Fair Work Commission finds delivery rider was an employee, not an independent contractor

3 December 2018

The FWC will look at the substance of a worker’s role, not the label, to determine if a worker is an employee or contractor.
The FWC will look at the substance of a worker’s role, not the label, to determine if a worker is an employee or contractor.

Adding to the confusion about whether workers in the gig economy are employees or independent contractors, the Fair Work Commission (FWC) has determined that a delivery rider for Foodora Australia Pty Ltd (Foodora) who could delegate his responsibilities was in fact an employee for the purpose of making an unfair dismissal claim.

The case follows a prosecution by the Fair Work Ombudsman in June 2018, in which the FWO alleged that two Melbourne Foodora Riders and a Sydney driver were misclassified as independent contractors and performed a full time role.

In August 2018, Foodora ceased its operations in Australia despite the fact it was in the midst of court action, and went into voluntary administration. 

Both decisions have sent shock waves through the gig economy, particularly given the FWC’s recent determination that an Uber driver was a contractor, and was not entitled to bring an unfair dismissal claim.

Background

Joshua Klooger (Klooger) was a delivery rider for Foodora between March 2016 and March 2018, subject to a signed ‘Independent Contractor Agreement’ (Agreement). He was initially paid $14 per hour and $5 per delivery. Over time, Foodora cut the pay for drivers to $7 per delivery and no hourly wage. 

Klooger and his colleagues used chat groups such as Whatsapp to deal with logistical issues and swap shifts.  In April 2016, Klooger established a new chat group using the Telegram app. Klooger became the administrator of the group with control rights, but provided administration rights to Foodora. 

In early 2018, Klooger raised concerns publicly about his working conditions and the rates paid to delivery riders engaged by Foodora, including an appearance on “The Project” on Channel Ten.

On 22 February 2018, Foodora wrote to Klooger and raised concerns about him potentially breaching confidentiality and intellectual property rights after he declined Foodora’s request to transfer ownership and administration of the chat group on the Telegram App to Foodora. Foodora then advised Klooger that he had not complied with the request to return intellectual property owned by Foodora and that Foodora would not be continuing his contract for services. 

Klooger alleged that he was unfairly dismissed for raising concerns about low pay and poor working conditions for delivery riders.[1]  Foodora objected to the unfair dismissal claim on jurisdictional grounds, arguing that Klooger was an independent contractor not an employee.

Decision - Employee v Contractor

In applying the multi-factorial test, Commissioner Cambridge determined that Klooger’s relationship with Foodora was that of an employee-employer relationship.[2] The decision was based on a number of factors, including but not limited to:

  • Nature of work performed: Klooger was engaged as a bicycle courier to perform shifts through an app similar to those frequently used by other companies to engage casual employees for shifts.
  • Capacity and control: Foodora had significant capacity to control the manner in which Klooger performed work. Workers could not pick and choose when and where to work or how fast or slow to make deliveries.
  • Exclusivity: Klooger performed work for other delivery companies, although this was comparable to an employee with multiple jobs e.g. casual staff working for multiple restaurants.
  • Subcontracting: While Klooger delegated work to other riders in breach of the terms of the Agreement, it was ultimately approved Foodora, which, on one occasion, enabled a rider to work in breach of Australian Visa requirements, for which Foodora was aware.

Decision - Unfair Dismissal

The FWC found that Klooger’s dismissal was harsh, unjust and unreasonable on the basis that:

  • The termination email was sent “without any proper, prior warning”.
  • Klooger was a “high-performing delivery rider…and his entrepreneurial acumen had been recognised and applauded by Foodora management”.[3]
  • Evidence demonstrated that Klooger was not dismissed because he withheld the administration rights to the Telecom app discussion. Rather, the substantive reason for Klooger’s termination was his conduct involving public agitation and raising complaints about the Foodora model, which culminated with an appearance on The Project.
  • Consequently, the reason for Klooger’s dismissal was not one that was sound, defensible or well-founded, and therefore there was no valid reason for dismissal.

Klooger was awarded the full 26-week entitlement under the Fair Work Act 2009 (Cth), with credit applied for income received after termination of his employment.

Lessons for employers

This decision has created significant uncertainty for workers in the gig economy, and highlighted the perils of sham contracting. This case confirms that the FWC will look at the substance of a worker’s role, not how it has been labelled, to determine if a worker is an employee or independent contractor.

Key lessons for employers

  • Even though Foodora has ceased to operate in Australian, the dilemma faced by Foodora underlines the wide-reaching implications of the legal status of workers in all gig economy enterprises.
  • The gig economy is not a market to enter without a considered plan to meet the obligations of those who engage gig workers, including PAYG income tax, workers’ compensation and, in some cases, superannuation and payroll tax.
  • These cases draw further attention to campaigns by the unions and the FWO to closely scrutinise entrenched working relationships in the gig economy and long-term ‘casual’ employment. They highlight that the incorrect categorisation of a worker as an ’employee’, ‘independent contractor’, ‘casual’ or ‘part-timer’ can be fatal to a business. Misclassifying employees as independent contractors can have flow on effects in terms of worker’s compensation, occupational health and safety, and in some cases, superannuation and leave entitlements, leaving organisations exposed to breaching workplace laws.

How we can help

The case highlights the complexity of classifying and engaging employees and contractors, and the periods of sham contracting. If you’d like greater certainty on how to classify your workers, please contact our Practice Leader, Skye Rose on (03) 9843 0418, or fill out the enquiry form below.

 

[1] Joshua Klooger v Foodora Australia Pty Ltd [2018] FWC 6836 (16 November 2018)

[2] At [89].

[3] At [123] and [132].

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