FWC finds that gig workers are independent contractors September 9, 2022

In a 2022 milestone decision, the Full Bench of the Fair Work Commission has found that a Deliveroo worker is an independent contractor, not an employee 

The classification of workers in the gig economy has been a real issue in Australian employment law in recent years. Specifically, the question of whether gig workers are independent contractors or employees. 

Companies such as Uber and Deliveroo, and their delivery drivers, have been waiting for some clear guidance about the legal characterisation of this type of work, and therefore their rights and obligations under Australian employment law.

In the recent and anticipated appeal against the Fair Work Commission’s (FWC) 2021 decision in Diego Franco v Deliveroo Australia Pty Ltd, the Full Bench of the FWC overturned its earlier finding that Diego Franco was an employee of Deliveroo.

The initial Deliveroo decision

The initial decision concerned an unfair dismissal application made by Mr. Franco, a delivery rider for Deliveroo. 

Deliveroo terminated its “supplier agreement” with Mr. Franco on the basis that he was in breach of the agreement due to a number of late deliveries. In response, Mr. Franco successfully argued he was an employee of Deliveroo, not an independent contractor, and as such, was protected from having his employment terminated unfairly.

In determining that Mr. Franco was an employee of Deliveroo, the FWC adopted the multifactorial test and considered the most relevant factors in the circumstances, such as:

1. The level of control Deliveroo possessed over the drivers; and 
2. Mr. Franco’s capacity to negotiate the terms of the supplier agreement 

The FWC found that despite many aspects of the relationship had characteristics usually associated with that of an independent contractor, Mr. Franco worked as an employee of Deliveroo.

Deliveroo appealed the decision. The decision on the appeal – Deliveroo Australia Pty Ltd v Diego Franco was handed down in August 2022.

The Deliveroo appeal case

Deliveroo appealed all three determinations of the original decision. However, the most significant factor in the appeal decision was the timing of subsequent High Court decisions:

• CFMEU v Personnel Contracting (Personnel Contracting) 
• ZG Operations Australia Pty Ltd v Jamsek (Jamsek)

These decisions raised a number of relevant questions and changed the legal framework.

Given the findings in the High Court cases, the FWC was only required to refer to the parties’ submissions after Personnel Contracting and Jamsek. This appeal case is particularly important decision because of its application of the principles of Personnel Contracting and Jamsek: 

1. In the context of the gig economy; and 
2. The implications for companies and workers in that industry

Personnel Contracting and Jamsek

The Deliveroo decision applied some of the key propositions of the High Court decisions. They included: 

1. A relationship regulated by a written, comprehensive contract should be characterised solely by reference to the rights and obligations in that contract;
2. Post-contractual conduct of the parties may be considered to ascertain the variation of contractual terms;
3. The multifactorial approach is only relevant to assessing the terms of the contract;
4. Contractual rights to control the activities of the worker (for example, how and when they work) weighs in favour of an employment relationship;
5. Consider whether the terms of the contract direct that the worker is contracted to work in the business of the purported employer;
6. Labels used to describe the relationship in the contract are not determinative;
7. Little weight should be given to the right to accept or reject work (the Court noted this feature may be consistent with casual employment)

The Deliveroo case reiterates the importance the High Court’s focus on the terms of the written contract (where there is one in place and it is not a ‘sham’), rather than the way the relationship operates in practice. 

The FWC rejected Mr. Franco’s argument that some of the terms of the supplier agreement should be regarded as ‘shams.’ The FWC affirmed the “well-understood” meaning of ‘sham’, referring to the High Court’s characterisation that ‘sham’ refers to steps that:

“… take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences.”

Terms of the written agreement

Deliveroo contended that there was no employment relationship, highlighting some key features of the “supplier agreement” between Mr. Franco and Deliveroo (the “2019 Agreement”) that pointed to an independent contractor relationship. 

These features included:

• Mr. Franco arranged his own deliveries, which pointed to him conducting his own business
• Mr. Franco was not required to personally discharge the obligations under the agreement – he could delegate delivery work without Deliveroo’s consent
• Deliveroo did not control the way in which Mr. Franco performed the services (for example, the vehicle he used)
• Mr. Franco relied on his own equipment to perform the work
• The mode and manner of remuneration pointed to a contractor relationship and Mr Franco was required to pay an administration fee

On the above analysis and application of the key principles laid out by the High Court, the FWC confirmed Mr. Franco was an independent contractor and therefore was not protected by unfair dismissal. The initial FWC decision was quashed.

Key points 

Form over substance

A court will focus on the rights and obligations in a comprehensive written agreement over the conduct of the parties in practice.

Industry specific

The courts looked at the specific features of the gig economy and regulation of workers, so look out for legislative responses and further implications in this area.

Careful drafting

Ensure your written contracts with employees and contractors clearly and effectively reflect the intended relationship.

Evolving legal landscape

Remain vigilant about the examination of some of the above factors, such as the right to accept or reject work or work for competitors, being contested in future litigation.

Common clauses: 

Common contractual terms such as safety and compliance with laws in the 2019 Agreement are not conclusive indicators of an employment relationship. They may equally apt to apply to independent contracting relationships, particularly in the transport industry.

The Deliveroo decision is a timely reminder to review the terms of your employment, contractor and supplier agreements to ensure they accurately reflect the agreement and intentions of the parties. If you have questions about whether your gig workers are independent contractors, contact us for advice.  

By Milly Berry