Is it time to rethink how you classify contractors

Explore the evolving landscape of contractor classification and the legal implications for employers in light of recent rulings.

In brief

• Recent court rulings challenge traditional distinctions between employees and contractors, increasing legal scrutiny.
• Misclassifying contractors can lead to significant tax liabilities and employment claims, affecting business operations.
• Employers must reassess contractor agreements and working practices to align with evolving guidelines and regulations.

Once upon a time, the distinction between employees and contractors felt relatively settled. Parties could feel confident that agreed contractual terms were capable of clearly defining the agreed terms of the relationship. However, recent developments, including the Supreme Court’s decision in Revenue Commissioners -v- Karshan (Midlands) Limited t/a Domino’s Pizza (“Karshan”) and new official guidance are challenging that sense of certainty.

Today, Irish employers are operating in an environment where working arrangements are scrutinised more closely than ever; where labels agreed upon between two parties may no longer be sufficient to protect a business from negative legal or tax consequences.

A shift in perspective

The Karshan ruling in 2023, although focused on taxation, signalled a willingness by the Courts to look past contractual arrangements and consider what is happening on the ground. That sentiment has since been amplified by new Revenue Guidelines issued in May 2024, which encourage organisations to critically assess whether their contractors are truly self-employed.

These Guidelines laid the groundwork for a broader Code of Practice, published later in 2024. The Code doesn’t just restate old principles, it introduces a clear process for assessing employment status across Revenue, the Department of Social Protection (DSP) and the Workplace Relations Commission (WRC).

Crucially, the DSP has indicated it won’t stop at the legal form of an arrangement. Even where services are delivered through Personal Service Companies (PSCs) or Managed Service Companies (MSCs), the DSP may “look through” those structures and reclassify individuals as employees if the reality supports that conclusion.

In practical terms, this means that if the DSP determines that a contractor has been misclassified, the employer can face retrospective liability for employee PRSI contributions—without any limitation on how far back the liability may stretch.

The quiet expansion into employment rights claims

While Karshan was about tax, its reasoning is now shaping employment litigation. A steady flow of claims has begun to emerge before the WRC, with contractors challenging their status and seeking the benefits of employee protections, such as unfair dismissal rights, holiday pay and minimum notice entitlements.

Recent cases have highlighted how these disputes can cut across different sectors, from construction to media. For example, in July 2025 the WRC has found that a long-standing photographer was not, in fact, a freelancer, another reminder that labels alone do not dictate employment status.

While employment status was considered by the WRC in some of the earlier cases (e.g. McBride v FSR Atlantic Limited and McGranaghan v MEP Music Limited), these cases were initially seen as unusual, fact-specific disputes. However, as the case law evolves, it appears that decision-makers are prepared to look deeper into the substance of contractor arrangements.

Complex issues: Lingard v Randridge International Ltd

A recent decision in Lingard v Randridge (“Randridge”) illustrates how these questions can unfold in practice.

Mr Lingard worked as a Construction Manager through a PSC, providing services to Randridge for four years. For most of that time, neither party questioned the arrangement. But when payments were withheld, he brought a claim for unpaid wages, triggering an analysis of whether he was, in fact, an employee.

The WRC considered a range of factors, including:

• The intent of the parties as set out in the written contractor agreement
• Regular allowances for travel and meals
• Requirements to clock in and out
• Limited possibility for substitution
• Restrictions on working for others and a two-year non-compete clause
• The application of company policies and expectations

Although Mr Lingard was paid via his PSC and handled his own tax filings, the Adjudicator found that the overall picture pointed toward employment. The finding? He was an employee, and the wages were due.

Why it matters

Misclassifying a contractor doesn’t just create tax exposure, it opens the door to employment claims that can carry significant financial and reputational consequences.

It’s also a mistake to assume that a contractor’s personal preference for self-employment will protect the arrangement. Regulators and tribunals are increasingly willing to challenge these structures, particularly in sectors where contracting is common, such as technology, construction and media.

Looking ahead, this scrutiny is only likely to continue, with the EU Platform Work Directive (which must be implemented by December 2026) introducing a presumption of employment for many gig and platform workers - yet another signal that old assumptions are no longer reliable.

What employers should take away

From recent cases, three themes are emerging:

• Substance over form. If what is documented in a contractor agreement does not match the real working situation on the ground, it will not withstand the scrutiny of the Courts, the WRC or other decision makers.
• Contractual controls can undermine self-employment. To stay on the right side of the contractor debate, organisations may need to choose between the flexibility of  contractor engagements vs the control that they will lose to set up these structures correctly. Restrictions around hours, exclusivity, supervision and outside work may weigh against contractor status.
• Review is critical. Given the changing landscape, longstanding arrangements warrant fresh scrutiny to reduce the risk of audits and claims.

Next steps

Navigating this shifting landscape requires care and up-to-date advice. If you engage contractors, particularly via PSCs or similar structures, consider taking the following proactive steps:

• Reassess the terms of all contractor agreements considering the 5-step test and the outcome in Randridge. Careful drafting will be key in properly documenting (and demonstrating) a true contractor relationship.
• Evaluate the day-to-day reality of how services are performed. Real-world arrangements have become equally as important as contractual terms.
• Be prepared to adjust contracts or working practices where risks are identified.