Klooger v Foodora: FWC delivers decision on employee versus contractor

The Fair Work Commission has ruled in favour of a Foodora rider, finding that he was an employee (not a contractor) for the purposes of the unfair dismissal jurisdiction. In this article, Nicola Martin and Erin Kidd explore the key themes emerging from this decision.

 

This case1 before the Fair Work Commission (FWC) concerned an application for unfair dismissal remedy by Joshua Klooger, a food delivery bicycle rider for Foodora (Applicant). In deciding whether the Applicant’s dismissal was unfair, the FWC had to first decide whether it had jurisdiction to hear the application, as there was contention regarding whether the Applicant was an employee or an independent contractor. This aspect of the decision is important due to the FWC’s detailed consideration of the circumstances of the Applicant’s relationship with Foodora and the application of the various legal principles used to determine the employee versus contractor question.

Background

The Applicant commenced work for Foodora on 11 March 2016 as a delivery rider in accordance with a signed contract that was titled “INDEPENDENT CONTRACTOR AGREEMENT” (Contract).

The work performed by the Applicant was arranged and undertaken by means of various computer-based apps accessible by smart phone. The distribution of the work occurred in accordance with shifts designed by Foodora and available to be accepted by the Applicant. In October 2017, the shift allocation system became more complex, changing to a ‘batch’ system whereby available shifts would be allocated pursuant to the quality of a Foodora driver’s performance. Both before and after October 2017, Foodora drivers could swap shifts with one another, but only with the ‘permission’ of Foodora.

On any given shift, a rider would be told the location they would operate within, when to pick up orders and where to deliver those orders. The Applicant could not work at his own whim.

During the period in which the Applicant worked for Foodora, the Applicant established what has been dubbed a ‘substitution scheme’, through which he allowed various third parties to conduct work for Foodora using his account. Initially, Foodora was unaware of the substitution scheme, but it took no steps to stop it once it found out. In fact, Foodora commended the Applicant for his entrepreneurial initiative. The Applicant’s management of the scheme was such that he made deductions of tax from payment to these individuals and also took a 1% cut for his involvement. The Applicant’s contract with Foodora did not prohibit sub-contracting of work, but required Foodora’s written consent.

What did the FWC decide?

In deciding whether the Applicant was an employee or an independent contractor, the FWC applied the traditional tests. Specifically, the FWC examined the relationship between the Applicant and Foodora by utilising the multifactorial approach which involves the consideration of various factors.

Of the factors highlighted by the FWC as indicative of employment, two factors appeared to give substantial weight to the existence of an employment relationship between the Applicant and Foodora. The first was the fact the Contract was badly drafted and contained many provisions that were indicative of an employment contract, despite there being an express provision stating the Applicant was an independent contractor.

The second factor was that the rostering system was designed and controlled by Foodora. Specifically, there was no ability for the Applicant to work outside the rostered hours, nor was there an ability for the Applicant to choose his location. In addition, once the ‘batching’ system was introduced, the control that the Applicant could exercise over the hours they worked was further reduced. This is because the ‘batching’ system ranked drivers according to quality – shifts worked, delivery time, and number of deliveries – meaning as a matter of practical reality, the Applicant could not pick and choose when and where to work, or how fast or slow to make deliveries.

In addition, other matters that the FWC considered supported a finding that the work of the Applicant was integrated into Foodora’s business and was not an independent operation were the fact that the Applicant:

  1. did not have a separate place of work;
  2. did not advertise his services to the world at large;
  3. did not make a substantial investment in the capital equipment that he used to perform his delivery work;
  4. did not utilise an established profession, trade or distinct calling; and
  5. would utilise Foodora’s branded attire and equipment.
With regards to factors favouring a finding that the Applicant was an independent contractor, the FWC placed only a small amount of weight on the Contract’s attempt to classify the relationship as principal/contractor. Similarly, little weight was also given to the fact the relationship between the Applicant and Foodora was non-exclusive and the Applicant could work other jobs, as the FWC viewed this as synonymous with casual employment.

The FWC considered the substitution scheme to be the strongest ground advanced by Foodora for supporting a finding that the Applicant was an independent contractor.  In particular, the FWC noted that “the prospect that an employee could sub-contract her or his work to another would, ordinarily, be antithetical to the existence of any employment relationship”. However, in this case, because Foodora had knowledge of the Applicant’s operation of the substitution scheme and was aware that it was in breach of the Contract and Australian law (due to some migration matters), the FWC held that Foodora should not be allowed to rely on this scheme as a proper or acceptable basis for characterising the relationship as principal/contractor.

For these key reasons, the FWC held that from the overall picture obtained, the Applicant was not carrying on a trade or business of his own. Instead, the Applicant was working in the respondent’s business as part of that business.

Once the jurisdictional objection that the Applicant was not an employee had been determined, the FWC went on to consider whether the Applicant’s termination was harsh, unjust or unreasonable.  Upon an analysis of the various factors used to determine this question, it was found that there was no valid reason for the dismissal related to the Applicant’s capacity or conduct.  Rather, it was held that the Applicant’s public complaints about Foodora, including during an appearance on the television program “The Project”, was not a reason that could be found to have been ‘sound, defensible or well-founded’.  The FWC also criticised Foodora’s termination procedure, whereby it advised the applicant of his dismissal abruptly by way of email and without any proper or prior warning.

Accordingly, the Applicant was held to have been unfairly dismissed from his employment with Foodora and received compensation of $15,559.

Implications for employers

Since this decision was handed down, there has been commentary from employment law academics suggesting that it will not have any immediate implications for existing gig-economy companies such as Uber or Deliveroo because the arrangements between those companies and their drivers/riders have been crafted very differently. Instead of exercising control over drivers/riders in respect of when and how they perform work, like Foodora did in rostering its riders’ shifts, these other companies argue that their drivers/riders don’t perform work for them at all – instead providing a platform whereby drivers/riders find customers and get paid.

However, the decision is important because it reinforces a number of key points for businesses to consider if they engage, or intend to have individuals work for them as, independent contractors.

  1. Firstly, the decision highlights the importance of the business having a well-drafted contract between it and its contractors – especially one that does not indicate the existence of an employment relationship.
  2. Secondly, the decision raises the importance of allowing contractors to maintain control over the way in which they work as this better aligns with an individual carrying on their own trade or business.
  3. Finally, the decision also highlights the importance for businesses to ensure that they enforce key provisions in their contracts and conduct their activities according to the law.
 


1 Joshua Klooger v Foodora Australia Pty Ltd [2018] FWC 6836 (16 November 2018).

Contributors

Nicola Martin Principal