Tough gig: Deliveroo rider held to be contractor, not employee

By Rosemary Roach

In an important ruling for the gig economy, the Full Bench of the held that Deliveroo driver Diego Franco was an independent contractor, rather than an employee. ^[1]  Accordingly, Mr Diego was not afforded protection from unfair dismissal under the Fair Work Act 2009 (Cth).

Earlier this year, the High Court provided clarity to the ‘employee vs contractor’ debate through its decisions in the Personnel Contracting^[2] and Jamsek^[3] cases (see related article). In these cases, the High Court held that where parties’ rights and obligations are comprehensively contained within a written contract, the characterisation 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 working relationship.

The Full Bench applied this reasoning in the Deliveroo v Franco decision, which resulted in a finding that Mr Franco was an independent contractor rather than an employee.

However, the Full Bench expressly stated that the substance of Mr Franco’s engagement supported a finding that Mr Franco was employee of Deliveroo. Further, the Full Bench noted that Mr Franco was left with no remedy that he could obtain from the Fair Work Commission (FWC) despite what was, in the view of the Full Bench, ‘plainly … unfair treatment on the part of Deliveroo’.

There has been a perceived injustice in the application of the Personnel Contracting and Jamsek decisions. As such, this decision will likely add momentum to the Albanese Government’s proposed legislative reform to employment in the gig economy. Employers should expect changes in the near future, which could include extensions to the FWC’s powers to cover ‘employee-like’ forms of work, a legislative change to the characterisation ‘employee vs contractor’ test, and/or the implementation of separate minimum standards for gig economy workers.

Decision at first instance

Mr Franco was a Deliveroo rider for three years and it was his primary source of income. In April 2020, his agreement with Deliveroo was terminated for delivering food orders too slowly, and his access to the Deliveroo Rider App was disabled.

Mr Franco lodged an unfair dismissal claim with the FWC^[4]. Deliveroo objected to the claim on the basis that Mr Franco was a contractor rather than an employee, and accordingly was not entitled to unfair dismissal protections under the Fair Work Act 2009 (Cth) (FW Act).

In May 2021, Commissioner Cambridge of the FWC ruled in favour of Mr Franco, finding that in substance he was an employee, and that he was unfairly dismissed. In characterising his status as an employee, Commissioner Cambridge applied the multifactorial test and centred on the concept of ‘control’ in the substantive working relationship between the parties.

Commissioner Cambridge emphasised that the decision was an assessment in the context of a modern, changing workplace impacted by the new digital world, and though many aspects of Franco’s relationship with Deliveroo were traditionally associated with that of 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 were found to be employees and afforded statutory employment protections (see for example Klooger v Foodora Australia Pty Ltd [2018] FWC 6836).

Full Bench decision

Deliveroo lodged an appeal in June 2021. However, the appeal was stayed in anticipation of the High Court’s rulings in Personnel Contracting and Jamsek.

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

In Personnel Contracting and Jamsek, the High Court found that the reality of a working relationship should not be taken into account where a comprehensive written contract exists, unless that contract is a sham or otherwise ineffective. The previously orthodox multifactorial approach was held to only have relevance in respect of assessing the written terms of the contract.

There was no debate that the relevant contractual agreement between Deliveroo and Mr Franco, the ‘2019 Agreement’, was valid and applicable.

Decisive contractual terms

Applying the ‘contract primacy’ principles set out in Personnel Contracting and Jamsek, the FWC found that the following four contractual features in the 2019 Agreement decisively weighed in favour of a characterisation of Mr Franco as a contractor.

1. Lack of control by Deliveroo: the contract terms indicated a lack of control by Deliveroo over the manner of performance of any work which Mr Franco agreed to undertake. This included clauses which provided that:
   1. once an order was picked up, Mr Franco could use any route he determined safe and efficient to deliver the order;
   2. Mr Franco could determine what type of vehicle he used to effect delivery, and accordingly he had control over the mode of performance of the work; and
   3. Deliveroo could not require Mr Franco to perform any particular delivery work.
2. Mr Franco was to provide the vehicle by which deliveries would be effected, at his expense: Mr Franco was contractually required to provide ‘a substantial item of mechanical equipment’, more than ‘just a bicycle’;
3. Ability to delegate without permission or consultation: the 2019 Agreement did not require Mr Franco to personally service orders. He had the right, without needing prior approval from Deliveroo, to arrange for someone else to perform the services he contracted to provide; and
4. Mr Franco was required to pay an administrative fee for access to Deliveroo’s software: while Mr Franco was entitled to be paid a fee for each completed delivery (rather than 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 fees earned for access to Deliveroo’s software and other administrative services, was inconsistent with an employment relationship.

Terms and realities held to be not relevant

The FWC noted that certain clauses in the 2019 Agreement were ‘mere labelling’ and did not carry any decisive weight (if any weight) 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 for tax and insurance and maintain an Australian Business Number (ABN). This was held to be a mere reflection of the view asserted in the agreement that ‘he is in business on his own account’; and
3. clauses allowing him to work for other parties including competitors. This was held to be not inconsistent with casual employment.

Impacts

The FWC expressly stated in its decision that if they were permitted to take the certain ‘realities’ of the working relationship into account, Mr Franco would be considered to be an employee. However, they were obliged to apply the contract-centric approach set out in Personnel Contracting and Jamsek decisions, and there was insufficient evidence to conclude any ‘sham contracting’ in relation to the 2019 Agreement.

They further expressed that it was clear that Mr Franco was in fact dismissed unfairly, but that ‘regrettably’, due to the jurisdictional exclusion of contractors from the unfair dismissal regime, Mr Franco is left with no remedy that can be obtained from the FWC.

Employers should consider:

1. Legislative change: the Albanese Government’s Secure Australian Jobs Plan has proposed to expand the powers of the FWC to cover ‘employee-like’ forms of work, and to set minimum standards for workers in designated sectors, including the gig economy, to address the issue. In June 2022, the Transport Workers Union also signed an agreement with ride-share giant Uber, to support the Federal Government in legislating for an independent body responsible for creating industry-wide standards, including setting minimum and transparent benefits and conditions for platform workers.
   While it is unlikely that any blanket characterisation of gig workers as employees or contractors will occur, it is almost certain that this area will see legislative reform in the near future.
2. Mere labelling in contracts: contractual terms should substantively create and reflect the intended working relationship. Mere labelling will not suffice in characterising the engagement. For example, inserting a term that provides that a worker runs their own business, and accordingly requiring an ABN and associated tax formalities, will not be decisive in characterising a contractor by reference to the terms of the written agreement.
3. Procedural fairness: but for the jurisdictional debate, Mr Franco’s dismissal was held to involve ‘an entirely unjust and unreasonable process, including the complete absence of any opportunity for Mr Franco to be heard before the decision to dismiss was made’. If there is any uncertainty as to whether a particular worker is an employee or contractor, employers should consider whether there are steps that can be taken prior to bringing the working relationship to an end, in order to discharge a later allegation that the worker was not afforded procedural fairness.

^[1] Deliveroo Australia Pty Ltd v Diego Franco [2022] FWCFB 156 (Deliveroo v Franco)
^[2] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1
^[3] ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2
^[4] Diego Franco v Deliveroo Australia Pty Ltd [2021] FWC 2818