Bogus Self-Employment: Discussion (Resumed)

I wish to advise our guest that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.

Members with mobile phones should turn them off.

I invite Mr. McMahon to make his opening statement and then there will be questions from my colleagues.

Mr. Martin McMahon

My experience began in July 2000 when I wrote to the scope section of the Department and requested an insurability of employment decision. In my letter to the scope section, I explained why I believed I was an employee and not self-employed. Within a week of my letter to the scope section, a group of vested interests met. This group included representatives from the Department, the social welfare appeals office, IBEC, ICTU, the Department of Finance and Revenue. Before any scope section investigation had begun, this group, which subsequently became known as the Employment Status Group, decided that no matter what evidence I presented, the status quo was to remain. The status quo was a secret special tax agreement between the Department, Revenue and courier company employers which treated all couriers as PAYE employees yet labelled them as self-employed. I call this State-approved and assisted misclassification of employees as self-employed gigification.

Gigification permits selected employers to evade PRSI obligations and employee rights obligations. Gigification is always bogus self-employment but bogus self-employment is not always gigification. The difference is the approval and assistance of the State in creating bogus self-employed workers. Scope was deliberately sidelined. It can take up to six years and costs up to €1 million in legal fees for a worker to overturn a State-approved, default self-employment classification.

The Department grants illegal State aid in the form of a PRSI exemption to selected employers. It is a tax break which puts compliant employers at a distinct economic disadvantage and denies employees all their rights as employees. The misclassification of workers as self-employed by the Department of Employment Affairs and Social Protection has one purpose - to save selected employers circa 30% on labour costs as an enticement to create jobs. The mechanisms used by the Department and Revenue to knowingly circumvent applicable law are unlawful test cases. That a number of these unlawful test cases exist was confirmed in writing by the social welfare appeals office, SWAO, on 9 January 2019. A representative of that office confirmed that, on occasion over the years, an approach of having test cases has been taken or considered by the SWAO. Only one of these precedential test cases has ever been revealed by the Department of Employment Affairs and Social Protection.

That test cases are unlawful was acknowledged Minister for Employment Affairs and Social Protection on 25 March 2019 in an article in The Irish Times, which states: "The Minister is also looking at changing legislation to permit deciding officers to make determinations on the employment status of groups or classes of workers." This is a clear acknowledgement from the Minister that no legislation currently exists to justify determinations on the employment status of groups or classes of workers.

That test cases are unlawful is further confirmed in a letter dated 9 May 2019 from the Secretary General of the Department of Employment Affairs and Social Protection to the Public Accounts Committee which states: "There is no legislative provision which provides for Appeals Officers to make decisions on the employment status of groups or classes of workers who are engaged or operate on the same terms and conditions."

There are serious constitutional issues with making a decision affecting a group of people without proper procedures and safeguards. There must be specific legislation to permit deciding officers to make determinations on the employment status of groups or classes of workers, which there is not. This important legal tenet was confirmed in the High Court case of John Grace Fried Chicken Ltd & Others v. The Catering Joint Labour Committee & Others.

In September 2000, the Chairperson of the Public Accounts Committee wrote to the Secretary General of the then Department of Social, Community and Family Affairs and requested to know why all couriers were classified as self-employed by default by the Department. Until September 2000, the Department had never recorded, suggested nor admitted that precedential test cases existed. This letter from the Secretary General is the first recorded instance of the Department laying claim to a precedential test case. In this letter the Secretary General states:

A number of representative 'test cases' were selected in 1993/94 for detailed investigation and formal insurability decision under social welfare legislation. This process resulted in a decision by an Appeals Officer of the Social Welfare Appeals Office on 12 June 1995 who decided that a courier was self-employed. The Appeals Officer's decision established the criteria in relation to the employment status of couriers that has, since then, been generally accepted throughout the industry and also by the Office of the Revenue Commissioners for tax purposes.

The Secretary General listed these uniquely unlawful precedents as follows. The first criterion was that the courier provided his or her own vehicle and equipment. The second was that he or she was responsible for all expenses. The third was that payment was made on the basis of rate per job plus mileage allowance. The Secretary General also stated: "The Appeals Officer's decision established the criteria in relation to the employment status of couriers."

The scope section of the Department was present at this test case appeal on 12 June 1995. Indeed, it was the scope section decision that a single courier was an employee and not self-employed which was being appealed to the social welfare appeals office.

On 11 April 2019, the scope section wrote that it had no knowledge of precedential test cases, including the case the Secretary General claimed was a test case in his letter to the Public Accounts Committee in 2000. A scope deciding officer wrote:

Please note I am not aware of any secret test case nor are any of my colleagues in the Scope Section. This was news to me when Martin explained to me.

The scope section was the defendant in the 1995 appeal. In the 24 years since the test case described by Secretary General, the scope section still has not been informed that the social welfare appeals office overturning of the scope section decision was actually a test case and, as such, if it were legal, should form part of its deliberations. The test case does not form any part of deliberations of decisions by the scope section then or now.

