In what is shaping up to be a test case for the business model of the gig economy, the Fair Work Ombudsman is taking food delivery service Foodora to the Federal Court over alleged sham contracting arrangements.
What is the case about?
The Ombudsman is arguing that despite individuals holding an ABN and signing ‘independent contractor’ agreements, the true nature of their relationship with Foodora is as employees.
Whilst there is nothing unlawful about a business organising its workforce to facilitate the provision of labour in the most cost effective way, the Fair Work Act 2009 (Cth) guarantees minimum employment conditions to employees. For example, if the relationship that the hirer has engaged in with the worker is legally one of employment, section 357 makes it unlawful for the hirer to misrepresent this relationship as an independent contracting arrangement.
In this instance, the Fair Work Ombudsman is alleging that the ‘independent contractor’ agreements between Foodora and its workers amount to a misrepresentation, because in reality, Foodora acted in the capacity of ‘employer’. Some factors that are being pointed to include the fact that Foodora exercised control over the manner of work that was completed, provided Foodora-branded clothing and equipment for its workers to use, and paid its workers fixed hourly rates.
What does it mean for your business?
The recent action by the Fair Work Ombudsman against Foodora is a reminder for businesses to exercise caution about the way they seek to classify relations with contractors or staff.
Simply labelling a worker as an ‘independent contractor’ does not automatically avoid an employer/employee relationship.
Rather, businesses must consider the work relationship more holistically – looking at all relevant factors. This is often described as a “multi-factor” test. The test is based on consideration of a number of factors with no single factor being determinative of whether a person is an employee or a contractor. Some factors, such as whether the worker is subject to control over how their work is done, or whether the worker truly carries on a trade or business on his or her own behalf, will carry more weight than other factors.
Whilst this test is not new, the nature of freelance work in the gig economy makes correctly classifying the relationship between a company and its workers problematic. The upcoming Foodora case will hopefully provide some clarity to businesses that engage workforces in this space.