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Foodora case: first definitive Australian ruling that a gig worker was an employee

17th November, 2018

The Fair Work Commission (FWC) has determined that former Foodora delivery rider, Josh Klooger, was an employee whose employment was terminated unfairly.

(Klooger v Foodora Australia Pty Ltd [2018] FWC 6836, 16 November 2018, see: https://www.fwc.gov.au/documents/decisionssigned/html/2018fwc6836.htm)

This is the first time that an Australian tribunal or court has determined in favour of the employment status of a platform worker, following two previous FWC rulings that Uber drivers were independent contractors.

(see: https://labourlawdownunder.wordpress.com/2018/10/27/what-does-collective-representation-look-like-in-australias-gig-economy/)

The Foodora case is all the more interesting in the wake of the company’s sudden departure from the Australian market in August this year.

Mr Klooger was perhaps not an entirely typical food delivery rider: at various times during his relationship with Foodora, he progressed from regular delivery work to operating a ‘substitution scheme’ (enabling other riders to work via his Foodora account) and was later employed full-time as a ‘Driver Manager’.

However the relationship soured when he began engaging in activism on behalf of Foodora riders, including through the media and the Transport Workers Union (TWU), in early 2018.

In his ruling, addressing Mr Klooger’s work as a regular rider, Commissioner Cambridge of the FWC applied the well-established common law ‘multifactorial test’ to the circumstances of the relationship between the parties.

Employee or contractor?

Key factors informing the FWC’s conclusion that Mr Klooger was an employee included the following (emphases added):

The service contract [although designating him as a contractor] contains many provisions which are similar in form and substance to those that would ordinarily be found in an employment contract document. The service contract contains clauses dealing with, inter alia, rostering and acceptance of jobs, the attire that is to be worn during the performance of services, the specific nature of the engagements to be undertaken including requirements that the putative contractor is to comply with all policies and practices of the principal, treating all reference to ‘employees’ as a reference to “the contractor”. [para 72]

Foodora had considerable capacity to control the manner in which the applicant performed work, and it fixed the place of work and the start and finish times of each engagement or shift. The control that Foodora possessed and exercised over the manner in which the applicant performed work was reflected by the metrics that were used in the batching system which ranked the work performance of inter alia, the applicant. The operation of the batching system meant that in order to maintain a high ranking the applicant would be required to perform a certain number of deliveries during any particular engagement, to work a minimum number of shifts in a week, and work a number of Friday, Saturday or Sunday nights. [para 73]

The applicant did not have a substantial investment in the capital equipment that he used to perform his delivery work. The bicycle that he used for delivery work was also used generally for non-work-related bicycle activities. [para 78]

… [T]he 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. In these circumstances, the substitution scheme, as an example of sub-contracting, should not represent a proper or acceptable basis for validation of the characterisation that should be determined for the relationship between the applicant and Foodora. [para 87]

Foodora presented the applicant to the world at large as an emanation of its business. Clause 4 of the service contract established an expectation that the applicant would dress in Foodora branded attire, and utilise equipment displaying the livery of the Foodora brand. [para 89]

In conclusion:

… the applicant was not carrying on a trade or business of his own, or on his own behalf, instead the applicant was working in the respondent’s business as part of that business. The work of the applicant was integrated into the respondent’s business and not an independent operation. The applicant was, despite the attempt to create the existence of an independent contractor arrangement, engaged in work as a delivery rider/driver for Foodora as an employee of Foodora. [para 102]

Unfairly dismissed?

Having established that Mr Klooger was an employee, the FWC next considered the merits of his unfair dismissal claim. It was found that Foodora’s claimed justification – that it ended his engagement because he would not hand over administrator control for the Melbourne rider chat group in breach of the IP provisions in the service contract – lacked a proper basis.

Rather, the evidence showed that:

… the substantive and operative reason for the dismissal of the applicant was his conduct involving public agitation and complaint about the terms and conditions that Foodora imposed on its delivery riders/driver, particularly culminating in the applicant’s appearance on the television program “The Project”. [para 112]

Further, the process by which Mr Klooger’s services were ended (abruptly, by email and without warning), was plainly unjust and manifestly unreasonable.

Given that reinstatement was not possible as the employing entity is now in voluntary administration, the FWC awarded him compensation of A$15,559.

Broader implications

The FWC also made these more general observations, which may be interpreted as putting other gig platforms on notice that their ‘contracting model’ (i.e. putative assumption of workers having contractor status) will be questioned in future cases:

As in this case, the corporation (Foodora) stipulated the requirement for individuals to obtain an Australian Business Number and to create, at least the appearance, that the individual operates a business of their own. The corporation then avoids the many responsibilities and obligations that it would normally have as an employer. The responsibility for compliance with many important regulatory obligations including but not limited to taxation, public liability insurance, workers compensation insurance, statutory superannuation, licensing and work health and safety, is transferred from the corporation to the putative contractor. [para 105]

Contracting and contracting out of work, are legitimate practices which are essential components of business and commercial activity in a modern industrialised economy. However, if the machinery that facilitates contracting out also provides considerable potential for the lowering, avoidance, and/or obfuscation of legal rights, responsibilities, or statutory and regulatory standards, as a matter of public interest, these arrangements should be subject to stringent scrutiny. Further, if as part of any analysis involving the correct characterisation that should be given to a particular relationship, an apparent violation of the law, or statutory or regulatory standards is identified, as a matter of public interest, any characterisation of the relationship which would avoid or minimise the likelihood of such violation should be preferred. [para 106]

This precedent is an important one, and is likely to lead to more cases being launched by or on behalf of gig workers. A number of Australian unions are actively seeking to represent the interests of these workers, although we are yet to see a case establishing collective bargaining rights like the High Court appeal involving Deliveroo heard in the UK this week.

(see: https://www.theguardian.com/business/2018/nov/14/deliveroo-riders-rights-court)

There was speculation, when Foodora ‘flew the coop’ a few months ago, that the prospect of this unfair dismissal ruling and the commencement of enforcement proceedings by the Fair Work Ombudsman (since discontinued) were pivotal factors in the company’s decision to leave.

The company also faced significant potential tax liabilities. It was reported recently that the Australian Taxation Office has ruled that Foodora workers were employees (according to the company’s administrators: see Workplace Express, 9 November 2018).

On the same day as the FWC’s unfair dismissal decision was handed down, Foodora riders agreed to a proposal by the German parent company Delivery Hero of an A$3 million part-payment of their outstanding debts (see Workplace Express, 16 November 2018).

Under pressure from the TWU, the Federal Government has made its most critical comments of a platform operator to date. Jobs Minister Kelly O’Dwyer stated that:

… Delivery Hero, must do the right thing and meet all the entitlements owed to riders …

There are no excuses for companies treating genuine employees as contractors.

Delivery Hero has a moral obligation to ensure all Foodora riders receive their full entitlements and I’ve asked my Department to look at all legal options to hold them accountable for payments due to any riders found to have been employees.

(reported in Sydney Morning Herald, 16 November 2018, see: https://www.smh.com.au/business/workplace/foodora-creditors-vote-to-accept-less-than-half-of-debts-claimed-20181116-p50gic.html)

Foodora’s legacy in Australia may well end up being two-fold: not only has it has left other platforms with an unhelpful precedent, it has stirred the political pot in a pre-election context which could result in legislative amendments to address the concerns unions are highlighting about gig work.

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