Workers appearing before the social welfare appeals office are not informed by the Department or the appeals office that the appeals office applies precedents which are not known to the scope section, the courts, the legal profession or any other legal or quasi-legal body of the State. The use of secret precedential test cases by the social welfare appeals office leads to a situation where the social welfare appeals office makes appeal decisions on the same workers twice, once in their absence without the worker's knowledge or participation, and again should the worker seek to have their self-employed by default misclassification overturned.

In 2000, the Chairman of the Public Accounts Committee wrote to the Chairman of the Revenue Commissioners and asked why all couriers were being treated as self-employed by the Revenue Commissioners. In August 2000, the Chairman of the Revenue Commissioners replied:

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 7 March 1997 and 3 April 1997 to (Accountants) which represented Courier Companies at the discussions. The letters outline the agreement reached for tax purposes.

This agreement treated couriers as employees under the PAYE system, with tax and PRSI deducted at source by their employer. Couriers received payslips with the deductions and employer clearly identified. The only difference between couriers and most other employees is that the PRSI class allowed to be deducted by the Department of Employment Affairs and Social Protection was class S, which is generally a self-employed class. The courier companies were exempted from paying employers PRSI and also exempted from their statutory obligation to make a return on all courier paid in excess of IR£3,000.

All past non-compliance was forgotten about. The Revenue Commissioners did not agree with the courier companies, nor with the subsequent letter from the Secretary General, that the 1995 appeal hearing was a test case and went to very great lengths to explain why.

They stated:
The decision is not binding on Revenue. This arrangement does not override the statutory rights of couriers in this particular area for the future. This arrangement should not be taken as a precedent in any other area of law, where the status of couriers may be a factor. The matter, if relevant in the future, should be taken on its own merits. (Chief Inspector of Taxes, 7th March 1997).
That this secret tax agreement between Revenue, the then-Department of Social Welfare and courier companies was unique, unprecedented and also unavailable to all other employers in all other industries was confirmed in writing by the Chief Inspector of Taxes in April 1997 when he wrote:
Because of the special circumstances surrounding the couriers status for tax and social welfare purposes, the agreement governing couriers should not be taken as a precedent for other cases you may have with the Revenue Commissioners.
A secret tax agreement which is not available to other companies, industries or employers and which exempts selected companies and industries from statutory obligations, including PRSI obligations, fits the criteria for illegal state aid. This is particularly the case in construction where construction companies which enjoy the cover of this precedent of default self-employment worker classification have a competitive advantage companies which are forced to comply with their statutory obligations by the Revenue Commissioners and the Department of Employment Affairs and Social Protection.
While the Revenue Commissioners dismissed the courier companies' claim that the 1995 appeal hearing was a test case, they agreed to implement a default self-employed classification on couriers following years of lobbying from courier company representatives to treat all couriers as self-employed. The Revenue Commissioners are clear and precise as to why they implemented this default self-employment classification of all couriers. Their position is as follows:
While the decision (1995 SWAO Hearing) is not binding on Revenue, I propose, as previously stated, in the interest of uniformity and with a view to bringing the matter to a conclusion, to treat couriers as self-employed. (Chief Inspector of Taxes, April 1997).
The Revenue Commissioners agreed to absolve courier companies of their non-compliance with statutory obligations and to implement a unique tax-evading special agreement with courier companies. This was all done, in Revenue's own words, "in the interest of uniformity".
Revenue does not accept the 1995 appeal hearing was a test case. The SWAO has no legislative authority to establish precedents. The appeals office exists only to apply precedents handed down by the courts and not to establish uniquely unlawful precedents that do not exist in any rulings handed down by the courts. It was this decision on a single person in the SWAO in 1995, which resulted in all couriers and delivery persons at that time being labelled, retrospectively and forever more, as self-employed. The appeals office hearing of 12 June 1995, which is described as a case having been "selected" as a "representative test case" by the Secretary General in his letter of 2000 to the Committee of Public Accounts, was not a representative test case. The factual position is that no courier was present or represented at the appeal hearing on 12 June 1995. These facts were reported on in Business and Finance in 2000 and continue to be ignored by the Department of Employment Affairs and Social Protection.
The fact that all appeal hearings are carried out in secret with no possibility of transparency allows the process to be corrupted unchecked. The Department, in accepting the unlawful precedential test cases created by the SWAO and in using those precedential test cases to classify thousands of workers as self-employed by default, is the biggest creator of bogus self-employed workers in the State. In reality, the Department and the SWAO go far beyond unlawful test cases to maintain the unlawful status quo. I have summonsed a social welfare inspector to court where he admitted on the stand that he had falsified a report which was exclusively relied upon by social welfare appeals office to overturn a scope section decision that I was an employee and not self-employed.
By its own admission, the Department does not measure rates of bogus self-employment. Only two accurate, widescale investigations have been carried out into bogus self-employment in Ireland. Both put the rate of bogus self-employment in the construction sector at approximately 20% between 1999 and 2001. Following the inaugural meeting of the employment status group in 2000 and the issuing of a so called "code of practice", large-scale investigations into bogus self-employment ceased. In 2002, I wrote to the Comptroller and Auditor General and asked why the State was allowing courier companies to evade their tax and PRSI obligations. The Comptroller and Auditor General replied: "The arrangement employed is administratively efficient in collecting tax from a sector which traditionally has been recalcitrant when it comes to paying tax." Workers do not get a choice to be recalcitrant when it comes to paying tax. They do not get to negotiate their non-compliance. The bogus self-employed worker pays exactly the same percentage of PRSI as an employee. It was, and is, the employer who is evading the lion's share of PRSI. Employers are evading vast amounts of PRSI through bogus self-employment. The Comptroller and Auditor General accepted that special tax agreements were not ideal, stating: "All concerned recognise that it is far from being an ideal system and there is room for improvement."
In the 17 years since I wrote to the Comptroller and Auditor General, no improvement ever came. What he described as "far from being an ideal system" has become the norm. I thank the committee.

