We are all familiar with the term ‘gig’ being synonymous with the music industry, but in the last five years, the gig economy is having a growing impact on the way in which the workforce is operating. People are abandoning traditional 9-to-5 employment, in favour of working independently with greater flexibility.
The gig economy is particularly trending in the use of digital platforms to connect individuals with services like ride-sharing and food delivery. But it also includes freelance and personal services like virtual assistant, graphic design, social media marketing, and web development. The attraction is, that people can pick and choose the gig that suits them, when they perform it, and when they withdraw from the gig if unhappy with the conditions. When looking at the benefits of the gig workforce, it really is akin to casual employment, and it is difficult to form an employee/independent contractor distinction. Therein lies the problem. The eruption of an independent and autonomous workforce has carried with it some pretty big questions surrounding the new and unusual contractual relationships that are being formed and whether freelance or gig workers should be protected by employment laws.
Employee vs Contractor
When looking at whether a worker is an employee or an independent contractor, the courts have traditionally asked the question: does the whole relationship look more like employment or more like independent contracting assessed against the overall state of affairs? The courts adopted a multi‑factor test where they would look at the bigger picture, not just the words in the contract. Not one particular factor was necessarily determinative, nor held elevated importance. But where practical realities, considered in totality, tipped the scales in favour of an employment-like connection, the relationship between the parties was governed by employment laws, despite the presence of any written agreement or characterisation to the contrary. This was seen in Franco v Deliveroo Australia Pty Ltd , where the Fair Work Commission found, by adopting the multifactorial test, a Deliveroo rider was an employee within the meaning of the Fair Work Act 2009 (Cth) and was to be protected from unfair dismissal.
While Mr Franco worked regularly for Deliveroo over a period of three years, he was dismissed by Deliveroo with only seven days’ notice, as he was identified by Deliveroo as being a rider with unacceptable delivery delays and therefore in breach of his supplier agreement. Mr Franco was denied any opportunity to respond to the allegation of slowness in delivery times. Following a claim of unfair dismissal, the Commissioner evaluated the totality of the relationship, and all of the surrounding circumstances, to find that Mr Franco was an employee; there was an absence of procedural fairness, and there was no valid reason for his dismissal. It was held that Deliveroo’s actions in terminating Mr Franco’s agreement lacked compassion and unconscionably terminated his primary source of income. Deliveroo was ordered to reinstate the engagement of his services. On appeal, however, the outcome favouring Deliveroo, was substantially different owing to intervening High Court decisions in CFMMEU v Personnel Contracting (2022) and ZG Operations Australia v Jamsek (2022).
These welcomed High Court decisions have provided crucial clarification surrounding the test the courts must now apply when determining whether workers are employees or independent contractors. Notably, these decisions are not limited to the gig economy – they will have a broad impact on anyone engaging independent contractors. The rule that has developed clearly states that:
- if there is a wholly written, comprehensive and valid contract between the parties;
- that is not a sham intended to disguise the relationship;
- the relationship will only be determined by reference to the rights and obligations written in the contract; and
- the only time the courts will look outside the contract, or apply a multifactorial approach, will be to rectify gaps or ambiguities in the document or to ascertain the existence of a variation of contractual terms by subsequent conduct of the parties.
On 17 August 2022, the Full Bench of Fair Work Commission in the Deliveroo appeal case was forced to abandon its longstanding multifactorial approach. The Commission has confirmed that it can no longer analyse how the parties actually conduct themselves but will be concentrating solely on the specific terms of the written agreement, without going any further. The consequence being, that under the terms of the supplier agreements, Mr Franco was not an employee and therefore protected from unfair dismissal within the meaning of the Fair Work Act and, the Commissioner did not have jurisdiction to grant any remedies. While the Fair Work Commission was of the view that the treatment of Mr Franco was unfair, they had no power to remedy it.
All of these decisions will have practical implications for businesses that engage independent contractors, gig workers and freelancers. Because the courts are now focused primarily on the four corners of the contract, it will be extremely important that every term and condition is properly drafted to clearly separate the relationship from that of being employee-like. The courts have confirmed that a major signifier of an employment relationship is the existence of a contractual right to control the activities of the worker including how, where and when the work is done. If provisions of a contractor agreement or supplier agreement mischaracterise the relationship, employment laws might apply, despite the contrary intention of the parties. This means that a contractor could be afforded general employee protections and entitlements such as:
- the right to be free from unfair dismissal or disadvantage;
- the right to be paid leave entitlements;
- the right to take time off work when sick or injured; and
- the right to claim for work injury damages.
Conversely, workers need to be careful accepting a contract that is intended, by the principal, to be that of an independent contractor, as was the case for Mr Franco.
It is therefore imperative that contracting parties get it right from the very beginning. Preston Law has a team of highly experienced employment and contract lawyers who can prepare or review employment or supply contracts. We can assist our clients to navigate the successful formation of working arrangements or advise on the terms of an existing contract to help determine the characterisation of the relationship and the ensuing rights and obligations under it.