Independent Contractor or Employee? The focus shifts to Australia! 

On 23 March 2021, we published a client alert about a decision handed down by the UK Supreme Court in Uber BV and others (Appellants) v Aslam and others (Respondents) [2021] UKSC 5 (“Uber Decision”), whereby Uber drivers engaged as independent contractors were deemed to be “workers”.

The Uber Decision represents a significant development as to how gig economy workers are to be treated at law, and certainly in our view, held instructive value for Australia’s judicial system. In less than 2 months, it seems the question as to what defines whether a person is an employee versus a genuine contractor, has again been put under the microscope but this time, the individual concerned just so happened to be a Deliveroo rider.

In that regard, the Fair Work Commission (“FWC”) recently found that a Deliveroo motorcycle rider, Mr. Franco, was an employee, despite Deliveroo claiming that the worker was an independent contractor (Franco v Deliveroo Australia Pty Ltd [2021] FWC 2818).

Deliveroo has indicated publicly that it intends to appeal the FWC’s decision in favour of Mr. Franco, which is unsurprising given how critical the decision is about the characterisation of delivery workers and what this potentially means for the viability of the food delivery industry and gig economy generally.  The last time a food delivery worker was successful in arguing that they were not an independent contractor in Australia was with Foodora and that promptly ended with Foodora going into voluntary administration and paying workers around 30 cents in the dollar what they were owed under the applicable modern award.

The matter is unlikely to be settled after one appeal and could head all the way to the High Court, with the Transport Workers’ Union (“TWU”) supporting Mr. Franco in the proceedings.  The TWU’s National Legal Officer appeared in the proceedings, instructing Counsel on behalf of Mr. Franco.  The TWU’s support for Mr. Frano is consistent with its long running campaign with the Delivery Riders Alliance to change the characterisation of delivery workers classified as independent contractors.

Despite there being an imminent appeal proceeding(s), it is worth looking at the reasoning behind the decision and what lead the FWC to conclude that Mr. Franco was an employee.  In particular, what were the facts found by the FWC in the Deliveroo case, which, when considered using the “Multifactorial Approach” resulted in Mr. Franco being found to be an employee.  It is important to note that the Multifactorial Approach necessarily means that decisions cannot be applied in a rigid, formulaic or cookie-cutter approach.

The FWC made the following significant findings in this particular case the following in relation to the relevant factors:

• Control: Deliveroo, while not exercising control has a significant capacity to exercise control if it wanted to.
• Ability to perform work for competitors simultaneously: While, simultaneous employment points against an employment relationship, in the context of a modern rapidly changing workplace, particularly post-COVID where physical presence is not necessarily a requirement of employment, the factor of simultaneous work for multiple organisations does not necessarily prevent the existence of an employment relationship.
• The Terms and Terminology of the Supply/Supplier Agreement: While the supply/supplier agreement (“the Agreement”) stipulated the intention of the parties to create a relationship of Principal and Independent Contractor, the FWC also found that the provisions of the Agreement were a fait acompli, drafted by Deliveroo and presented to Mr. Franco, with no ability for Mr. Franco to negotiate any terms in the Agreement. This fact meant that the terms of the Agreement and the relatioinship described had to be treated with caution.
• Provision of Equipment – Capital Outlay and Expertise: Mr. Franco was found not have made a substantial investment in the capital equipment he used to perform his delivery work, because he would have required the motorcycles as transport for himself and his family. Franco was also found to not require much skill or expertise to perform the delivery work.
• Personal Service: There was a significant finding in relation to this point because while Deliveroo expressly permitted Mr. Franco to delegate or subcontract to another person to perform the work, the FWC found that there were constraints on this delegation. Specifically, Mr. Franco could not have delegated or employed someone to perform the work for him, because the remuneration he received from Deliveroo was not sufficient to cover payment of the national minimum wage to any delegate. The FWC also considered that shift swaps were common in employment relationships for casual employees and as such the capacity to delegate did not necessarily prevent an employment relationship from forming.
• Presentation as Part of the Business: The FWC made the finding that Deliveroo encouraged Mr. Franco to wear its branded attire and equipment and to present himself to the world as a part of the Deliveroo business.
• Mode of Remuneration: Mr. Franco was paid an amount per delivery, which was tracked through Deliveroo’s Rider App and Deliveroo generated template invoices from the data tracked through the Rider App.
• Taxation: The FWC found that while Deliveroo did not deduct income tax, which pointed towards an independent contractor relationship, it also found that this was simply a logical extension of the Agreement entered into between Deliveroo and Mr. Franco.
• Leave entitlements: Mr. Franco was not provided with any leave entitlements.
• Distinct Profession or Trade: It was found that Mr. Franco performed work, which was not an established profession, trade or distinct calling.  However, this did not prevent a person from conducting an independent business and not as an employee.
• An Entrepreneurial Business with Potential Goodwill: Significantly, the FWC found that the evidence established that there was no prospect for Mr. Franco to have developed any goodwill or tangible value that could be attached to any asset that arose from the work the was conducting.