I thank Mr. McMahon for his opening statement. I call Deputy Brady.

I thank Mr. McMahon for attending to present this. It is mind-blowing. His statement was powerful and is a credit to him and the work he has done on this for the past 19 years. It was very well presented. He has demonstrated clearly in his opening statement how the State colluded unlawfully with certain businesses and sectors to help them evade massive amounts of PRSI and tax going right back to 1993.

Mr. Martin McMahon

Even further back.

They are on the record as saying a number of these test cases took place in 1993 and 1994 but Mr. McMahon says it goes back even further. He might elaborate on that in reply.

The evidence given to the committee previously by organisations such as ICTU, which Mr. McMahon mentioned was party to some of the discussions at the time, is that in the construction sector alone, there has been an annual loss of €240 million in tax and PRSI. Mr. McMahon hones in mainly on couriers. How extensive is it across all the sectors? There is conflicting evidence. Mr. McMahon mentioned it was approximately 20% in the construction sector and it has been stated in evidence here previously that the estimated rate of bogus self-employment in the sector is approximately 30% and approximately 15% in the wider economy. How extensive an issue is this?

With regard to the test cases, the Secretary General said a number of representative test cases were selected in 1993 and 1994. What are the details on those cases? What sectors did they relate to? Did they relate just to couriers or to other areas as well? It is alarming that the Minister in her article in The Irish Times on 25 March 2019 stated that the Department has been operating unlawfully for many years. She said she was looking at amending legislation to permit deciding officers to make determinations on the employment status of groups or classes of workers. That is an acknowledgement that they have been operating unlawfully. Mr. McMahon might elaborate on that as I am not fully familiar with that article in The Irish Times.

He has shown that what the State has done is unlawful, including acting with certain business interests to put others at a disadvantage, leading to the loss to the State of massive amounts in tax and PRSI.

How do we go about solving this? The Minister has come forward with guidelines and with different things. Legislation has been brought forward and my party and other parties have done that. Does Mr. McMahon think legislation is needed, or what is needed?

I have one final question. Mr. McMahon talked about construction workers and about default self-employment. He said that this is particularly the case in construction where construction companies which enjoy the cover of this precedent of default self-employment worker classification. Could Mr. McMahon elaborate on that as well?

I thank Deputy Brady. Mr. McMahon, would you like to respond to some of those comments?

Mr. Martin McMahon

Yes. I will start with the legislation. Members like to put legislation in place, but there is no point in oodles of legislation when the roadblock is the Social Welfare Appeals Office and the Department of Employment Affairs and Social Protection. One is simply piling more legislation onto an already broken system, and it does not make any difference because the Social Welfare Appeals Office does not use precedents. It makes up its own precedents and the Department of Employment Affairs and Social Protection accepts those precedents. No matter what the Oireachtas does, it simply cannot impact on that.

How widespread is it? I am talking about what is known as schedule D workers, which includes couriers, construction companies and delivery companies. They are not called schedule D workers because they are highly paid workers. They are called schedule D workers because they are less than employed.

The scale of the problem is massive. Deputy Paul Murphy spoke to the chairperson of the Revenue Commissioners at a finance committee earlier this year, and the chairperson of the finance committee said that there are public services companies, PSCs, being used in all sectors, and it is particularly bad in the IT sector. Anecdotally more than 50% of people working in the IT sector are on personal service contracts or else they are working for payroll companies. They are all avoidance schemes. It can all be dismissed as a tax evasion smokescreen. Revenue is quite happy to let this persist. It wants to choose who is or is not self-employed, not based upon legalities, but based upon the employment situation in one's country. If one wants more builders working in construction, simply remove the requirements to pay PRSI or treat them as employees, and one will get work started again. It is all precarious and it is all unlawful.

