Australia: Fair Work Commission acknowledges unfair treatment of Deliveroo driver but overturns decision finding driver an employee

UK based food delivery giant Deliveroo has successfully appealed a May 2021 decision by Commissioner Ian Cambridge, a single member of the Fair Work Commission (“FWC”), that Mr Diego Franco, one of Deliveroo’s delivery drivers, was an employee and that the termination of Deliveroo’s “supplier agreement” with him for alleged “delayed delivery times” was harsh, unjust and unreasonable, The Commissioner also ordered that he be reinstated. A Full Bench of the FWC in Deliveroo Australia Pty Ltd v Diego Franco [2022] FWCFB 156 (“Franco”) has overturned that decision.

In the first instance decision, Commissioner Cambridge found that Mr Franco was not carrying on a trade or business of his own and was in fact working in Deliveroo’s business as part of their business. The Commissioner, in applying the established principle (at the time) that it was necessary to look at the totality of a working relationship in order to determine whether it was one of employment, held that the level of control that Deliveroo possessed, and which it could choose to implement or withdraw, represented an indicium that strongly supported the existence of an employment relationship. This finding was largely predicated on the existence of (or at least the right to re-introduce) a ‘rider engagement system’ which required Deliveroo riders to book the sessions they would work in advance, provided preferential access to particular sessions based on a rider’s performance and incentivised riders not to cancel engagements.

However, in the period spanning the handing down of Commissioner Cambridge’s decision in May 2021 and the delivery of the Full Bench’s decision in Franco on 17 August 2022, the High Court of Australia handed down three landmark decisions^[1] radically altering the prevailing approach to the determination of an employment relationship.[2] That radical shift is, effectively, that where a relationship is regulated by a wholly written, valid contract, the question of whether an employment relationship exists is to be determined solely by reference to the rights and obligations under that contract. It is not permissible to examine or review the performance of the contract or the course of dealings between the parties.

In Franco, there was no dispute between the parties that a 2019 contract (“Contract”) between Mr Franco and Deliveroo comprehensively set out in whole the contractual rights and obligations of the parties. Accordingly, the analysis of the question of employment status proceeded by reference to the terms of that Contract, and the Full Bench’s key findings were as follows:

• certain terms of the contract were deemed to constitute “mere labelling”, such as a description of Mr Franco as a supplier in business on his own account, and were given little to no weight as they constituted descriptive assertions and not substantive contractual rights or obligations;
• that Mr Franco was not obliged to do any work for Deliveroo, that Deliveroo were not obliged to make any work available to Mr Franco, that Mr Franco could accept or reject any deliveries offered to him whilst logged into the app, and that Mr Franco was free to work for any other party, including competitors, were all not determinative as they were indicative of (or not inconsistent with) casual employment, meaning they did not point away from the finding of an employment relationship;
• a clause that provided Mr Franco could determine whether, when and where he logged in or provided services constituted a limited reversal of an element of control normally associated with casual employment (that the employer offers work at a particular time and place at its discretion) weighed against a finding that Mr Franco was an employee, but was not determinative;
• four aspects of the Contract weighed decisively in favour of the conclusion that Mr Franco was an independent contractor:
  • there was a lack of control by Deliveroo over the manner of performance of work, in that the contract conferred on Mr Franco a right to use any route which he (and not Deliveroo) determined to be safe and efficient, and a right to determine the type of vehicle he used;
  • because the agreement gave Mr Franco the right to select the type of vehicle, this meant it was possible that he might utilise a “substantial item of mechanical equipment” (i.e. an expensive vehicle, not just a bicycle), which is generally indicative of an independent contractor relationship;
  • the agreement did not require personal service on the part of Mr Franco, in that he had the right to arrange for someone else to perform deliveries;
  • Mr Franco was required to pay an administrative fee of 4% of the total fees payable to him for access to Deliveroo’s software and other services, which was a requirement that was inconsistent with the existence of an employment relationship.

There is a degree of artificiality inherent to some of the above considerations. The Full Bench frankly acknowledged that, as a result of the Personnel Contracting decision, they were obliged to “ignore certain realities concerning the way in which the working relationship… operated in practice” which, if they were permitted to take into account, would have led them to reach a different result, including that:

• Deliveroo’s rider engagement system, in practice, provided Deliveroo with a significant degree of operational control over delivery workers;
• Mr Franco’s principal motorcycle, which cost about $1,500, was not a sufficiently substantial capital outlay such that it pointed to the existence of an independent contractor relationship;
• Mr Franco was strongly encouraged by Deliveroo to use Deliveroo-branded gear and clothing, meaning he presented himself to customers as an emanation of the business;
• it was never commercially practical to delegate work, and Mr Franco never did, despite the existence of the right to do so;
• contracts were unilaterally drawn up by Deliveroo without negotiation, and many changes across various iterations of the contract were apparently intended to remove indications that Deliveroo could control the performance of work in circumstances where there was no significant practical change to the way in which work was conducted (apart from the withdrawal of the rider engagement system).

The Full Bench found that as a matter of reality, Deliveroo exercised a degree of control over Mr Franco’s performance of his work, that he presented himself to the world with Deliveroo’s encouragement as part of Deliveroo’s business, that his provision of the means of delivery (motorcycle) involved no substantial capital outlay, and that the relationship between the parties was one of personal service. Those matters, according to the Full Bench, would tip the balance in favour of a conclusion that Mr Franco was an employee of Deliveroo, but the Full Bench noted that they must “close their eyes to these matters” given, in the wake of Personnel Contracting, it was no longer permissible to consider the totality of the relationship. Remarkably, the Full Bench noted that it was regrettable that Mr Franco was now left with no remedy in circumstances where they deemed Deliveroo’s conduct to be “plainly… unfair treatment”. This is the second occasion[3] the FWC have drawn attention to what they have said are unjust outcomes in the wake of the High Court shift in approach, and which has widely been interpreted as a ‘call to action’ for the Federal Government to legislate reforms in the area.

Key Action Points for Human Resources and In-House Counsel

1. The approach established by the High Court, that ‘contract is king’ and that employment status is determined (where there is a valid, comprehensive written contract) solely by reference to the rights and obligations contained within the contract, is being applied by lower courts and tribunals, even where there is perceived unfairness in such an approach. However, the obvious dislike of the unfair results such an approach can sometimes produce means not only that there is a clear signal to government that the law should change, but that companies can expect a rigorous examination of their documentation and their practices (and potentially face criticism even if the legal argument succeeds). Caution must therefore be exercised when drafting independent contractor agreements, to ensure that the rights and obligations provided by such agreements do not indicate that the worker is contracted to work in the business the worker is contracting with, and that the right to control the activities of the worker, including how, where and when the work is done, is minimised. If substantial control is required to be exercised over a worker, especially as to how they perform a role, businesses should consider engaging workers as employees as opposed to independent contractors.
2. Keep in mind that the Federal Labor Government have commenced a consultation period on promised gig economy reforms, set to be introduced in 2023, which include empowering the FWC to regulate “employee-like” forms of work, with the aim of extending minimum rates of pay and entitlements, such as paid leave, superannuation and protection from unfair dismissal to gig economy workers.

[1] Workpac Pty Ltd v Rossato & Ors [2021] HCA 23 (“Rossato”); CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 (“Personnel Contracting”); ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2.

[2] See Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1; Hollis v Vabu Pty Ltd [2001] HCA 44.

[3] Asim Nawaz v Rasier Pacific Pty Ltd T/A Uber B.V. [2022] FWC 1189 (“Nawaz”) in which the FWC found on 17 June 2022 that an Uber driver was not an employee.