After making these findings about each of the relevant factors/indicia, the FWC drew a conclusion based on the overall picture which formed as a result of these individual findings.

The conclusion was succinctly summarised by the Commissioner himself in three paragraphs as follows:

[137] The various factors or indicia relevant to the proper characterisation that should be provided for the relationship between Mr Franco and Deliveroo have been carefully examined, evaluated, balanced, and considered. The established principles applicable to a determination of the common law question of whether a person is an employee, or an independent contractor have been applied in order to arrive at the resultant determination. An overall effect has been created when standing back from the detailed picture, and properly viewing all of the accumulation of detail from a distance. In this way, an informed, considered and qualitative appreciation of the whole picture has been obtained.

[138] In this case, when consideration of all the relevant indicia, has, like the colours from the artist’s palette, emerged to form a complete picture, the correct characterisation of the relationship between Mr Franco and Deliveroo is that of employee and employer. Although, the picture is impressionistic and not precise, it is nevertheless a compelling conclusion, drawn from the answer to the question: Does the relationship between Mr Franco and Deliveroo look more like employment or does it look more like independent contracting?

[139] The conclusion that must be drawn from the overall picture which has been obtained, was that Mr Franco was not carrying on a trade or business of his own, or on his own behalf. Instead, he was working in Deliveroo’s business as part of that business. Importantly, the level of control that Deliveroo possessed, and which it could choose to implement or withdraw, whilst not immediately apparent, when properly comprehended, represented an indicium that strongly supported the existence of employment rather than independent contracting. In addition, the fact that Mr Franco could and did work for competitors of Deliveroo, must be assessed in the context of a modern, changing workplace impacted by our new digital world. Mr Franco was, despite aspects of his relationship with Deliveroo including elements usually associated with that of an independent contractor, engaged in work as a delivery rider for Deliveroo as an employee of Deliveroo.

The approach of the FWC in making an assessment using the Multifactorial Approach is an approach, which should be considered by employers when identifying and deciding whether particular work is engaged through contractor arrangements or through direct hire of employees to perform the work.  The particular circumstances of each engagement will need to be considered closely and established prior to any assessment being made.

Following the Deliveroo decision, the FWC handed down another decision on 21 May 2021, Erin Shay v Christopher Shannon [2021] FWC 2815, which found that the requirement of an employer in another case that the employee was required to issue invoices and use an ABN did not prevent an employment relationship from being established and brought into existence.  The FWC in that case also used the Multifactorial Approach to analyse, assess, and make findings about the totality of the relationship, and ultimately found that an employment relationship existed, despite the requirement to use an ABN and for invoices to be produced.

An independent contractor who is subsequently found to be an employee, may gain access to unfair dismissal protection. However, in some circumstances they may also gain access to modern award entitlements, which may result in a significant exposure to employers for underpayment of wages and other entitlements such as leave and superannuation.  For example, it is likely in the Deliveroo case that Mr. Franco will have a further claim for entitlements arising under the Road Transport and Distribution Award 2020, given the finding in the decision that he was not remunerated sufficiently to delegate his work to another person based on the National Minimum Wage.

We regularly advise clients about whether they should structure arrangements as one of independent contractor or employment and can provide appropriate contractual document to suit the circumstances.  We also regularly advise clients about modern award coverage and audit employer modern award compliance with minimum pay and other conditions. Should such assistance be required, please do not hesitate to contact our office.

This article should not be treated as, and is not intended to, constitute legal advice.