Latest case on employee and independent contractor distinction

The recent Deliveroo decision is a reminder to employers that comprehensive, written agreements assist significantly in the proper characterisation of worker relationships.

In a recent decision that particularly affects workers in the gig economy, the Fair Work Commission (FWC) has found that Deliveroo rider, Mr Diego Franco (Mr Franco), was an independent contractor, and not an employee.

Adopting the recent decisions in Personnel Contracting[1] and Jamsek,[2] the Full Bench of the FWC overturned Commissioner Cambridge’s decision that Mr Franco was an employee[3], and reiterated that an employment relationship that is regulated by a written, comprehensive agreement, is characterised solely by reference to the rights and obligations in it.

Key facts

Mr Franco worked as delivery rider for Deliveroo. He also worked for Portier Pacific Pty Ltd (Uber Eats) and Door Dash.

His engagement with Deliveroo was under a “Supplier Agreement” signed on 18 April 2017. He signed a replacement Supplier Agreement on 2 October 2018, and the latest Supplier Agreement was signed on 9 December 2019 (2019 Agreement).

In April 2020, Mr Franco was identified as a contractor driver with delayed delivery times.

On 23 April 2020, Mr Franco received an email from Deliveroo advising that he was in breach of the 2019 Supplier Agreement because he failed to deliver orders within a reasonable time, and that the 2019 Agreement would be terminated. His access to the Deliveroo Rider App was disabled on 30 April 2020.

Mr Franco subsequently made an unfair dismissal application against Deliveroo, alleging he was an employee.

Earlier decision

At first instance, Commissioner Cambridge applied the principles in Stevens v Brodribb Sawmilling Co Pty Ltd[4] and Hollis v Vabu Pty Ltd,[5] including an analysis of the multi-factor test, to determine whether Mr Franco was an employee or independent contractor.

After weighing up the relevant indicia, including the level of control Deliveroo possessed over Mr Franco, and considering the ‘overall picture’, Commissioner Cambridge determined that Mr Franco was an employee of Deliveroo, and as such, a person who was protected from unfair dismissal for the purposes of s 382(a) of the Fair Work Act 2009 (Cth).

It was ultimately found that:

• Mr Franco was unfairly dismissed; and
• Mr Franco be reinstated in his position as a delivery rider at Deliveroo with restoration of lost earnings.

Deliveroo appealed Commissioner Cambridge’s decision to the Full Bench of the FWC.

Appeal

Deliveroo’s appeal grounds included, among others, that the Commissioner erred:

• in finding that Mr Franco was an employee of Deliveroo, and therefore protected from unfair dismissal; and
• in failing to apply the multifactorial test as to whether a person was an employee or contractor as developed by the common law.

Deliveroo submitted that the decisions in Personnel Contracting and Jamsek, meant that the way in which Deliveroo and Mr Franco “operated in practice” (i.e. their post-contractual conduct) was irrelevant. Deliveroo submitted that where there is a written agreement between the parties, the characterisation of the working relationship is to be determined by considering the terms of the agreement.

Deliveroo identified six features of the 2019 Agreement which demonstrated that the relationship between the parties was not one of employment. Relevantly:

1. Mr Franco conducted his own business in "arranging" to provide the delivery services to Deliveroo;
2. Mr Franco was not required to personally perform the delivery services, but could arrange for another person to perform the delivery services, without prior approval from Deliveroo, subject to the person not previously having their supplier agreement terminated by Deliveroo;
3. Deliveroo did not have the right to control Mr Franco regarding the performance of his delivery services under the 2019 Agreement;
4. Mr Franco was able to work for Deliveroo’s competitors simultaneously, and he had an unfettered ability to work for Deliveroo’s competitors;
5. Mr Franco supplied the equipment to perform the delivery services, and was required to supply his own delivery vehicle and mobile phone; and
6. The mode and manner of remuneration, fees and invoicing, indicated a contractor relationship.

The Full Bench's decision

The Full Bench of the FWC found that the 2019 Agreement, namely the terms of the agreement, comprehensively set out the rights and obligations of the parties, and as such, found that Mr Franco was an independent contractor, not an employee.

Four aspects of 2019 Agreement particularly indicated that Mr Franco was in an independent contracting relationship with Deliveroo, being:

1. The terms of 2019 Agreement indicated a lack of control, because Mr Franco could use any route for the delivery which he determined to be safe and efficient;
2. Mr Franco was obliged, at his expense, to provide the vehicle for the deliveries;
3. The 2019 Agreement did not require personal service on the part of Mr Franco. Mr Franco had the right, without the need of prior approval from Deliveroo, to arrange for someone else to perform his services; and
4. Mr Franco was required to pay an administrative fee of 4% of the total fees payable to access Deliveroo’s software app and for Deliveroo to provide invoices and other administrative services.

The finding that Mr Franco was an independent contractor rather than an employee meant that the FWC did not have jurisdiction to hear the matter, and his unfair dismissal application was dismissed.

In summary, the Full Bench stated that, in reality:

• Deliveroo did exercise a degree of control over Mr Franco’s performance of the work;
• Mr Franco did present himself as part of Deliveroo’s business; and
• the relationship was one of personal service.

However, because of the Personnel Contracting decision, they had to “close [its] eyes to these matters”.

Key takeaways

To reduce legal risk employers should have well drafted terms of agreement in writing with their employees and contractors, incorporating key rights and obligations to clearly identify the intended relationship.

How parties operate in practice after a contract (that incorporates key contractual rights and obligations of the parties) is signed may no longer be relevant.

Post-contractual conduct may however be considered to determine the existence of a variation of contract. If the parties do intend on varying the terms of the contract, it is useful to do this clearly set out in writing.

Merely labelling a worker as an “independent contractor” in an agreement is insufficient if its terms are characteristic of an employment relationship. An employer should ensure the terms of the agreement reflect that of an employer/employee relationship if that is intended.

Cases referenced

[1] CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting).

[2] ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek).

[3] Diego Franco v Deliveroo Australia Pty Ltd [2021] FWC 2818.

[4] Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1.

[5] Hollis v Vabu Pty Ltd [2001] HCA 44.