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Knowing the difference between contractors and employees – and why it matters

Gene Schirripa

27 Nov 2018

Topics

  • Employment Law

The gig economy is rapidly expanding. Most of us have taken a ride home with Uber or ordered a pizza delivered to the door by Deliveroo. But what about your driver or delivery rider? What is their employment status? In this article, Gene Schirripa, Lawyer with Snedden Hall & Gallop, discusses a recent landmark case by the Fair Work Commission (FWC) and why it’s important to know if workers are independent contractors or employees.

The changing face of the Australian workforce

A record number of Australians are employed on a casual basis (about 2.5 million Australians – over 25% of the workforce). Unions NSW estimates that, in NSW alone, 45,000 people earn some form of income through the gig economy. This generates $504 million for the state economy.[1] These workers are attracted to the flexibility, convenience and choice made possible through app-based platforms.

The Fair Work decision

On 16 November 2018, the FWC ordered that food delivery company, Foodora, pay a former rider $15,990 for unfair dismissal. Foodora operated on a similar basis to Deliveroo and Uber Eats, in that customers would order food from a variety of restaurants, delivery drivers would pick up the food (having no contractual engagement with the restaurant directly) and then deliver it to the customer.

Former Foodora rider, Josh Klooger, raised a number of concerns regarding pay and working conditions. As a result, Foodora terminated his services contract. Mr Klooger made a claim for unfair dismissal on the basis that Foodora dismissed him – by email and without any warning – because he began speaking publicly about his pay and working conditions.

The case turned on one significant issue: was Mr Klooger an independent contractor or an employee? Under the Fair Work Act, remedies for unfair dismissal are only available to workers that are characterised as ‘employees’ (section 382). If the FWC decided that Mr Klooger was an independent contractor, then there’d be no basis for his claim.

The FWC held that Mr Klooger was an employee of Foodora, and pointed to a number of specific factors in making this decision. Some of these included:

  • Foodora allocated start and finish times to its drivers
  • Mr Klooger’s terms of services resembled an employment contract
  • Foodora provided a uniform and required that drivers wear them while at work.

The FWC decided that these factors pointed toward a significant relationship of control by Foodora over Mr Klooger.  As such, Mr Klooger was entitled to make a claim for unfair dismissal.

Sham contracting

Foodora had tried to define Mr Klooger, and their other riders, as independent contractors. However, they were, in reality, employees. This is also known as a ‘sham arrangement’, whereby an employer misrepresents employees as independent contractors. This is important as employers don’t pay employee entitlements – such as annual, sick and long service leave – for contractors. Sham contracting is an offence under the Fair Work Act (s 357). In fact, Foodora is currently under investigation by the Fair Work Ombudsman for sham contracting.

The consequences

This FWC decision has implications for the gig economy as app-based platforms now have to carefully consider their arrangements with workers. Foodora’s riders are now classified as employees, although working arrangements may be different for each company. Nevertheless, similar app-based platforms, such as Uber, will have to remain mindful of the way in which they represent their workers.

How can Snedden Hall & Gallop assist?

If you are unsure whether you have classified your employees or contractors correctly, please contact a member of our Employment Law team. They can give you up-to-date advice as this case may affect your rights and obligations as an employer or head contractor. You can contact us by email or on 02 6285 8000.

[1] Unions NSW Senate Inquiry into the Future of Work and Workers, 20 February 2018.