What can be done about it exists within the legislation. Social welfare legislation says that if a case is too complicated or if the issue is too complicated, then it should be referred to the Circuit Court. The Social Welfare Appeals Office has shown itself to be incompetent as has the Department of Employment Affairs and Social Protection. Therefore, the only route left available is to refer all these cases to the Circuit Court and to let it decide and not civil servants appointed by the Minister, who are responsible to the Minister and who can be hired and fired by the Minister, depending on what decisions they make. That is not right.

One ends up with a situation where workers, such as couriers and construction workers, are default self-employed. The employer designates employment status. We are the only country in the European Union that allows that. It is impossible for the worker to overturn a default self-employment classification, because one of the precedents that is accepted by the Social Welfare Appeals Office is that companies do not have to give reasons for appeal to have an appeal heard. The Scope Section makes a decision, which is a legally binding one. The company then appeals to the Social Welfare Appeals Office. The Social Welfare Appeals Office does not look for reasons for appeal; it simply grants a hearing. Since these hearings are de novo, as if the first time, it is a new trial, where everything that happened in Scope is out the door. Therefore, Scope is a complete dead end and it is designed to fail. I hope that answers Deputy Brady's question.

I thank Mr. McMahon. We have several other questions. I call Deputy Collins.

I thank Mr. McMahon very much. One of the reasons we were very keen to ask Mr. McMahon to come into the committee was because of his experience over the last 20 years to 25 years. It is a damning indictment of one State organisation turning the blind eye when it was needed. The key time was in 2000, when Mr. McMahon was taking his case and when that group, which included representatives of the Department of Employment Affairs and Social Protection, the Social Welfare Appeals Office, IBEC, ICTU, the Department of Finance and Revenue, got together to try to block his case. It was discussing Mr. McMahon's case at the time.

Mr. Martin McMahon

Absolutely. It discussed the case while it was sub judice.

Yes, and that is where this collusion started. It probably was not a deliberate collusion. It was probably just-----

Mr. Martin McMahon

I was told by the deciding officer in the Scope Section that within days of my letter to it, the company involved had sought an off-the-record meeting with it and it had been refused. Then within a week, it was represented through the employer organisation in this meeting. It got its secret meeting one way or another.

That is a good clarification and I thank Mr. McMahon.

I want to ask Mr. McMahon about the relationship between the Social Welfare Appeals Office and the Department. We have raised this before in our deliberations around the bogus self-employed. Scope makes a decision and then an employer or a worker can appeal-----

Mr. Martin McMahon

It is more likely to be an employer.

-----to the Social Welfare Appeals Office. The Social Welfare Appeals Office is not employed by the Department, is it?

Mr. Martin McMahon

Yes, it is directly employed by the Department. The Social Welfare Appeals Office serves at the pleasure of the Minister, and staff can return to the Department after service in the Social Welfare Appeals Office.

That is a good clarification. We need to look at that. There is a failure there. As Mr. McMahon said, once the appeal comes through from the employer, then everything that Scope decided on and all the information it got is just dead in the water.

Mr. Martin McMahon

Yes, all the evidence Scope gathers and the evidence-gathering investigation it does. It does quite comprehensive investigations. Scope on its own is a very good office. It does exactly what it says on the tin, and it works really well. The problem is that it is left out of the loop, as I outlined in the presentation. It is sidelined because once an employer or an employee appeal a decision to the Social Welfare Appeals Office, that office decides, as it did in the test cases, that it does not need to hear why he or she is appealing the Scope decision. All he or she needs to say is that he or she intends to appeal the decision. The Scope decision, which is a legally binding one, is then thrown out the door, along with all the investigation that has gone on. It ends up being the worker and the company, plus their legal representation, and the Scope Section and the Social Welfare Appeals Office.

The Scope deciding officer may have the same status as the deciding officer who is listening to the case, none of whom has legal experience. I have asked this question. Social welfare appeals officers are not required to have legal experience, and yet they are making decisions on complicated, large money issues, where a company has negated its entire PRSI responsibility, in a hearing that is held in private, and nobody is allowed to know what goes on. The only reason I know what went on is because I have spent years investigating it. I spoke to people who were actually the test cases back in 1993-1994 and I know for a fact that there was no working courier at that meeting in the Social Welfare Appeals Office. How a test case happened at all is a mystery.

I thank Mr. McMahon. The other question I wanted to ask was about the classification and an employer classifying an employee.

Mr. Martin McMahon

Yes.

Is that an area where it can be-----

Mr. Martin McMahon

Absolutely. The only precedent for allowing construction workers under the eRCT system to be default classified as self-employed comes from the courier decision in 1995. These are the precedents it is using. There has been no separate case of construction workers where it came up with test cases.

I know because I represented a dozen construction workers at the social welfare appeals office, SWAO, in 2017. The office wanted to use the cases as test cases but we vehemently refused to allow it to do so. The workers were all found to be employees and that has not been overturned, although the position on who employed them has changed, which we can discuss if the committee wishes. It turns out the ERCT system is misclassifying people. The SWAO agreed that at least seven cases concern employees.

