Refereeing the Rules of Employment

Sporting organisations are unique and complex entities that engage a wide range of individuals, including athletes, backroom staff, casual volunteers, referees, caddies, and many others. If a sporting organisation mistakenly considers any particular group to be self-employed contractors rather than employees, it could face significant financial liabilities, reputational damage, and legal risk.

A recent UK Supreme Court case dealing with the employment status of referees has brought this into focus. Our Sports Law team looks at what can be learned from developments in the UK and the law as it stands in Ireland.

What you need to know

The UK Supreme Court considered the employment status of part-time football referees to determine if they were employees or contractors for tax purposes. Crucially, the case highlighted the need for sporting organisations to analyse the status of their workers.

• Mutuality of obligation: The UK Court rejected the PGMOL’s argument that there was no mutuality of obligation because either party could terminate the arrangement up until before the match.
• Control: The UK Court found that ‘control’ was not confined to the ability to give instructions to an individual; it may take many forms.
• The Irish Test: The Irish Supreme Court has issued a recent ruling which reformulated the test for establishing the status of a worker for tax purposes. We now have a five-step framework.

Introduction

The UK Supreme Court[1] recently considered the employment status of part-time football referees to determine if they were employees or contractors for tax purposes.

Professional Game Match Officials Limited (PGMOL) had been treating the referees as contractors. PGMOL engaged referees to officiate at certain league football matches in the UK and FA Cup fixtures. The referees worked mostly part-time and typically had other full-time jobs in other fields. PGMOL offered matches through a software system. Referees had the option to accept or reject the offer of a match.

His Majesty’s Revenue and Customs (HMRC) took the view that the referees were employees and so PGMOL should be making the relevant tax deductions associated with this status. PGMOL challenged this determination. The First Tier Tax Tribunal found that PGMOL had both:

• ‘Over-arching’ contracts with the referees, existing between matches, and
• Individual, specific contracts which existed when the referee accepted a match

The Tribunal found that there was insufficient ‘mutuality of obligation’ and ‘control’ for either of the contracts to be contracts of employment. HMRC appealed this decision, and the case ultimately reached the UK Supreme Court.

What did the UK Supreme Court decide?

Mutuality of obligation

The UK Supreme Court accepted the HMRC’s longstanding view that mutuality of obligation always exists where payment is provided in return for work. This applies even if the even if the obligations only exist during the time when the individual is working for the engager. The Supreme Court found that mutuality of obligation existed between a referee and PGMOL from the time the referee accepted a match offer. This was the case despite the right that either party had to cancel the engagement without penalty at any time before the referee arrived at the ground. However, while mutuality of obligation shows that a contract exists, it does not necessarily indicate the nature of the contract. The nature and extent of the mutuality of obligation is relevant to determining whether a contract of employment exists.

Control

The UK Supreme Court found that ‘control’ was not confined to the ability to give instructions to an individual; it may take many forms. For example, PGMOL could not intervene in a referee’s judgment while officiating a match. However, PGMOL was found to be exercising control through other methods such as:

• The referees were subject to contractual conduct obligations, including a code of conduct and a post-match assessment process
• Sanctions could be imposed on a referee, such as not providing opportunities to officiate matches or reducing access to a performance payment

The Court sent the case back for review to the First Tier Tribunal, in particular the final limb of the test. This involves a global assessment of all other provisions of the contract and relationship to see whether it is consistent with a contract of employment.

The law in Ireland

Irish law has a different test for determining whether a worker is an employee or a contractor. However, the risks associated with miscategorising a worker are similar. Ireland also had a very recent Supreme Court case, Karshan[2]. The Karshan case considered the test to be applied when determining whether a worker is an employee or a contractor.

In Karshan, the Irish Revenue Commissioners determined that pizza delivery drivers engaged by Dominos as independent contractors were actually employees. As a result, Dominos were liable for PAYE and PRSI contributions for those drivers. Dominos appealed the decision, and the case was referred to the Supreme Court. The Supreme Court considered the matter and offered a five-stage test for assessing whether an employment contract exists:

1. Does the contract involve the exchange of wages or other remuneration for work?
2. If so, is the agreement one under which the worker is agreeing to provide their own services, and not those of a third party, to the employer?
3. If so, does the employer exercise sufficient control over the worker to render the agreement capable of being an employment agreement?
4. If these three requirements are met, are the terms of the contract consistent with a contract of employment, or are they more consistent with the worker being in business on his or her own account?
5. Is there anything in the particular legislative regime under consideration that requires the court to adjust or supplement any of the foregoing tests?

The Karshan decision relates solely to the tax treatment of individuals. However, it is also significant from an employment law perspective given the overlap in the tests used by Revenue and by bodies adjudicating on employment rights. For example, the WRC and civil courts apply similar tests when determining worker status. Where a contractor is misclassified, this gives rise to considerable risk. This includes potential tax /social welfare liabilities, and/or employment law claims.

Arising from the Karshan decision, the Irish Revenue Commissioners published a new tax and duty manual called ‘Revenue Guidelines for Determining Employment Status for Taxation Purposes’. The manual outlines Revenue’s view on the employment status of individuals. The Department of Social Protection, the Revenue Commissioners and the Workplace Relations Commission have jointly published a ‘Code of Practice on Determining Employment Status’ in response to the decision in Karshan. These publications should be of significant assistance to sporting organisations considering the proper status of their workers.

Comment

The status of workers is particularly important for sporting organisations who work with a variety of people including:

• Team members
• Managers
• Backroom team members
• Full time staff
• Casual volunteers
• Caddies, and
• Referees

The Irish Revenue Commissioners regularly reviews the books and records of sporting organisations and focus on issues such as payments made by organisations to service providers, sole traders, employees, coaches and volunteers to determine tax compliance.

It is important to consider the test set out in Karshan and how it applies to workers in your organisation. It is worth noting that Revenue anticipates an increase in the number of workers that will be determined as employees for tax purposes once the test is applied to their facts and circumstances. In particular, Revenue has noted that there has been a perception that where workers are engaged on a part-time or casual basis, including specifically for one-off shifts, they were not employees as there was no continuous employment obligation. However, these arrangements should be analysed using the test set out in Karshan.

For more information and expert advice on related matters, please reach out to a member of our Sports Law team.

People also ask

[1] Commissioners for His Majesty’s Revenue and Customs (HMRC) v Professional Game Match Officials Limited (PGMOL UKSC/2021/0220

[2] The Revenue Commissioners v Karshan (Midlands) Ltd t/a Domino’s Pizza [2023] IESC 24.