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New Challenges for Gig Economy Service Providers

New Challenges for Gig Economy Service Providers

On the 16th of November 2018, a landmark decision on unfair dismissal is likely to have wide ranging implications for the gig economy on what Australian Law considers to be an employee or contractor.

The food delivery company Foodora placed itself into voluntary administration in August 2018 ceasing all Australian operations despite the fact it was in the midst of court action.

Josh Klooger was engaged as an “independent contractor” in March 2016 under an arrangement where he was paid $14 per hour plus an additional $5 delivery fee for every delivery.

The relationship between Klooger and Foodora became undone when Foodora became aware that Klooger administered an encrypted Whatsapp chat group which was used by Klooger and other Foodora contractors to compare pay rates and conditions. Foodora wrote to Klooger stating that he was “potentially breaching confidentiality and intellectual property rights” by administering and maintain the Whatsapp group and requested he hand over control of the group. When Klooger refused Foodora terminated his contract immediately and notified him by email.

The act of comparing pay rates between contractors came about as a result of new contractors joining the Foodora Delivery Service becoming acutely aware of receiving substantially lower rates when compared to their predecessing contractors.  In fact, the food delivery service had downgraded pay for new delivery riders from $14 per hour with a $5 delivery fee when Klooger started, to just $7 per delivery and with no hourly rate just two years later.

Upon receipt of the email outlining the termination of his contract and with the assistance of the Transport Workers Union, Klooger sued the food delivery service for unfair dismissal.

The Fair Work Commission found that Klooger was in fact considered an employee primarily due to the organisations Batch System which made available to riders available shift times as to when they could work, the system rewarded the top 10 per cent of riders based on who worked the most hours on evenings and weekends. Foodora’s Batch System rewarded the top 10 per cent granting them the first pick of the shifts for the next available roster and punished all other riders, the bottom 40 percent were left with the last and final pick of the next shifts. The Fair Work Commission found that the Batch System was found to be evidence of Foodora exercising a high degree of control over its workers; as a result of this control they in turn met the definition of employee under the Fair Work Act and not contractors.

Upon the determination that Klooger in fact met the definition of Employee, the commissioner found that Klooger’s dismissal via email “without any proper, prior warning, was plainly unjust, manifestly unreasonable, and unnecessarily harsh”, and noted he had been an exemplary employee. The Fair work Commission ordered Foodora to pay Mr Klooger $15,559 as compensation for the unfair dismissal.

Foodora’s administrators Worrells now estimate that former workers were underpaid by $5.5 million because “more likely than not … the delivery riders and drivers should have been classified as casual employees instead of contractors”.  Foodora’s administrators said riders who were now legally classified as employees could have their claims against the company assessed.

The Fair Work Commission ruling differs that from an earlier Ruling made by the commission concerning Uber that determined that Uber drivers are in fact contractors, a view formed by the Commission as a result of the drive sharing organisation failing to meet the ‘control’ paradigm.  The commission found that while Uber exercised control over fares, including minimum trip fees and surge pricing, the deputy president said “they are not overwhelmingly strong factors” that suggest an employment relationship. The commissioner considered drivers had control over when, where and for whom they worked and no contractual obligation to perform work for Uber existed.

The Fair Work Decision has wide-reaching implications regarding the legal status of workers working within all gig economy service providers within Australia outlining that enterprises providing gig-economy services via mobile app’s and web sites must give consideration to meet such required obligations as PAYG income tax, workers compensation, superannuation and state based payroll tax.

The misclassification of employees as independent contractors can have wide reaching financial implications for ‘gig-economy’ providers and be fatal to their business if they receive determinations by the Fair Work Commission similar to the determination in Klooger v Foodora. Such misclassification of workers can result in an organisation being required to back pay employees entitlements, workers compensation costs and superannuation and leave entitlements.

The Foodora case highlights the complexity regarding the classification of employees, if you are uncertain as to the correct classification of your employees and or contractors and would value certainty on how your workers should be classified; please contact Daniel McDonald on (03) 9070 1107.