The ERCT system does not work. It misclassifies people, as we can show with evidence.

This is an extraordinary state of affairs. Like Deputy Joan Collins, I was anxious to extend an invitation to Mr. McMahon, given his unrivalled and exceptional experience of dealing with such issues on the ground. Far too often, we do not hear from people such as him who have direct experience. The committee, not least in its work in recent years, has shown a willingness and interest in hearing from those on the front line who can share with us their lived experience, which is important. Not only does Mr. McMahon have a lived experience but his experience is unrivalled in respect of the legal position of dealing with the bureaucracy that can circle the wagons when it is attacked, and that can often puts its own interest and that of the institution ahead of that of those it is supposed to support.

What Mr. McMahon has highlighted goes against the principles of natural justice.

Mr. Martin McMahon

Yes.

It is an important point. I am glad he made reference to the John Grace Fried Chicken Limited case. Committee members will be aware that the case led to the destruction of the then joint labour committee and employment regulation order system, and that the architecture has since been reformed.

A clear point that emerged from the case informed the new legislation that governs the joint labour committee system and the new sectoral employment regulation order system. It was clear there was only one law-making body in the Republic, namely, the Oireachtas.

Mr. Martin McMahon

That is exactly correct.

Not the Social Welfare Appeals Office.

Mr. Martin McMahon

No.

Not the Labour Court, not the Workplace Relations Commission, not the Revenue Commissioners, but the Oireachtas, the Parliament.

Mr. Martin McMahon

That is correct.

What Mr. McMahon has outlined is dangerous.

Mr. Martin McMahon

Very dangerous.

An arm of the State has decided not just to identify a precedential case to inform its decisions but to be selective in doing so.

Mr. Martin McMahon

Highly selective.

The next step I am interested in taking is to hear from the chief appeals officer. I believe we have not done so in the context of our investigations of the practice of bogus self-employment. The chief appeals officer in the Department should be afforded the right, in the interests of natural justice, to respond to what Mr. McMahon stated. The State is currently dealing with an important principle in respect of alleged state aid for one company. The case, known as the Apple case, is sub judice and is being investigated. There are many similarities between the case before us and the Apple case-----

Mr. Martin McMahon

Huge similarities, except that the Apple case involves more money.

Yes, but there are more people involved in the case before us.

Mr. Martin McMahon

Many more.

It is wholesale misclassification of the employment status of workers. It affects not just the rights and entitlements of workers but, as Mr. McMahon noted, also compliant businesses that go about their business properly. It queers the pitch for decent employers, facilitates bad operators and goes against the interests of the decent economic model we all support.

The one aspect about which I quibble with Mr. McMahon is the notion that legislative change cannot produce results or change the environment of bogus self-employment. As he will be aware, I sponsored a Bill that passed Committee Stage last March. The Minister's article in The Irish Times that month was intended to take the momentum out of the legislation I had developed and, conveniently, it was published the same week as the debate on the Bill. An announcement was made that the Minister would do the divil and all but we still await draft proposals from the Department. Fundamentally, what needs to happen is not a tinkering around the edges or a change to a code of practice that has been fatally undermined and is entirely useless-----

Mr. Martin McMahon

Yes, it is.

We need clear definitions in primary law in order that employers cannot simply opt out of the legislative framework and decide, with the facilitation of an arm of the State, to misclassify the status of their workers. It should be a matter of law, plain and simple. It should be the case that someone either is an employee or is self-employed, as a matter of primary law. If that was the case, not only would the SWAO, or the scope section in the first instance, have to have regard for it, it would have to abide by it as a matter of law. Such cases, however, could be challenged in the courts, although I cannot identify any examples of a case being taken to the superior courts to be challenged.

Mr. Martin McMahon

The Senator might be aware of the Denny case.

Yes, of course.

Mr. Martin McMahon

I imagine that everybody at the meeting will be aware of the case. It was a local agreement between employers and the Revenue Commissioners - exactly the same as that with couriers - to designate all demonstrators as self-employed. The Revenue Commissioners did not want the case to go ahead. When it was first in the scope section of the SWAO, they refused and wrote that they would not proceed with the case.

It was quite a number of years ago.

Mr. Martin McMahon

Yes. They refused. The process of test cases, which culminated in 1995 and then continued to 1998 when a special tax arrangement was agreed, coincided with the Denny case going through the higher courts. The Revenue Commissioners indicated they did not care what was going on in the courts and that they would set their own precedents, in order that irrespective of what happened in the courts, they could continue to do what they had always done, namely, decide who is employed or self-employed, based on a political rather than legal imperative.

Every Oireachtas Member and citizen needs to be aware there is one law-making body in the Republic under the Constitution.

Mr. Martin McMahon

Yes, very much so.

