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Avoid Being a Sham - Engaging Contractors

Earlier this week Deliveroo won their appeal in the UK courts against Independent Workers Unions Rights in June 2021 where Deliveroo workers were affirmed as self-employed. The business investment community sent a very strong message about how they view the difference between contractors and employees. The Deliveroo share price jumped 9% by 400 million pounds.

It is clear that overall investors believe it is better to have contractors and avoid the costs associated with employees creating an age old tension between preserving business profit and protection of employee rights or worker protections.

It’s a tension of titans an age-old divide. The notion that we can all determine our own worth and value verses the need to protect workers. The basis for ideologies entrenched in our politics and our business systems and history. Historically this tension has resulted in endless debate and has divided many a family gathering or dinner party and even a revolution or two.

I have no intention of exploring that any further than to comment that there are powerful forces and that the response to the gig economy and in particular at the moment Deliveroo, shows our systems grappling again with the employee contractor, master servant dichotomy.

Australia - Fair Work Commission finds Deliveroo rider is an employee

In contrast the Australian decision has potentially massive implications for the gig economy as a whole after the Fair Work Commission on 18 May 2021 ruled that a former delivery rider for Deliveroo had been an employee of the company and was entitled to remedies for unfair dismissal.

The facts

Diego Franco began work in April 2017 as a rider for Deliveroo, a food delivery app.

Deliveroo used an algorithm which tracked the time riders took to deliver an order, contrasted against the ‘expected delivery time’ for each order, and compared this metric with other riders in the area. In early 2020, a review of Mr Franco’s performance indicated that his delivery times were significantly delayed, compared with the average for riders in his area. As a result, in April 2020 Deliveroo notified him that he had breached his supply agreement and terminated the agreement with seven days’ notice.

Mr Franco brought unfair dismissal proceedings, seeking reinstatement, continuity of service, and backpay.

Mr Franco, an employee or an independent contractor?

The Fair Work Commission applied the ‘multifactorial test’, which has long been the accepted test to distinguish an employee from an independent contractor.[1] The test considers several factors:

  • Do they control their own work?

  • Are they responsible for providing and maintaining their own equipment?

  • Are they paid to complete a task, or are they paid wages for time worked?

  • Do they incur profits or losses from their work?

  • Are they free to work for others simultaneously?

  • Can they delegate (subcontract) their work to another person?

  • Are they responsible for their own tax and insurance?

  • Does their contract specify that they are an employee or a contractor?

  • Are they building up goodwill for their own business?

Given that Mr Franco, provide his own equipment, set his own hours, was paid per delivery made, often work for multiple delivery services simultaneously, and their service agreements typically make every effort to identify them as independent contractors (as was the case here) Deliveroo strongly argued he was a contractor.

In this case, the Fair Work Commission applied the test and concluded that Mr Franco was an employee.

Deliveroo relied heavily on the fact that Mr Franco also worked for competitors such as Uber Eats, to the extent that he would have multiple apps open and be accepting orders from each of them within the same session. They argued that typical part-time, or even casual employees, would not be able to do this. The Fair Work Commission, found that this was reflective of changing technology and working arrangements, and did not mean that an employee/employer relationship could not exist.

Although Mr Franco notionally had control over his hours, in reality Deliveroo’s software would give preferential treatment to riders who booked at peak times and did not cancel sessions on short notice. Likewise, although he was not required to purchase Deliveroo branded clothing and equipment, it was expected and encouraged that he would.

An effect of this was that Mr Franco’s work for Deliveroo was not in any way entrepreneurial. He was not building a business and a reputation for himself as a food delivery driver, and there was really no way for him to do so.

The Fair Work Commission also placed fairly limited weight on the actual terms of the supply agreement, which specified that Mr Franco was a ‘supplier in business on his own account’ (i.e. an independent contractor). This is because Mr Franco had no real negotiating power when he entered the agreement.

UK – Court of Appeal - Deliveroo rider is a self-employed contractor

Almost simultaneously in the UK Deliveroo have been challenging a decision that their delivery riders were employees and therefore have a right to unionise.

The Independent Workers Union of Great Britain commenced an action to have the workers declared employees in 2017.

Deliveroo have most recently won on appeal and the workers were endorsed as self employed. The reasoning in the UK was based on the workers right to arrange a substitute for themselves if they were unable to or did not want to take a particular job.

Implications of this decision

Some businesses are reacting to these developments by tightening up their supply agreements.

Recently Uber Eats paid a former delivery rider $400,000 to settle an unfair dismissal claim, an exorbitant settlement much larger than what the rider could have hoped to win in Court. It demonstrates a very strong desire to keep these matters out of the Court and avoid setting a precedent like the one established by Franco. Menulog have lately announced a move to ‘test a new business model’ and classify all their suppliers as employees. Deliveroo, meanwhile, have already indicated that they plan to appeal this decision.

For our Australian businesses

These are not new arguments. It is a space to watch and be keenly aware of if you are in business as is always changing and will continue to be challenged by both sides because it strikes at the heart of the concerns of business to make a profit and workers to preserve rights and protections.

If your business engages contractors then we recommend there need regular review. As in the case here, just because a worker is termed a contractor, does not meant that they are a contractor and your agreements and practical arrangements ought to be regularly reviewed.

Penalties for being found to have a sham contracting agreement, that is for engaging someone as contractor when they are found not to be, can result in civil penalties for individuals of $13, 320 and $66, 600 for corporations (as at 30 June 2021)

How we can help

If you need advice on engaging contractors, drafting agreements or a review of your company’s employment protocols or if you need representation in the Fair Work Commission or Federal Court. Speak to us at Voice Lawyers (02) 9261 1954

This article is general and is not intended to be legal advice, if you need assistance you should seek legal advice for your specific circumstances.

[1] Hollis v Vabu (2001)

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