total working population in 2018. This represents a decrease in those described as self-employed from the 15.3% measure published the previous year. Within that figure, many of those working people will be genuinely self-employed in professional activities, such as barristers, chartered accountants and GPs, as well as those involved in trades.
It is vital that we reflect on the fact that the scale of the issue cannot be as large as is suggested. It is also vital that we acknowledge that many of those who form that 14% are willingly self-employed, some of whom took time and trouble to establish businesses on their own account. Some self-employed people will have left positions within companies, where they were retained as employees on contracts of employment, deliberately to avail of the flexibility and autonomy, as well as the opportunity to grow their earnings, that self-employment provides.
It is also important to assess properly the figures referred to above, as within that group, a significant proportion are self-employed but also employers in their own right, which means they are even less likely to be falsely self-employed. In fact, the number of individual self-employed persons, described in the 2018 report as "own account" workers, is smaller, at 10.8% of the total workforce in 2017. This has now dropped further to 9.8% in late 2018. Among this number will be included those referred to above as deliberately and willingly self-employed.
IBEC notes the call for increased regulation of the employment relationship – a desire to adopt a simple statutory definition of what constitutes a contract of employment or a brief definition of "employee". IBEC acknowledges that it is important that there is a legal framework in place to allow us to identify false self-employment correctly where it arises and to operate as a deterrent. The current legal framework comprises several common law tests, which are outlined in my presentation and which I will not go through in detail. These are probably familiar to many in the room.
All employment rights legislation in Ireland provides an opportunity for an incorrectly designated person to challenge his or her status and have it corrected as a preliminary issue in proceedings. We have seen many cases of this happening in the employment rights bodies. For example, an individual can issue proceedings under the Organisation of Working Time Act 1997 and assert his or her rights as an employee under that legislation. The issue of the person's employment status is likely to be addressed at the outset of the proceedings, but both Workplace Relations Commission, WRC, adjudicators and the Labour Court have jurisdiction to apply the legal tests to which I referred and issue a binding enforceable decision that the individual is an employee, if the evidence supports that conclusion.
It has been suggested that existing remedies are insufficient, as there exists the fear of possible retribution from the employer in certain instances. Powerful anti-penalisation provisions are contained within the employment rights legislation, including the Organisation of Working Time Act 1997, which provide remedies where such instances arise. It is also possible to invoke the Unfair Dismissals Acts and the remedies available to the complainant include re-instatement in his or her role.
IBEC submits that there is no higher protection or remedy that can be conferred over and above the remedies already on the Statute Book. Therefore, calls for additional regulation of the contract of employment are misplaced. This committee will have heard the submissions made by Professor Michael Doherty of NUI Maynooth last month where he stated that the default status of an individual before the WRC is almost always that of employee. Contrary to the view often promoted as to how employment rights legislation is enforced, that default position has also been the experience of IBEC.
It is also open to those who believe they are falsely self-employed to make an application to the scope section of the Department of Employment Affairs and Social Protection and have the insurability of their employment determined by a deciding officer. At no time has any stakeholder advanced an argument that there was a specific element missing from the common law tests which prevented decision-makers from reaching a decision on the status of an individual or caused them to reach an incorrect conclusion.
IBEC understands that the Minister for Employment Affairs and Social Protection intends to establish a stand-alone body with enhanced resources to investigate false self-employment more efficiently. Initiatives such as these are likely to be of assistance in reducing instances of false self-employment where they arise. As previous submissions to the committee have noted, the consistency of approach will be critical to ensuring the success of this measure.
The complexity sometimes associated with identifying a contract of employment appears to be a source of frustration to some who are eager to adopt short and unambiguous definitions of what constitutes an employee. The difficulty with adopting such an approach is that it risks capturing a range of activities which neither party to the contract ever envisaged to be an employment relationship. Throughout these debates before the committee, no one has suggested a specific proposed change to the current legal framework that would not have a significant distorting impact on the Irish economy. Such changes may result in people who carry out work piecemeal for private individuals, such as window cleaners and sole practitioner professionals, being considered the employees of their customers. This may arise even in circumstances where the customers themselves are full-time employees of other organisations. We need to consider very carefully the implications of changing the basic components of an employment relationship.
As part of its role in the collection of taxes and duties, the Office of the Revenue Commissioner is motivated to identify false self-employment. In the joint report referred to earlier, however, the Department of Finance noted that there is no evidence that there has been any significant change in the level of self-employment in the economy in recent years. From the report, it is clear that even during the recession the share of employment that was accounted for by self-employment was relatively stable. The Department noted that the overall share of own account self-employment was at the time of the report at a relatively low level and, in fact, lower than it was in 1999. This is contrary to the narrative that self-employment is rapidly increasing. Own account self-employment fell from 12.6% to 10.5% between 1999 and 2007, increased again to 12.4% during the recession before falling back again to 10.8% at the start of 2017, and is now at 9.8%.