Oireachtas Éireann.

Mr. Martin McMahon

In March this year, the Secretary General of the Department wrote to the Committee of Public Accounts and informed it of his intentions. He stated that his explanation for taking the action was there was no legislation to preclude him from doing so. Since when did our civil servants go off the reservation and do exactly what they want to do because there is no legislation preventing them from doing it?

It exploits a lacuna in the law. My view, of which Mr. McMahon will be aware, is that fundamental legislative change is needed to make employment status a clear issue of primary law. There has been too much exploitation. The State has failed individuals, workers and decent, compliant businesses. We hope to get to the point where there is legislative change but I will not hold my breath because too many powerful vested interests are involved.

Mr. Martin McMahon

Legislation currently exists, however, that can be used. The chief appeals officer has the power to set aside any decision she believes is unsound or unsafe. That needs to happen to the test cases, and to the cases that went through the scope section and were overturned at the SWAO. They all need to be set aside and the chief appeals officer needs to turn off the lights and close the SWAO. It simply cannot be allowed to continue.

I thank Senator Nash.

Before I call the next member, Mr. McMahon might clarify a minor point in relation to couriers back in the 1990s.

Mr. Martin McMahon

Yes.

Mr. McMahon said the agreement treated couriers as employees under the PAYE system, with tax and PRSI being deducted at source by their employer. They were getting payslips. Mr. McMahon went on to say they were being classed as class S.

Mr. Martin McMahon

Yes.

Does that practice continue in any sector today that Mr. McMahon is aware of?

Mr. Martin McMahon

Until January this year, that continued in the courier industry. An independent tax commission carried out an employment status investigation on a particular courier late last year. It made a decision that he was not self-employed; he was actually an employee. Since January of this year, Revenue has dropped that, but it is still insisting that all couriers are self-employed based upon that 1995 test case, even though i now has a unique, new case which shows all couriers are not self-employed. It has that from fewer than 12 months ago. It dropped it because it was operated with extra tax allowances for couriers, and that entire scheme where employees get extra allowances will be gone. Revenue has already announced that scheme is going.

The first employee scheme to go was the couriers, because it was the one that was glaringly obvious should not have been there in the first place. It has gotten rid of it since January, and couriers are still classified as self-employed. Now they have to make returns, either as sole traders or in whatever other way they are doing it. I suspect the electronic relevant contracts tax, eRCT, is where they will migrate to. It seems to be a catchment for all schedule D workers. The eRCT is just getting larger and larger.

I thank Mr. McMahon and call Senator Higgins.

I thank Mr. McMahon for his testimony. As others have said, it is very strong and very meticulous, and it really goes through the narrative that is being put forward by both the Department and Revenue. The contradictions, as they emerge, are very clear. I was struck by a few things. Mr. McMahon mentioned the Scope Section, and of course we heard from it earlier in our discussions on bogus self-employment. It spoke about its frustration with people not coming forward, but it is very clear that one of the concerns with people coming forward is that they will not achieve satisfaction. I was struck by the considerations that the Scope Section told us that it was applying in its decision - a transparent decision that it would be making around who would be employed or self-employed. Among those were the issues of control, contract and methods of a new economic reality. It is striking how deeply the agreement between courier companies, reached for tax purposes, contradicts that-----

Mr. Martin McMahon

Yes.

-----in a very clear way in terms of the basic steps. It is interesting, and I mention Revenue in relation to some of the other issues and related issues we have been looking at around managed service companies, MSCs, and personal service companies, PSCs, and the intermediary actor space. In engaging with us on that, Revenue has been really clear to emphasise that in relation to the joint code of practice for determining status of individuals, it has sought to distance itself to an extent from that and said that this is really about the Department of Employment Affairs and Social Protection's guidelines on differentiating between a contract of or a contract for services. It has very much placed that in the Department of Employment Affairs and Social Protection. Even though it is seeking to place that decision within the Department of Employment Affairs and Social Protection, it is making what seems to be a wholesale decision in the application of class S PRSI. Does that look like a decision that is being made by Revenue in respect of how any new person working in the courier industry is to be treated?

Mr. Martin McMahon

I will go back a little on this. Back in the 1970s, PAYE workers went on strike because they felt they were shouldering so much of the burden of the expense of the State, and they were right. After that, Revenue implemented a system where any company that paid a person over £3,000 had to declare that. Therefore, Revenue knew that that person was working. Whether he or she was employed or self-employed, it did not matter; he or she was getting money. The black economy was being taken under control. If people were employees, they did not have to make the declaration. If they were not employees, every company needed to declare. This is the way it worked.

The courier industry emerged in the 1980s, and it grew very large very fast. All the couriers were being paid on the lump, which means no tax, no PRSI and cash in hand and some of them - and I will say this - also claimed social welfare. That went on, and so Revenue and social welfare became interested. They only focused on the worker. It was a question of how to get the worker into the tax system and not a question of how to get the employer into the tax system.

