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The Fair Work Commission reluctantly strikes another blow against gig workers

Deliveroo Australia Pty Ltd v Diego Franco [2022] FWCFB 156

The Full Bench of the Fair Work Commission (FWC) has held that the comprehensive written contract between Deliveroo and a delivery driver established an independent contractor relationship after applying recent High Court of Australia decisions, overturning an earlier finding that the driver had been unfairly dismissed.

Background

The driver, Mr Franco, regularly provided services to Deliveroo between April 2017 and April 2020 in accordance with several successive “supplier agreements”, the most recent one being entered into in 2019 (2019 Agreement). Deliveroo terminated the 2019 Agreement in April 2020 when it determined that Mr Franco’s delayed delivery times were unacceptable. Mr Franco subsequently filed an unfair dismissal application under section 394 of the Fair Work Act 2009 (Cth) (FW Act), alleging that he was an employee of Deliveroo who had been unfairly terminated.

Mr Franco was initially successful with his unfair dismissal claim, as the Commissioner applied the previously accepted judicial approach of examining the ‘totality’ of the working relationship to determine that an employment relationship existed.

Deliveroo subsequently appealed to the Full Bench of the FWC.

High Court Decisions

Before Deliveroo’s appeal was determined, the High Court handed down decisions in CFMMEU v Personal Contracting Ltd [2022] HCA 1 and Jamsek v ZG Operations Pty Ltd [2022] HCA 2 (together the “High Court Decisions”) (see our previous article on the High Court Decisions here).

The High Court Decisions held that the assessment of whether a person is an employee or independent contractor is to be determined solely by reference to the rights and obligations of the parties contained in a comprehensive written contract, in circumstances where it is not alleged that the contract is a sham, has been varied or is legally ineffective.

Relevantly, the High Court found that it was an error to characterise the nature of an employment relationship by reference to the “conduct of the parties to the employment relationship and the real substance, practical reality and true nature of that relationship” where the parties had committed the terms of the relationship to a written contract.

Current Principles

The Full Bench observed the Commissioner’s decision was orthodox and unremarkable as it correctly applied the “multifactorial test” which was applicable at the time of the decision to find that an employment relationship existed. However, the High Court Decisions (and subsequent cases) have clarified the appropriate principles to determine the nature of the relationship between parties are as follows:

Where a relationship is regulated by a wholly written, comprehensive contract, which is not a sham, varied or otherwise ineffective, it is not permissible to examine or review the performance of the contract or the course of dealings between the parties.
Subsequent conduct of the parties may only be considered to ascertain the existence of variation of contractual terms.
The contractual provisions that may be relevant in determining the nature of the relationship include those that deal with the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work, the provision for holidays, the deduction of income tax, the delegation of work and the right to exercise direction and control.
The multifactorial approach is only relevant to the required assessment of the terms of the contract (or in circumstances where there is no written contract).
The terms of the contract will determine whether the worker’s work was so subordinate to the employer’s business that it can be seen to have been performed as an employee of that business rather than as part of an independent enterprise (i.e. operating their own separate business).
Existence of a contractual right to control the activities of the worker (including how, where and when the work is done) remains a major signifier of an employment relationship.
The label or characterisation placed on the relationship by the contract is not a determinative factor.
Non-exclusive work performed by the worker may be consistent with casual employment and not only an independent contractor relationship.

Reasoning of the Full Bench of FWC

The FWC found that there were four factors in the 2019 Agreement that weighed decisively in favour of concluding that Mr Franco was an independent contractor:

Control: The terms of the 2019 Agreement indicated Deliveroo lacked control over the manner of performance of any work agreed upon by Mr Franco, as the driver could choose the route of and vehicle for delivery and Deliveroo could not require Mr Franco to perform any particular delivery work.
Provision of Equipment: Mr Franco was required to provide, at his own expense, the vehicle he used to make deliveries.
Delegation: The 2019 Agreement did not require personal service on the part of Mr Franco, who had the right to arrange for someone else to perform his contracted services.
Remuneration arrangement: Mr Franco had to pay to Deliveroo an administrative fee of 4% of the total fees payable to him to compensate for access to Deliveroo’s app and administrative services, which was considered inconsistent with an employment relationship.

“Realities we are obliged to ignore”

However, the Full Bench judgment, under the heading “Realities we are obliged to ignore”, also noted that if the Full Bench had not been required by the High Court Decisions to focus solely on the contract terms and disregard the practicalities of the relationship, they would have reached the conclusion that Mr Franco was an employee for the following reasons:

In practice there was a significant degree of control exercised by Deliveroo over Mr Franco.
Although Mr Franco provided motorcycles to perform the work, there was not a substantial capital outlay.
Mr Franco was expected to perform the services personally, even though the 2019 Agreement provided for delegation.
The written agreements were unilaterally drawn up by Deliveroo without negotiation or consultation with Mr Franco.

The Full Bench found that since there was no evidence that the 2019 Agreement was a “sham” and the 2019 Agreement had been comprehensively reduced to writing, an independent contractor relationship was established on the terms of the contract. Therefore, the appeal was allowed and Mr Franco had his unfair dismissal application dismissed, without reinstatement.

Key Takeaways for Employers

Where parties intend to establish an independent contractor relationship, a comprehensive written contract should be used, the terms of which accurately reflect the hallmarks of a genuine independent contractor relationship.

Please contact our Employment Team if you require assistance.