The Fair Work Commission has ruled that a gig economy worker is an employee and not a contractor. HRM talks to an expert and looks at the potential fallout.

The Fair Work Commission (FWC) has found that a Foodora rider was an employee and not, as the company claimed, a contractor.

The worker, Joshua Klooger, made an application for an unfair dismissal remedy in March of this year and was represented by the Transport Workers Union of Australia (TWU). The company maintained a jurisdictional objection to the application, on the grounds that Klooger was an independent contractor.

The company’s stated reason for his dismissal has to do with intellectual property rights over a Telegram chat group. Having decided Klooger was an employee, the FWC also found the dismissal to be unfair (the company has been ordered to pay nearly $16,000 in compensation).

When Foodora went into voluntary administration in Australia there was some question as to whether the case would go ahead. But since it has, the biggest impact will be on the gig economy companies still here – will their business models survive?

Sub-contracting

There is no set of hard and fast rules that determine whether someone is an employee or a contractor – there is instead a range of factors that are taken into account.

For instance, employees can’t subcontract, which is why a large part of Foodora’s case rested on Klooger allowing other people to use his company profile to make deliveries.

The scheme began after Klooger’s friend, who is not an Australian citizen, had visa problems that resulted in their Foodora account being suspended. This developed into a situation where Klooger let him and three other individuals use his account. The arrangement was given the name JKDC (Josh Klooger Delivery Company). Klooger received payments from Foodora and then reconciled payments to the other riders after making deductions of 18 per cent for tax, and a further 1 per cent for his involvement. Despite the fact that Klooger’s contract forbade him from subcontracting without Foodora’s permission, the company condoned it after learning of its existence.

“It’s normally a factor that’s quite strongly in favour of the relationship being an independent contractor. If you’re delegating to others, that starts to feel more like a business,” says McDonald Murholme principal lawyer Andrew Jewell.

Klooger’s lawyer submitted that JKDC “did not involve the establishment of any corporate structure or even a business name” and that Klooger thought of it as “a bit of a joke”.

Working against Foodora’s argument was that through JKDC it essentially re-engaged a worker it had suspended for visa troubles. What’s more, the other three individuals using Klooger’s account “did so in circumstances where Foodora had refused to engage them as a result of some non-compliance issues with terms of the service contract… [This] resulted in the somewhat bizarre position whereby Foodora effectively sanctioned the work that it had previously forbidden.

“The substitution scheme operated in clear breach of the service contract, and in one case at least, it apparently facilitated the performance of work contrary to Australian Law. Foodora should not have permitted the operation of the substitution scheme,” the decision reads.

Level of control

The level of control a company has over an individual’s work is another determining factor in whether or not he or she will be considered an employee or contractor. Generally the more the company has, the more the individual seems like an employee.

Klooger’s lawyer argued that the nature of the platform prevented riders from having the freedom to shape their work. Foodora’s argument was that workers had no obligation to accept a shift and that during a shift, they could refuse a courier job.

From the wording of the decision, it seems a great deal of emphasis was put upon Foodora’s “batch system”, which essentially ranked workers’ performance, and rewarded or punished them based on that ranking.

The decision reads: “The level of control that might be exercised in employment situations by way of direct verbal or written instruction to an employee from the employer, was obtained by Foodora by virtue of the operation of… the batching system. As a matter of practical reality, the applicant could not pick and choose when and where to work, or how fast or slow to make deliveries.”

In light of this point, gig economy companies would want to be very careful with how they try to run a system of performance management.

“It’s a tricky one because these companies want to deliver a higher level of service, but the more control and management you have, the more you’re pushed closer to an employment relationship,” says Jewell.

While Foodora’s batch system was a little bit more controlling than some other gig economy companies’, any element of a platform that assesses gig economy workers’ performance and rewards, and punishes them based on that assessment (such as adjusting their ability to get jobs) tends to suggest employment.

Gig economy companies could face a difficult choice: either keep classifying workers as contractors and risk an impact on service by taking a hands-off approach to their performance management, or switch workers to an employment relationship.

Working for multiple companies

A common factor raised by those who think gig economy workers shouldn’t be classified as employees is the lack of an exclusivity requirement.

“Previously people have said, ‘you can take a shift with Foodora, you can take a shift with Deliveroo, then the next day you could ride for Uber’. And that defeats the argument that you’re an employee,” says Jewell.

But in the decision, although Klooger did some work for other gig companies, it didn’t change the fact that he was ruled an employee. It reads: “In many respects, the performance of work for other delivery companies might be equated with circumstances where an employee might have two or more jobs. For instance, casual restaurant staff might work for two or three different restaurants or bars, which may, in some circumstances, compete for business.”

This cuts to the heart one of the seemingly more robust gig economy arguments, especially for those who do gig work on a more casual basis. “Again it means that this decision is quite big, and it’s quite big not just for Foodora (which has ceased trading) but for all of these gig economy companies,” says Jewell.

Just because someone works for two people doesn’t mean they’re not an employee of both. This is probably an acknowledgement from the FWC that, as the nature of work changes, more and more people will have multiple jobs and multiple casual jobs, says Jewell.

The future of the gig economy

Unusually for the FWC, the decision addresses how this case might affect the public interest. The gig economy is changing work, and the Commission member who wrote the decision seems to be calling for legislation to regulate the sector.

“In my view, there may be a need to expand and modify the orthodox contemplation for the determination of the characterisation of contracts of employment vis-à-vis, independent contractor, as the changing nature of work is impacted by new technologies.”

As Jewell sees it, they were obliged to look at the public interest, and seem to be asking for legislation to help clarify this matter. “[They seem to be saying], ‘I have to analyse this based on legal principles. But maybe there needs to be some consideration about a different way to view this’… It’s a not too thinly veiled reference to Parliament.”

What should gig companies do?

This single FWC decision will not determine what is and is not an employee in the gig economy. Each worker has a different situation, and no two gig economy companies operate under the exact same model. For instance, a previous FWC case this year held that Uber drivers are not employees.

But the Klooger case does undermine a few arguments gig economy proponents have been making. The mere presence of some form of subcontracting is not enough, and nor is non-exclusivity. Worse still for gig economy companies, robust performance management might work against them.

The decision seems to suggest that Klooger was a casual employee. So, to avoid future liability, a possible first step for gig economy companies is to begin paying their workers’ superannuation, says Jewell. Of course, beginning to pay super would severely harm all attempts to classify gig workers as contractors.

“I’d be saying that, based on this decision, these companies should convert to an employment model,” says Jewell. “It’s probably better to start paying super, admit there’s employment and limit your future liability.

“The more scary point is underpayments. In my opinion, these companies just don’t have the infrastructure to consider whether they are paying in accordance with Awards or not. Because they’ve basically been operating under the assumption that they don’t have to worry about Awards.”

This is important because in the event it’s found that they employing people while not meeting Award rates, they could have an order for hundreds of thousands or millions of dollars in underpayment.

“The best argument that a company has – apart from all the technical ones – is that if you can fall back on the fact that your individuals are earning much more than Award rates, then your exposure is much less severe.

“If someone is getting paid $40 an hour and the Award says they should be getting $20, you can say, ‘well we might have got it wrong, but we’re paying them more than we have to anyway.’ However, if that same person is getting paid $13 an hour and they should be getting $20 then I think a court is going to look at that and say, ‘this isn’t someone running their own business. This is someone being exploited.’”

Photo credit: Guilhem Vellut