The employers went from taking a position, which was wholly illegal and which was not in compliance with their statutory obligations, and they convinced Revenue that it was a grey area and that it was more unlawful than illegal. Revenue then acted to turn what was illegal and unlawful into legal. That is what has happened. We have a practice that was wholly illegal that is now quite accepted as legal.

I am struck by the Denny case. As Mr. McMahon mentioned, there is a lot of discomfort-----

Mr. Martin McMahon

With Revenue.

-----with Revenue around the Denny case being taken forward because of the idea that one would be making a wholesale decision about employees of a particular company, but of course it is now making wholesale decisions effectively about a particular sector.

Mr. Martin McMahon

Not only that but the Minister for Employment Affairs and Social Protection wants to extend that across the board for everybody.

I see that. It really raises questions around cartel or state aid practices as well-----

Mr. Martin McMahon

Absolutely.

-----as some of the natural justice issues that have been mentioned. I refer to that whole question of sector, especially given the battle we know self-employed workers had for collective bargaining or sectoral level agreement, which is a different thing.

I just want to ask two or three really specific questions because it will be useful to us. Mr. McMahon mentioned the question of the Circuit Court, and bringing a case to the court. The appeals process at the moment, and the relative opaque quality of that process, interferes with a worker's capacity to seek justice through the courts. For example, if goes through the Scope process, there is then an appeals process. Clearly, Mr. McMahon sought to bring something to the court. In whatever way is appropriate, does-----

Mr. Martin McMahon

I will explain in a very appropriate way. I had a Scope Section decision that ruled that I was an employee, which was literally two years after this special tax agreement. That Scope Section decision was appealed by the employer to the Social Welfare Appeals Office. During the hearing in the Social Welfare Appeals Office, a social welfare inspector read out a report which attributed evidence to a manger within the company. I lost. The case was overturned, despite the Minister's senior council and the Chief State Solicitor's Office saying that the appeals office was bound to hold that I was an employee. That is what it was told by the Chief State Solicitor's Office. It overturned the decision. In the meantime, I had a case for constructive dismissal in the Employment Appeals Tribunal. The Employment Appeals Tribunal heard the case for constructive dismissal, and at the same time made a decision on whether I was an employee or self-employed. It judged that I had always been an employee and that I had been constructively dismissed for looking for a Scope Section. The employer appealed that to the Circuit Court, and this is very important as it is a jurisdictional point. A decision of the Social Welfare Appeals Office can only be appealed to the High Court.

Okay. This is the key.

Mr. Martin McMahon

The Employment Appeals Tribunal only gets to be appealed to the Circuit Court. The Social Welfare Appeals Office is the highest jurisdiction within the State body, within what civil servants can do. The Employment Appeals Tribunal decision was appealed to the courts, basically to say the Social Welfare Appeals Office has supremacy in this area. I knew I was on a hiding to nothing, but I still went through the process just simply to prove that I was an employee. When I got into the Circuit Court, and into the Employment Appeals Tribunal, the company objected vehemently through its barrister to the use of that social welfare inspector's report, because it said - the man was present in court so I have no reason to doubt this - that the man the social welfare inspector said he spoke said he never spoke to him. It denied it vehemently in court and in the Employment Appeals Tribunal.

Here we have a piece of evidence, and it is extensive, lengthy and detailed, which attributes evidence to a person who was never interviewed. He was never met and never spoken to. That decision stands to this day, even though I have written to the Social Welfare Appeals Office several times to say that it must set this decision aside, that that evidence cannot be used in the Employment Appeals Tribunal or in the Circuit Court and that it has no right to use it.

There is a really specific point here in terms of where Scope cases go next. In fact, if the provision was made that Scope cases could be appealed to the Circuit Court, it would actually be a lower jurisdiction than currently where it is a requirement to go to the High Court. It effectively could be a streamlining rather than adding a higher layer. We are, in fact, making a lower and more accessible layer of-----

Mr. Martin McMahon

We are making it far more accessible for workers.

For workers. That is-----

Mr. Martin McMahon

The High Court is simply not accessible. I looked at the expenses. I have taken 17 cases through the Social Welfare Appeals Office, and in all of them we have looked at the expense of going to the High Court but it is just preventative. We simply cannot do it.

I would like to ask a couple of specific questions, one of which is a wider question. In 2002 we were told by the Comptroller and Auditor General that these arrangements were not ideal. Of course, the Comptroller and Auditor General's only job is effectively in respect of revenue. It is not the mechanism for vindication of rights. The scaling of this work in terms of the gig economy now is one thing I would like to ask Mr. McMahon about as well as the extent to which these practices become further embedded. I have a really specific technical question but I need to find my note.

In terms of the scale since, how does Mr. McMahon believe this has become embedded or has set precedent?

