Contractor or Employee? Deliveroo rider characterised as an employee - wins unfair dismissal case

The gig economy workforce in Australia is continuing to grow and evolve at a rapid pace, particularly in the current post-pandemic environment. Online meal delivery platforms, for example, have benefited from a surge in consumer spend as a result of lockdown restrictions being imposed across various states and territories. However, correctly determining the rights and entitlements of workers remains a challenge for these gig businesses in Australia as their workers do not neatly fall within either of the binary classifications of employees or independent contractors. An incorrect classification can have a significant financial impact on an employer.

Contractor or Employee

The recent decision of the Fair Work Commission (FWC) in Diego Franco v Deliveroo Australia Pty Ltd [2021] FWC 2818 sheds further light on these challenges. The FWC found that the correct characterisation of the relationship between Deliveroo and one of its food delivery drivers, Mr Franco, was that of employee and employer.

Mr Franco had entered into a number of supply agreements with Deliveroo during the period of his engagement, including on 18 April 2017, 2 October 2018 and subsequently on 9 December 2019 until the termination of his services by Deliveroo on 30 April 2020.

Interestingly, during some of the periods that Mr Franco performed services for Deliveroo, he also signed up to provide services for its competitors such as Uber Eats and Door Dash.  

Mr Franco lodged an application for unfair dismissal in the FWC seeking reinstatement of “his employment” on 21 May 2020. In response to the application, Deliveroo made a jurisdictional objection arguing that Mr Franco was not entitled to unfair dismissal protections on the basis that he was an independent contractor and not an employee, and that he was not dismissed.

When considering whether there was an employment relationship between the parties the FWC applied the traditional common law principles, which involve consideration of various factors including those set out below, with no single factor being determinative, and examination of the totality of the relationship between the parties:

• Control: At first blush, the arrangements between the parties had the appearance of an absence of the control element that is reflective of an employment relationship – particularly as Mr Franco could log on to the Deliveroo Ride App at any time, there was no requirement to work at particular times or periods of time, and he had autonomy regarding the locations to undertake deliveries.
  
  However, on closer examination of the arrangements, the FWC found that Deliveroo had the capacity to exert a significant level of control over Mr Franco. FWC considered that the depositary of data and performance metrics collected by Deliveroo using its online platform provided the means for Deliveroo to exercise significant control over the time, place and period of time riders like Mr Franco would work.
  
  For example, Deliveroo’s self-service booking (SSB) system used performance metrics (such as the rider’s attendance rate, the number of late cancellations, and their preparedness to participate during peak periods) to rank riders. Because priority for engagements would be given to those with higher ranking, the practical reality was that Deliveroo’s SSB system directed Mr Franco to work at particular times, regularly make himself available for work, and to not cancel booked engagements.
   
• Non-exclusivity and work performed for competitors: The FWC recognised that the traditional work model has been rapidly changing following the COVID-19 pandemic – employees’ physical presence in the workplace is no longer an essential requirement, and the shift towards remote working has opened opportunities for individuals to work for more than one employer concurrently. In this context, the FWC considered that Mr Franco’s provision of delivery services to Deliveroo’s competitors was not a factor that should be construed as preventing the existence of an employment relationship.
   
• Terms of the supply/supplier agreements: The evidence showed that Mr Franco had no capacity to negotiate any of the terms of the supply/supplier agreements – those terms were determined unilaterally by Deliveroo and were provided to riders (including Mr Franco) as a fait accompli. Further, the FWC determined that many of the terms in the agreements were similar in form and substance to those typically found in a contract of employment, such as the requirement for riders to provide services with due care, skill and ability.
   
• Capital outlay and expertise: The FWC considered that the motorcycle and smartphone used by Mr Franco to perform his delivery work would have ordinarily be required for his own personal use. Therefore, Mr Franco’s capital outlay was not substantial, nor was there a high degree of skill or training required to use his motorcycle for delivery work.
   
• Personal service and delegation: While Deliveroo provided express consent for Mr Franco to delegate or subcontract his work to another person, the payments that Mr Franco received from Deliveroo for deliveries would not likely cover the wages of any such delegate (even at the Federal minimum wage). This financial constraint in effect, left Mr Franco with no capacity to delegate his work.
   
• Representation to the public: The FWC found that Mr Franco was encouraged to use Deliveroo branded attire and use equipment displaying its brand logo, which meant that Mr Franco presented to the public as being part of Deliveroo’s business.
   
• Goodwill: The evidence showed that Mr Franco presented to the public as a food delivery rider for Deliveroo rather than as ‘a rider for hire’ entrepreneur, and there was no potential for Mr Franco to generate any goodwill or tangible value for himself from his work as a food delivery rider.

After careful consideration of the relevant indicia and the overall relationship between the parties, the FWC reached a firm conclusion that Mr Franco was not carrying on a trade or business of his own or on his behalf, but rather that he was working as a delivery rider for Deliveroo’s business as an employee.

In relation to Mr Franco’s unfair dismissal claim, the FWC went on to determine that there was not a valid reason for the dismissal related to Mr Franco’s capacity or conduct, and the procedure adopted by Deliveroo was unreasonable and harsh. On that basis, Mr Franco was awarded reinstatement, continuity of service and restoration of lost pay.

Appeal

Unsurprisingly, Deliveroo has since lodged a notice of appeal arguing that the FWC made a legal error in determining that Mr Franco was an employee of Deliveroo. This is on the basis that the FWC did not properly apply the multi-factorial common law test, and unduly focused on whether Mr Franco was carrying on his own trade or business when coming to its determination.

Deliveroo further alleges that even if FWC’s determination that Mr Franco is an employee was correct, the FWC erred in its failure to consider whether Deliveroo had a “valid reason” for dismissal and instead assessed whether there was a “sound, defensible and well-founded” basis for the dismissal, and in ordering reinstatement in circumstances where Mr Franco was involved in a public campaign against Deliveroo.

Lessons Learned

This decision demonstrates that while classification of gig workers remains a grey area and difficult for businesses to grapple with, the FWC will closely scrutinise the arrangements put in place with a gig worker when their classification as an independent contractor is challenged. When engaging a gig worker, it is important that businesses take a multifactorial approach before classifying the worker as a contractor or an employee, and to ensure that the practical realities of the overall arrangement properly reflect the terms of the contract entered into with the worker.

Factors such as capacity to actually delegate, and the development of a contractor’s own good, have weighed heavily in these decisions – with the FWC looking at what the practical relationship is – rather than what the contract terms claim the relationship is.

Should businesses wrongly classify an employee as a contractor, they risk breaching the Fair Work Act 2009 (Cth) and being liable for underpayment of employee entitlements, as well as in this case, being ordered to reinstate the worker. It can potentially also lead to a class action for alleged underpayments.