Deliveroo worker found to be an employee by Fair Work – What does this mean for the gig-economy?

By Hamish Fraser, Kristy Peacock-Smith, Natalie Yeung, Tessa Carlisle

05-2021

If the decision handed down on 18 May 2021 by the Fair Work Commission (FWC) is upheld on appeal, the decision is a landmark case that has the potential to completely change the current operational model of gig-economy platforms.

Commissioner Cambridge of the FWC found in Diego Franco v Deliveroo Australia Pty ltd (U2020/7066) that Mr Franco, a former Deliveroo driver, was an employee of Deliveroo. As an employee different rights attach to termination of the relationship, and the FWC held that the dismissal was harsh, unjust and unreasonable. As a result, Deliveroo was ordered to reinstate Mr Franco’s employment.

This is the first case in Australia where the FWC has found against the gig-economy platforms’ assumption that gig-economy workers are independent contractors.

What happened

Mr Franco electronically signed a supplier agreement on 18 April 2017 to become a Deliveroo driver and commenced performing delivery services for Deliveroo on 22 April 2017. Mr Franco continued to regularly perform delivery services for Deliveroo up until the services were terminated by Deliveroo on 30 April 2020.

During the time that Mr Franco performed services for Deliveroo, he also performed services for Uber Eats and Door Dash. As is their usual practice, Deliveroo allowed Mr Franco to log into the Deliveroo app at any time and work the hours and in the geographic locations that Mr Franco chose.

Mr Franco subsequently signed a different supplier agreement in 2018 and in 2019. Each supplier agreement contained essentially the same terms, including that Mr Franco was a supplier in business on his own account, that he was free to provide services personally or through any delegate, that he was not obligated to do any work for Deliveroo, was free to work for any third parties (including competitors of Deliveroo) and was required to provide his own mobile phone and vehicle for the purposes of providing the services.

Importantly, although in the end unhelpfully (for Deliveroo), the agreement required Mr Franco to pay an administrative fee, to complete the services within a reasonable period of time and in a safe and efficient manner, and that Mr Franco was responsible for his own tax and insurance arrangements. Under the agreement, Mr Franco could terminate at any time for any reason, by way of immediate notice in writing, and Deliveroo had the right to terminate at any time and for any reason with provision of one week’s notice in writing.

On 3 February 2020, Deliveroo sent an email to Mr Franco, which warned him that his supplier agreement may be terminated because of identified delays with his delivery times compared with other drivers doing similar or the same routes. After further investigation by Deliveroo, Deliveroo determined that Mr Franco’s times were unacceptably delayed and that complaints had been made against him and made the final decision to terminate Mr Franco’s supplier agreement by email on 23 April 2020.

Findings of the Case – employee or contractor?

The findings of Commissioner Cambridge turned on the criteria for when a person is protected from unfair dismissal as being where the person is an employee and who has completed a period of employment with his/ her employer of at least the minimum employment period (section 382 of the Fair Work Act 2009 (Cth)).

The definition of ‘employee’ under the Fair Work Act has the meaning given to it by the common law, which requires the application of the ‘multifactorial test’. This involves the consideration of various factors examining the totality of the relationship between the parties, with no single factor being determinative in itself.

Commissioner Cambridge found that although Mr Franco could technically determine when and where he felt like working, due to the use of an automated allocation system used by Deliveroo, which preferred riders who met performance metrics, the practical reality was that the system directed him to work at particular times and to regularly make himself available for work.[1] It was also found that Mr Franco’s supplier agreement contained some provisions which are similar in form and substance to those that would be ordinarily found in an employment contract, for example, the requirement to carry out services with due care, skill and ability, and comply with Deliveroo’s Health and Safety guidelines and safety standards for transportation.[2] Further, it was noted that Mr Franco had no capacity to negotiate any of the terms of the supplier agreement.[3]

Importantly, the FWC found that in consideration of the overall picture, Mr Franco was not carrying on a trade or business of his own or on his own behalf but was carrying on the business of Deliveroo. This is an interesting finding in light of Mr Franco’s ability to work for other competitors of Deliveroo, and arguably is at odds with the traditional concept of an employee solely working for one employer. The FWC’s response to this however, was that this “must be assessed in the context of a modern, changing workplace impacted by our new digital world”. The balance between the existing common law concepts of employment and the realities of working relationships in the increasingly digital world will be an important development to follow, as it seems this finding lies at the heart of the FWC decision and is likely to be the focus of the foreshadowed appeal.

The FWC therefore found that the relationship between Mr Franco and Deliveroo was one of employee and employer.[4] Consequently, the FWC found that Mr Franco’s termination was harsh, unjust and unreasonable as a result of the lack of valid reason for Mr Franco’s dismissal and the procedure of termination (by way of email and without any prior warning). The FWC ordered Deliveroo to reinstate Mr Franco’s employment and repay any lost earnings.

Deliveroo has said that it will appeal this decision.

What does this decision mean for the gig-economy?

The gig-economy has traditionally assumed its workers are independent contractors rather than employees and the financial viability of their operational model hinges on this assumption. The most important factor that the gig-economy points to in order to support their assumption that workers are independent contractors is that workers have the flexibility to decide when they work and have the ability to work for multiple platforms (including competitors) at the same time.

This case seems to suggest that the ways in which businesses have sought to ensure the gig-economy worker is not an employee may not be sufficient.

This case comes at an interesting time, as the gig-economy has undergone scrutiny recently in New South Wales during the Select Committee on the impact of technological change on future work and workers, and in Victoria in the Inquiry into the Victorian On-Demand Workforce.

During these inquiries there have been calls from both gig-economy companies, regulators, and workers unions that new federal legislation is required to ensure consistent treatment of gig-economy workers and to ensure gig-economy worker minimum rights. Under the current legislative framework, there is a disincentive for gig-economy platforms to provide benefits to workers, for fear of the FWC finding that their workers are employees not independent contractors, as has occurred in this case.

Suggestions for legislative change in Australia include:

(a) creating a new category of worker specifically for the gig-economy industry that is similar to an independent contractor, but that allows gig-economy companies to pay workers benefits without risk of being deemed to be employees. This is consistent with overseas jurisdictions where a similar concept of “worker”, being an intermediary between an independent contractor and employee, has been adopted in the UK; or
(b) creating an exemption to the current common law multifactor work test for workers in the gig-economy industry, such that the payment of some benefits to workers would not result in them being deemed to be employees.

At this stage, given Deliveroo’s indication that it will appeal the decision, it is unclear what Mr Franco’s case will mean for the future of the gig-economy.

If the decision of the FWC is upheld on appeal, this case may be a landmark case under which gig-economy platforms may be required to take extra care to ensure the tests for employment are not met and perhaps even have to re-think their entire business profitability and operational models. It would be timely for federal reform to be enacted during this time to provide some clarity and uniformity for the future of the gig-economy. Until the appeal, gig-economy platforms will wait with bated breath and should reconsider some of their normal practices and consider some alternative business models.

Please contact Hamish Fraser at [email protected] (Partner - Tech Transactions and Digital Platforms) or Kristy Peacock-Smith at [email protected] (Partner Employment) if you would like to discuss. Thanks to Natalie Yeung (Tech Transactions Associate) and Tessa Carlisle (Employment Associate).

[1](U2020/7066) at paragraph [105]-[109]. Diego Franco v Deliveroo Australia Pty Ltd

[2] Ibid at paragraph [121].

[3] Ibid at paragraph [122]-[123].

[4] Ibid at paragraph [137] and [157].