Mr. Martin McMahon

The 1995 test case was enshrined in 2000, with the meeting of the employment status group. After that meeting of the employment status group, and all through the Celtic tiger years, this went insane. It went off the charts altogether. We know, for instance, that the vast majority of people on the eRCT contract - that is, in construction, forestry and meat processing - are all self-employed but in reality very few of them are. We know that almost 100% within the courier industry, which includes fast food deliveries, are self-employed. The CEO of "bicycle limited" is an absolute nonsense. These people are not in business of their own account. They cannot profit by anything they do, except by cycling faster.

They are under direct control.

Mr. Martin McMahon

They are under direct control and can face direct dismissal. Control, direction and dismissal are not really the key points. The key point is whether one is in business one's own account.

Was it the case up to January of this year that if one registered as a courier, one would automatically be assumed to be on class S? That has obviously changed since this year. Mr. McMahon mentioned that we need legislation to ensure that inappropriate test cases are not expanded to deny individual rights, but when the Department officials spoke to us they admitted there is a gap in terms of investigations. Should cases going to the Scope Section - when we have one or two cases in relation to a sector - be triggering a wider sectoral investigation?

I thank Senator Higgins and call Mr. McMahon.

Mr. Martin McMahon

Back in 1999, the catalyst for the investigation into the construction sector happened exactly that way. The Denny case had gone through the courts and there had been a few cases that had been highlighted. That is exactly what happened, but it was not the Department of Employment Affairs and Social Protection which went after them, nor was it Revenue. They were quite happy. It was the Committee of Public Accounts which ordered Revenue in. The next year the Comptroller and Auditor General ordered another round of these investigations. One cannot rely on Revenue and the Department of Employment Affairs and Social Protection to instigate anything; they are not going to do so. They are very happy with the situation as it is. It took the Committee of Public Accounts and the Comptroller and Auditor General to precipitate the last round of investigations. This is a problem that comes up like clockwork every 20 years. It was hived off 20 years ago in 2000. They got rid of this problem with the employment status group and the code of practice.

The Comptroller and Auditor General has a different purpose. The rights of individuals is not its focus. We have discussed automated triggering of investigations if we hit a certain number of cases rather than individuals having to go the long distance, as Mr. McMahon has. When we see a number of cases coming from a certain sector, should it trigger an automated investigation into that sector?

Mr. Martin McMahon

Absolutely. I can say from the cases I have been involved in is that every single one of them lost his or her job, and that is another problem. The vast majority of them were blacklisted from their industry. There is a blacklist in construction and in the courier industry. Anybody who pokes his or her head above the parapet is shot down and is finished for good. On the issue of whether cases will come forward, I know in the construction sector that it is very hard to get people to come forward because they know the consequences. It should be proactive.

This is social welfare fraud. There is a control section within the Department of Employment Affairs and Social Protection that spends an awful lot of money telling us that if it did not exist, social welfare fraud would go through the roof. This is social welfare fraud, except that it is costing far more than claimant fraud. Why not put some of those resources that are in the control section into investigating this? One cannot use the code of practice. One must use the proper guidelines, which are handed down by the courts. What is handed down by the employment status group, ESG, is hearsay. It is opinion and is an interpretation of an interpretation.

The basis of investigations should be what is set by the court.

Mr. Martin McMahon

I refer to the precedents and the courts have set tests. Scope used these tests, and it is the only one using these tests. Everybody else is looking at this nonsense code of practice, which is a tick-box exercise on how to get away with it.

There should be a scaling up of the Scope tests as part of a wider investigation.

Mr. Martin McMahon

Absolutely.

Thank you colleagues for your questions. Before I conclude, I would like to remind colleague that we will go into private session for a few moments. Mr. McMahon, have you any concluding remarks?

I would like to come in before Mr. McMahon concludes. We have had extensive hearings on bogus self-employment, but I would like to hear from the chief officer in the Social Welfare Appeals Office.

I will give Senator Nash an opportunity to discuss the work schedule in the private session. We will deal with that.

Mr. Martin McMahon

I have only skimmed the surface of what is going on. I have not gotten into any real detail with the committee. There is so much more to this, and there is so much more that I could tell this committee, the Department of Employment Affairs and Social Protection or the Revenue Commissioners. I believe I should be speaking to An Garda Síochána. That is who I believe I should be speaking to, but until the Department of Employment Affairs and Social Protection tells An Garda Síochána that I have something to tell it about something that has gone wrong in that Department, it will not listen to me. It has told me this because I have tried.

There is a lot of work to do on this, as Deputy Brady pointed out. With more than €250 million in the construction sector, a very conservative estimate of what this is costing the State is €1 billion per year and it has been going on since before 1995. That is well over €20 billion.

I thank Mr. McMahon for his attendance today, his presentation and, of course, responding to the questions. We are going to suspend for a moment and will resume in private session.

Sitting suspended at 12.09 p.m. and resumed in private session at 12.10 p.m.
The joint committee adjourned at 12.27 p.m. until 10.30 a.m. on Thursday, 7 November 2019.