Gig economy regulation likely as Fair Work umpire confirms workers are contractors

Cilla Robinson, Sharissa Thirukumar and Catherine Huynh
24 Aug 2022
Time to read: 3 minutes

Following the Franco decision, and with further reform of the gig economy likely, you should engage early with your stakeholders and prepare.

The Full Bench of the Fair Work Commission has clarified that gig economy workers are to treated as contractors and not employees – regardless of whether the true nature of the employment relationship suggests otherwise.

While the decision in Deliveroo Australia Pty Ltd v Diego Franco [2022] FWCFB 156 upholds the spirit of freedom of contract which lies at the heart of the gig economy, it is also likely that the Federal Government will step in to legislate minimum standards to ensure there are adequate protections and benefits in place for gig economy workers that reflect the often perilous nature of their work.

The Full Bench decision in Franco

The 17 August 2022 decision of the Full Bench overturned an earlier decision of the Fair Work Commission that classified Deliveroo driver Diego Franco as an employee.

Deliveroo successfully appealed that decision on the grounds that the Commission had no power to determine that Mr Franco was protected from unfair dismissal under the Fair Work Act 2009 (Cth) because he was not an employee for the purposes of that Act. They were successful in that appeal.

The Full Bench found that Mr Franco was not classified as an employee and consequently, he was not a person protected from unfair dismissal and that the Commission had no jurisdiction over the matter.

In making their determination, the Full Bench had the benefit of the decisions of the High Court in Personnel Contracting and Jamsek which also looked at the issue of independent contractors v employees.

The gig economy contract

The Full Bench looked to the written contract between the parties and the characterisation of the work relationship as outlined in the contract. In this case, they considered the written agreement between Mr Franco and Deliveroo in 2019 and the following key clauses and factors:

  • No control over how work performed: Mr Franco had the autonomy to choose any route that he determined to be safe and efficient and at his discretion, use any mode of transport to carry out a delivery.
  • Vehicle the worker’s own: Mr Franco had to supply his own vehicle – which could be of any type (eg. bike, car) – at his expense.
  • Worker could engage sub-contractor: The agreement did not require the work to be performed personally by Mr Franco. Instead, he had the right, without the need for Deliveroo’s prior approval, to arrange for someone else to perform his services.
  • Administrative fee payable: Mr Franco had to pay an administrative fee to Deliveroo to be able to access Deliveroo’s software.

True nature of employment relationship

The Full Bench considered that there was some merit in viewing Mr Franco as an employee of Deliveroo. “As a matter of reality”, it considered that Deliveroo did have a degree of control over how Mr Franco performed his work, as well as the fact that he would present to customers as a “Deliveroo delivery driver”. However, citing the decision in Personnel Contracting, the Full Bench observed that “we must close our eyes to these matters” and only consider the terms of the written contract between the parties.

The future of the gig economy – and Labor's proposed measures

The gig economy is here to stay, yet there are concerns that there are not adequate protections at law for gig economy workers (particularly in light of several high-profile incidents in which gig economy drivers were killed or injured while on the job).

For now, companies that engage independent contractors, especially gig economy platforms, need to ensure that any independent contracting arrangements are based on formal and comprehensive written contracts and that the arrangement follows the contract terms in actual practice.

Gig economy platforms, including Uber and DoorDash, are proactively and collaboratively working with the Transport Workers Union to consider practical ways to expand the rights and protections of their workers. This is geared towards affording both businesses and gig workers sufficient flexibility while also addressing the vulnerabilities to which gig workers are presently exposed.

The Federal Government has proposed reforms that will create a regulatory framework giving gig economy workers the ability to maintain their independence and contract freely, while at the same time having the appropriate protections that reflect the often uncertain nature of the work they do.

Such regulation will likely involve setting up a scheme similar to the novel Contract Determinations regime under Chapter 6 of the Industrial Relations Act 1996 (NSW) in New South Wales. Contract Determinations provide minimum entitlements to independent contractors including minimum rates of pay, annual leave and detailed procedures for dispute resolution and termination. State Labor governments in Victoria and Queensland have committed to introduce a similar regime.

Specifically, the Federal Government has promised to extend the powers of the Fair Work Commission to cover employee-like types of work “to better protect people in new forms of work from exploitation and dangerous working conditions”. Under the new laws the Commission will have the ability to intervene or inquire into these types of work and determine what rights and obligations may apply. This scheme will likely change the way companies engage independent contractors, especially in the highly scrutinised yet largely unregulated gig economy space.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.