The High Court in this case was asked to determine whether or not a proprietary director was liable to PRSI as a Class A or a Class S contributor. The issues of employed versus self employed for income tax purposes were also examined.

The case of Neenan Travel Ltd versus the Minister for Social and Family Affairs was brought before the High Court in December last, and the judgement became widely available last month.

Background

This case concerns the PRSI status of a “shareholding executive director”, Mr Leech, who had commenced his relationship with the company as an employee and acquired a minority shareholding a few years subsequent. Mr Leech left the company under an “early retirement/severance offer” and as part of that agreement he received an ex-gratia payment of which one sixth was described as being the “statutory payment”. His employer Neenan Travel Ltd made a claim under the Redundancy Payments Act 1967 to 2003 in respect of the statutory element. The Department of Enterprise Trade and Employment queried with the Department of Social Welfare whether Mr Leech was “compulsorily insurable for all benefits under the Social Welfare Acts” and this led to the Appeals Officer determining that Mr Leech was in fact insurable at Class A on the basis that he was employed under a contract of service (an employee) rather than on a contract for service (self-employed).

Neenan Travel Ltd appealed the Appeals Officer decision on the grounds that Mr Leech was insurable under Class S and engaged under a contract for services. Accordingly, the company claimed a refund of employer contributions that it alleges it paid incorrectly. However, at the same time the company had claimed a refund of the statutory element of the payment under the Redundancy Payments Acts.

Decision

The core issue in this case was whether the Appeals Officer was correct in law and on the facts in finding that Mr Leech was employed under a contract of service. In dealing with this issue of employed versus self-employed, the judge made a clear and readable summary of the existing jurisprudence, culminating in the Henry Denny case. The judge found that there “clearly was a genuine contract” between the appellant and Mr Leech and without examining the further facts of the case or other grounds put forward for appeal, this was sufficient to find that the Appeals Officer was correct in law.

Considering guidance documents available from the Department of Social Welfare and the Employment Status Group, the judge was quite categoric that “the task of a deciding officer or an appeals officer is to apply the law” irrespective of what might be available in published guidance. The grounds of appeal that there was an over reliance on the “Code of Practice” and concerns about the validity of the Appeals Officers decision were rejected by the judge.

Addressing the claim by Neenan Travel Ltd that the Appeals Officer erred in law in failing to have recourse to the definition of “proprietary director” as defined in the Taxes Consolidation Act 1997, the judge quite explicitly noted that the “definition contained in the Tax Code is of no relevance to the issue as to the insurability of Mr Leech”.

The judge found that the Appeals Officer was correct in its decision and that Mr Leech was insurable under Class A. The judge also pointed out that Neenan Travel Ltd could not claim a refund under the Redundancy Payments Act whilst at the same time claiming it was only liable for Class S PRSI contributions in respect of Mr Leech; the company “could not have its cake and eat it”.

The full text of the judgement is available from www.courts.ie