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, thestatus quo was to remain. The status quowas 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 inThe 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 Financein 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.