The law goes in cycles
On one view of things, this decision was not surprising – the High Court of Australia in 2001 had found that cycle couriers who delivered envelopes (and parcels and similar items) were employees of Crisis Couriers. As with Mr Klooger, the workers in the earlier case had signed agreements which described them as “independent contractors”, but this description did not fully reflect the nature of the work which the couriers performed. In particular, it could not be said that either the parcel couriers or the food delivery workers were running their own businesses, which is the hallmark of an independent contractor. Similar considerations have produced similar results in UK – one UK Tribunal observed that:
“Couriers out on the road on their own bicycle enjoy a certain amount of freedom (sometimes this is the freedom to get very cold and, at worst. have an accident for which they receive no sick pay)”
but that the couriers had:
“little autonomy to determine the manner in which their services are performed, and no chance at all to dictate its terms”.
In the Foodora decision this month, Foodora placed particular emphasis on the fact that Mr Klooger was able to arrange for some of his deliveries to be performed by other workers. In general terms, the ability to subcontract is inconsistent with an employment relationship, and a genuine entitlement to subcontract has been determinative in other decisions in relation to gig economy workers (for example, in a UK Tribunal case involving Deliveroo). However, the problem for Foodora was that:
- Mr Klooger’s contract provided that Mr Klooger could only subcontract the work with Foodora’s prior written consent, which had not been obtained; and
- Mr Klooger’s decision to begin “subcontracting” his work (which really meant allowing other riders to use his login to the relevant Foodora apps) appears to have allowed another Foodora rider who had lost the legal right to work in Australia to continue performing work.
As a result, the FWC found that Foodora should not have permitted the subcontracting to occur. Again, it is unsurprising that conduct which should not have occurred (because it unlawfully permitted work to be performed by a worker without the legal right to work) could not be relied upon by Foodora to establish a genuine contractual entitlement to subcontract.
What else does the case tell us?
Perhaps the only surprising aspects of the Foodora decision were at the periphery of the case (although both aspects raise important points in relation to engaging workers in Australia). The first surprising aspect was the FWC’s conclusion that the contractor agreement contained a “significant error” because, although Mr Klooger was working in Victoria, the agreement contained an express choice of law clause nominating New South Wales law.
With respect, it is not correct to describe this as an error, let alone a “significant error” – it is entirely permissible for the parties to choose their governing law, and that decision will be given respect in the superior Courts, if not in the FWC. In particular, in any contract which involves post-termination restraints, the party with the benefit of the restraints will only get the benefit of the Restraints of Trade Act 1976 (NSW) if NSW law is applicable.
The second surprising aspect was the observation by the FWC that independent contracting may be driven by the fact that corporate tax rates are lower than equivalent personal tax rates. In the Foodora case, Mr Klooger had not incorporated a company, so corporate tax rates were not an issue. Whether or not changes in the workforce are being driven by tax, or by wider considerations, it is worth remembering that the safest way to engage workers as independent contractors is to engage a corporate entity to provide their services, so that there is no contract directly between the principal and the worker whose services are being engaged.
Foodora back for another helping?
Coincidentally, the decision of the FWC was handed down on the same day that the creditors of Foodora Australia resolved to enter into a Deed of Company Arrangement (DOCA) which may see the company’s bicycles back on the street. It has been reported that Foodora’s German parent company has offered to pay $3 million in respect of debts which, if all of the food delivery workers are employees, are estimated to be in the vicinity of $5.5 million just in relation to back pay.
The consequence of the workers being employees rather than contractors also means that this Superannuation Guarantee Charge is owing to the Australian Tax Office (which claimed to be owed $2.14 million) and payroll tax (with Revenue NSW reported to be owed more than $550,000). The revenue agencies are reported to have voted against the DOCA proposal. These figures indicate the very high costs that can arise from situations in which workers are wrongly characterised as contractors rather than employees. In particular, it is important to note that directors can be personally liable for amounts owing to the ATO and state revenue agencies in these circumstances.
Conclusion
So, what do these events mean for the gig economy more generally? is Deliveroo’s business model deliver-ruined, and is it likely that Uber Eats will not be something which Uber repeats? No doubt there are contractual provisions being polished even as we speak, but the primary lesson for those engaging independent contractors is that cleverly drafted contractual provisions are not enough. No matter how clever the drafting, mere documents won’t assist unless, when tested against the way that work is actually performed, those provisions truly describe not just some limited aspects of the work relationship, but the whole enchilada.
Read the decision in Joshua Klooger v Foodora Australia Pty Ltd [2018] FWC 6836 here.
Please contact the author if you have any queries about this article.
Angus Macinnis has a broad commercial practice with a focus on dispute resolution, and in particular, on employment and work health and safety law, and intellectual property law. He advises employers and employees on all aspects of employment law, from drafting contracts and employment policies, to dealing with employment related disputes, to dealing with employment and safety regulators. He has a particular interest in the employment law aspects of social media use and has published in this area in publications including the Law Society Journal, The New Lawyer, and the Internet Law Bulletin, as well as providing regular contributions to AHRI’s HRM Online website. He is a regular speaker at conferences for MCLE providers including the Law Society of New South Wales and the University of New South Wales and also provides training to employer clients in areas including anti-discrimination law. In the intellectual property area, Angus advises in relation to copyright and trade mark disputes, as well as “trade dress” and passing off disputes. Contact Angus at angus@stevensvuaranlawyers.com. You can also connect with Angus via Twitter