On behalf of the country's airline pilots I thank the committee for giving us this opportunity to address the issue of bogus self employment of pilots operating for Irish-registered airlines. We hope the committee's deliberations will result in long overdue action to tackle this pernicious problem, which has detrimental effects on the pilots themselves and wider Irish society. In addition, reputational damage has been caused to Ireland in many European countries where pilots are based and are subject to bogus self-employment with Irish airlines, resulting in at least two European states initiating investigations on the effects of such types of employment.
I will begin by pointing out that approximately half of pilots operating in Irish-registered airlines are not employed directly by the airline for whom they fly. That is an extraordinarily high level for such an important, skilled and safety-critical profession which bears little or no comparison to other similar professions. It is worth pointing out that according to the Ricardo study on working conditions for aircrew which was completed for the European Commission, approximately 18% of European pilots have non-permanent indirect employment status. In that context, Ireland's rate of contractor pilots is approximately three times that of the European average. It is also worth mentioning that the Ricardo study found that 93% of self-employment in European aviation is fake. A 2015 study by Ghent University, Atypical Employment in Aviation, which was also carried out for the EU Commission, showed that young pilots are particularly affected by precarious employment terms, with almost 40% of such young pilots having no direct employment relationship with the operator for whom they fly. We know from our own experience in Ireland that the vast majority of contractor pilots in Ireland are also relatively young. In fact, many new pilots entering our profession are effectively forced to become contractors out of necessity rather than choice if they want to become airline pilots.
It is important to point out that while the position of self-employed contractors appears to be legal under Irish law, different pieces of legislation may view the contracts in different ways. That is a confusing situation that is mirrored in the UK. The convoluted manner in which their services are contracted has been carefully crafted to appear to meet the requirements of Irish law, but should they prove not to comply with the law, then the pilot will be potentially subject to sanction for a contracting arrangement that was effectively foisted on him or her.
I will explain how the contractor model works. Under the Irish version of this model, receiving a contract is subject to the pilot becoming a director and shareholder of a pre-existing limited company. The company will typically have between three and eight other directors, but the pilot will not be told who those directors are even when that information is requested. The company will not have normal employees other than the directors. The accountant who manages the billing and expense claims for the contractor pilot is also a director. The pilot will only be allowed to fly for one airline under this model and the whole arrangement is normally put in place by an intermediary agency. Such a contracting arrangement can have several consequences: the airline does not have to pay the 10.85% employer PRSI contribution with all the long-term consequences of that for the contractor pilot; the pilot does not enjoy the benefits or protections of employment law rights, for example, access to unfair dismissal legislation, paid maternity and paternity leave and sick leave and other benefits vis-à-vis the airline to which they supply services; and the pilot's rights to participate in any form of collective bargaining and industrial action are effectively neutralised.
In effect, the pilot’s relationship with the airline whose aircraft she or he operates and whose uniform she or he wears is based solely on contract law. However, the question as to whether a pilot is or is not a direct employee of the airline is an objective analysis based on a number of factors which will be explored.
In their guidance on the subject, the Revenue Commissioners list a number of indicators of employee status and the situation regarding contractor pilots is assessed under those Revenue criteria. As the members will note, all the employee indicators are listed as being true in the table presented. The Revenue Commissioners also include a number of indicators of contract styles. Of the 24 factors, 23 of them are listed as being false under the Revenue guidelines. Of the 24 criteria, Irish contractor pilots only meet one of the contractor criteria, and that is on a partial and qualified basis. They meet 23 of the employee criteria. Based on this assessment, it is IALPA’s view that these contractor pilots are subjected to bogus self-employment and should be deemed to be employees and not self-employed contractors.
We are aware this Revenue guidance is not definitive and there are other factors which need to be taken into account in determining the status of the contractor pilots. The following factors are important to note. Mutuality of obligation exists between the pilot and the airline for which they work. This means there is an expectation or understanding that the airline will provide work and the pilot will perform that work. It should be noted that the contractor pilot is rostered for work a number of weeks in advance and there is no casual element to the contractor pilot’s obligation to operate their rostered flights. The contractor pilots are performing identical work under the same administrative and operational requirements and the same workplace terms and conditions with other individuals who are categorised as employees by the airline. The pilots are not engaged in independently marketing their services to a number of airlines. Their companies have no independent public trading identity. While agreements between the parties might label the pilot as an independent contractor, and whether they are an employee is a question of substance over form, easily tested by reference to the Revenue Commissioners guidelines, as previously outlined. The contracts are for definite durations, normally three to five years, and are not short, ad hoc or project specific. It is IALPA’s view that any objective review of the contracts will show them to be unconscionable and one-sided.
It is conceivable that certain pilots may be properly considered contractors, for example, test or training pilots who sell their services to a number of airlines generally and operate on short-term or specific purpose contracts. Experience indicates that the number of pilots operating in this way is very limited and is entirely out of the intention and design of these pilots in question. However, based on the assessment of the Revenue criteria and the other factors that have to be taken into account, it may be generally said that ordinary pilots should be considered to be employees of the airline for which they work and not genuine contractors engaged as such on a voluntary basis. The working lives of contractor pilots subject to bogus self-employment arrangements do not vary in any meaningful detail from their employee pilot colleagues.