The report does not offer specific reasons for this slight increase in self-employment during the recession. It is likely, however, that some individuals who lost contracts of employment through redundancy were in a position to take on work on the basis of a commercial agreement. In an economy where very few employers were hiring, those who had skills that lent themselves to doing work on a self-employment basis did so, perhaps, rather than emigrate or endure the wasting of their skills and experience following the termination of their employment. It likely meant also that when the economy recovered, the individuals in question were in a better position to access new contracts of employment as they could demonstrate recent work experience in their chosen field. IBEC respectfully submits that it is positive that Ireland's employment law facilitates individuals adapting to changing economic circumstances in this way.
It has been suggested that the reform of the taxation system might reduce the incentive for individuals to be classified as self-employed. IBEC believes that there is an absence of specific evidence as to why and where instances of false self-employment arise. There are no hard data to support the contention that the motivation to become self-employed is mainly tax avoidance. While, no doubt, within cohorts of contracts that are misclassified there are those who wish to benefit from the favourable tax treatment, IBEC believes that this is just one of a range of possible incentives. In other cases, incentives such as the freedom to set one's own working hours or a desire on the part of some businesses to avoid the legal responsibilities otherwise associated with being an employer are also possible incentives. Before IBEC could endorse tax reform that might operate as a disincentive to utilise the services of someone self-employed in favour of a larger corporation, we would need to be sure that the move was evidence based and would, in fact, operate to reduce the number of misclassified contracts.
An extensive media awareness campaign was organised by the Department of Employment Affairs and Social Protection in 2018. The assistant secretary of that Department shared the outcome with this committee and noted that if individuals are reluctant to come forward for any reason, inspection is an alternative method of identifying and correcting misclassification of employment. IBEC agrees with this approach and is happy to support the co-operation of the business community in facilitating such inspections. IBEC notes that negative inferences were drawn by some Deputies who participated in the November 2018 meeting of this committee, suggesting that a website that attracted thousands of contacts should have resulted in more outcomes from the scope section.
The low rate of progression from accessing the website to forming a complaint should not automatically be ascribed to a negative culture associated with the making of such complaints, of which there is no hard evidence. It may well be that those who sought clarification as to the structure of a true contract of employment confirmed for themselves that they were, in fact, correctly classified as self-employed.
IBEC notes some of the other proposed policy changes to address the issue of misclassification of status. These include introducing a third category of worker which would attract some, but not all, of the statutory entitlements and protections available to employees. IBEC notes the view of Professor Michael Doherty that the introduction of this new status risks introducing more complexity and litigation, which IBEC believes would not be of advantage to any of the stakeholders in this issue. IBEC also notes suggestions to introduce chain liability, where the legal responsibility for incorrect application of employment law may be visited on a client or customer in certain circumstances. IBEC's concern is that such measures would allow non-compliant individuals and businesses to escape legal responsibility, which is visited instead on compliant organisations. IBEC is also aware of concerns that such measures risk making it more difficult for a complainant to identify who, in fact, is responsible for the vindication of their employment rights. We cannot support such a proposal.
At this point in time, the response to the issue of false self-employment has to be stronger enforcement of existing laws and remedies. IBEC does not believe that a case has been made to change the law in a way that would reduce the number of falsely self-employed individuals. Even if fear of retribution is dissuading people from invoking existing laws, more severe sanctions than those that already exist will not necessarily fix that issue, to the extent that it exists. However, inspection and enforcement will.
IBEC notes the concerns expressed about practices of false self-employment arising and that it is localised in specific sectors. We are of the view that the existing legal framework is appropriate and robust enough to address any such instances. Rather than propose a full-scale shift in the determining factors of the contract of employment, IBEC suggests that a better approach would be to: continue with a balanced and impartial awareness campaign on what constitutes a contract of employment; ensure existing inspection mechanisms and facilities are adequately resourced; and support the genuinely self-employed by reducing and removing the disadvantages of self-employment through access to maternity benefit and other benefits, some of which is already in train or in place.
Ireland’s economic success is in part based on how we regulate our labour market. We need flexibility in our working practices - flexibility to engage whether directly or collectively - and we must be able to attract the talent needed to sustain strong economic growth. None of this should come at the expense of employment rights, but before we regulate an already heavily regulated labour market further we must at least come from a position of being able to identify the nature and scale of the challenge we are trying to fix.
I thank the committee for its attention.