Difficult concert: the Deliveroo pilot is considered a contractor and not an employee

In a decision important to the gig economy, the Full Bench of the ruled that Deliveroo driver Diego Franco was an independent contractor rather than an employee. [1] Accordingly, Mr. Diego was not protected against unfair dismissal under the Fair Work Act 2009 (Cth).

Earlier this year, the High Court clarified the ’employee versus contractor’ debate with its rulings in the case Staff contracts[2] and Jamsek[3] case (see linked article). In these cases the High Court held that where the rights and obligations of the parties are contained in a written contract, the qualification of a worker as an employee or contractor is determined by reference to those contractual rights and obligations, and not through a holistic assessment of the formal and practical aspects of the employment relationship.

The Plenary Assembly applied this reasoning in the case Deliveroo vs. Franco decision, which concluded that Mr. Franco was an independent contractor rather than an employee.

However, the Plenary Assembly expressly stated that the substance of Mr. Franco’s engagement supported the conclusion that Mr. Franco was an employee of Deliveroo. Furthermore, the plenary session noted that Mr. Franco no longer had any recourse he could obtain from the Fair Work Commission (CC) despite what was, in the opinion of the Plenary Assembly, “clearly…unfair treatment from Deliveroo’.

There has been a perceived injustice in the application of the Staff contracts and Jamsek the decisions. As such, this decision is likely to give further impetus to the Albanian government’s proposed legislative reform for employment in the gig economy. Employers should expect changes in the near future, which could include expansions of the powers of the CC to cover “employee-like” forms of work, a legislative amendment to the “employee versus contractor” characterization test and/ or implementing separate minimum standards for gig economy workers.

First instance decision

Mr. Franco was a Deliveroo courier for three years and it was his main source of income. In April 2020, his agreement with Deliveroo was terminated for too slow delivery of food orders, and his access to the Deliveroo Rider app was disabled.

Mr. Franco filed a wrongful dismissal complaint with the FWC[4]. Deliveroo opposed the claim on the grounds that Mr. Franco was a contractor rather than an employee and therefore not entitled to unfair dismissal protections under the Fair Work Act 2009 (Cth) (FW Law).

In May 2021, FWC Commissioner Cambridge ruled in favor of Mr Franco, finding he was in substance an employee and had been wrongfully dismissed. In characterizing his status as an employee, Commissioner Cambridge applied the multi-factor test and focused on the notion of “control” in the substantive employment relationship between the parties.

Commissioner Cambridge stressed that the decision was an assessment in the context of a modern and changing workplace impacted by the new digital world, and although many aspects of Franco’s relationship with Deliveroo have traditionally been associated with that of As an independent contractor, the relationship was, holistically, that of an employee.

Commissioner Cambridge’s decision followed a broader global trend of cases where gig economy workers turned out to be employees and enjoyed legal employment protections (see for example Klooger v Foodora Australia Pty Ltd [2018] FWC 6836).

Full bench decision

Deliveroo appealed in June 2021. However, the appeal has been put on hold pending High Court rulings in Staff contracts and Jamsek.

On appeal, Vice President Hatcher, Vice President Catanzariti and Vice President Cross concluded that in light of the Staff contracts and Jamsek decisions, Commissioner Cambridge’s 2021 decision no longer reflected the current state of the law.

In Staff contracts and Jamsekthe High Court held that the reality of an employment relationship must not be taken into account where there is a complete written contract, unless that contract is fictitious or otherwise ineffective. The hitherto orthodox multi-factor approach was deemed relevant only for the assessment of the written terms of the contract.

There was no argument about the validity and enforceability of the relevant contractual agreement between Deliveroo and Mr. Franco, the “2019 Agreement”.

Decisive contractual clauses

By applying the principles of “contractual primacy” set out in Staff contracts and Jamsekthe CC found that the following four contractual features of the 2019 agreement weighed decisively in favor of Mr. Franco qualifying as a contractor.

  1. Absence of control by Deliveroo: the terms of the contract indicated a lack of control by Deliveroo over how to carry out any work that Mr. Franco had agreed to undertake. This included clauses that stated that:
    1. once the order was picked up, Mr. Franco could use any route he deemed safe and efficient to deliver the order;
    2. Mr. Franco could determine the type of vehicle he was using to make the delivery and, therefore, he had control over how the work was performed; and
    3. Deliveroo could not require Mr. Franco to carry out specific delivery work.
  2. Mr. Franco had to provide the vehicle by which the deliveries would be made, at his expense: Mr. Franco was contractually required to provide “significant mechanical equipment”, more than “just a bicycle”;
  3. Ability to delegate without authorization or consultation: the 2019 deal did not require Mr. Franco to personally handle orders. He had the right, without needing prior approval from Deliveroo, to have someone else perform the services he had contracted to provide; and
  4. Mr. Franco had to pay an administrative fee to access Deliveroo’s software: while Mr. Franco was entitled to receive remuneration for each delivery made (rather than for the time worked), this was not necessarily inconsistent with an employment relationship. However, the fact that he had to pay an administrative fee of 4% of his total earned fees for access to Deliveroo’s software and other administrative services was inconsistent with an employment relationship.

Terms and realities held for not pertinent

The FWC noted that some clauses of the 2019 agreement were “mere labeling” and did not not have decisive weight (if any) in the analysis. These included:

  1. a reference to Mr. Franco as being “a supplier in business on [his] own account’;
  2. statements that he had to pay tax and insurance and maintain an Australian business number (NBA). This was seen as a mere reflection of the view asserted in the agreement that “he carries on business on his own account”; and
  3. clauses allowing it to work for other parties, including competitors. This was deemed not incompatible with casual employment.

Implications

The FWC would have expressly indicated in its decision that if it were allowed to take into account certain “realities” of the employment relationship, Mr. Franco would be considered an employee. However, they were obliged to apply the contract-centric approach Staff contracts and Jamsek decisions, and there was insufficient evidence to enter into a “mock contract” in relation to the 2019 deal.

They further stated that it was clear that Mr. Franco had in fact been unfairly terminated, but that “unfortunately”, due to the jurisdictional exclusion of contractors from the unfair dismissal regime, Mr. Franco is left without a remedy that can be obtained from the CC.

Employers should consider:

  1. Legislative change: the Albanian government’s Secure Australian Jobs Plan proposed to extend the powers of the FWC to cover “employee-type” forms of work and to set minimum standards for workers in designated sectors, including the gig economy, in order to solve the problem. In June 2022, the Union of Transportation Workers also signed an agreement with ride-sharing giant Uber, to help the federal government legislate for an independent body to create industry-wide standards, including setting minimum and transparent benefits and conditions for platform workers. While a general characterization of gig workers as employees or contractors is unlikely to occur, it is almost certain that this area will be subject to legislative reform in the near future.
  2. Simple labeling in contracts: contractual terms must create and substantially reflect the intended employment relationship. Simple labeling will not suffice to characterize the commitment. For example, the insertion of a clause providing that a worker operates his own business, and therefore requiring an ABN and the associated tax formalities, will not be decisive in characterizing an entrepreneur by reference to the terms of the written agreement.
  3. Procedural fairness: but for jurisdictional debate Mr. Franco’s dismissal was held to involve ‘a totally unfair and unreasonable process, including the complete lack of opportunity for Mr. Franco to be heard before the dismissal decision is made‘. If there is uncertainty as to whether a particular worker is an employee or a contractor, employers should consider whether there are steps that can be taken before terminating the employment relationship, in order to address a later allegation that the worker was not guaranteed procedural fairness.

Earnest L. Veasey