In terms of European interest, in 2011, a German prosecutor asked the British authorities to search the UK premises of a company that provides pilot services to an Irish airline. The prosecutor alleged the company in question was in breach of tax and social security law. The prosecutor pointed out that all work sequences for the pilot, including their uniforms, were specified by the airline. The airline in question determines which flights the pilot has to make and when, scheduling those flights weeks in advance. The contract concluded between the company in question and the pilots includes provisions that the pilots are bound to comply with specifications by the airline.
A pilot witness stated he was recruited by the airline and received an offer for employment from it once he had obtained the required aircraft type licences. After obtaining this licence, the witness was further trained by the airline to comply with its procedures and standards. Only afterwards was he referred to the agency in question by the airline and this agency finalised the contract formalities by email. The pilot witness never saw any office of the agency that completed the contract formalities.
The German prosecutor stated that the agency in question was responsible for processing the monthly work performance for approximately 1,600 ostensibly self-employed pilots with the airline, through 300 Irish companies which had the legal form of a limited company. These companies were administered by accountancy firms specified on a list of acceptable accountants that the pilots could engage with for the purpose of complying with the contract requirements. According to the German prosecutor, these companies may only serve to conceal an employment relationship with the airline.
The UK’s tax authorities, HM Revenue & Customs, HMRC, conducted a separate inquiry into the status of contractor pilots for tax purposes which led to a £47 million protective assessment against a UK based agency engaging pilots. However, individual pilots are also being subjected to HMRC scrutiny and find themselves having to explain a complex contrived structure which was not of their making.
In terms of the impact on pilots, for the pilots engaged as contractors, their status has a number of practical implications for them. The airlines are not bound by all normal employer obligations to these pilots - for example, for paid maternity and paternity leave – through this mechanism. The rights of contractor pilots to participate in any form of collective bargaining on pay and conditions, as well as their rights to take industrial action in the event of a dispute, are effectively neutralised.
From the pilot’s perspective this device of being a contractor or an employee of his or her own company is a difficult place to be, as it flies in the face of accepted Revenue custom and practice in most other sectors of employment. The arrangement causes difficulties for many pilots based outside Ireland as local revenue and social authorities have difficulties comprehending these intricate structures and there is no local equivalence of these types of arrangements. In addition, we are aware of contractor pilots who experience great difficulties in getting mortgages to buy a house or secure bank loans because of the uncertainty of their positions. As a final observation, the majority of the pilots subjected to these Irish arrangements are not Irish nationals, do not speak English as their native language and do not live or work in Ireland.
With respect to possible safety implications, the 2015 University of Ghent study on Atypical Employment in Aviation stated that such employment practices raise potentially serious concerns about the safety of the industry as the way that pilots are employed can have repercussions on safety decision making in the cockpit. According to the University of Ghent, nearly half of self-employed pilots struggle to amend instructions of the airline based on their own safety or liability objections, so atypical employment can have an influence on the independent decision making process and safety choices made by crews during or before flights.
Similar conclusions were reached by a 2016 London School of Economics study on safety culture, involving 7,000 European pilots. Its survey found that atypical employees are: less encouraged to voice safety concerns; feel more obliged to take uncomfortable risks; less confident on fair treatment of the safety reporter; less satisfied with the confidentiality of reporting and investigation; less involved in safety activities; feel more inclined to go to work when sick; more often tired at work; and less confident to file fatigue reports.
The safety culture that exists in any airline is moulded and sustained by a positive relationship between management and operational employees. It is obvious that a normal direct employer-employee relationship is the most conducive relationship to the existence of a good safety culture.
With respect to losses to the State, in addition to the impact on the pilots and possible safety implications, the fact that in the region of 2,000 Irish registered pilots are working as contractors means that the State loses out on the 10.85% employers’ PRSI on those pilots’ salaries. Based on data published by the Department of Finance and the Department of Employment Affairs and Social Protection in 2018, the use of intermediary-type structures and self-employment arrangements and implications for social insurance and tax revenues, IALPA conservatively estimates that this could cost the State around €15 to €16 million per year on an ongoing basis, a not insignificant sum.
In terms of more rigour from Revenue and social protection, the Revenue Commissioners are ordinarily extremely vigilant in policing the practice of a person acting as a contractor whereby they provide their entire services to a single client company-customer. In all such cases this is deemed to be an employer-employee direct relationship, and as such, there must be a PAYE employee relationship established and sustained.
It is IALPA’s view that the Irish Revenue Commissioners and the Department of Employment Affairs and Social Protection need to approach their investigations into the status of Irish airlines’ contractor pilots with the same focus and intensity as the authorities in Germany and the UK.
As I pointed out earlier, the convoluted manner in which "contractor" pilots' services are availed of by Irish airlines has been designed in such a way as to appear to be in line with the requirements of Irish law. IALPA questions that assumption. We need legislative change to ensure that this practice cannot continue. These changes should be based on a presumption that all workers are employees unless the opposite is proven; putting the burden of proof on the employer, not the employee; and ensuring that such arrangements are not imposed on any worker through duress or threat of contract refusal. The status of the contracting arrangements should be analysed independently of the individual worker. We need the members' assistance as legislators to put such legislation in place and we look forward to working with them on such an undertaking.