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Employee or Independent Contractor?

In November 2018 the multifactor test, which is used to determine whether a worker is an employee or an independent contractor, returned to the spotlight following the Fair Work Commission’s decision in Klooger v Foodora Australia. The multifactor test is settled law, and has been for some time since the High Court decisions of Stevens v Brodribb Sawmilling Co Pty Ltd and Hollis v Vabu.

As the name suggests, this test is one that that obviously turns on its facts.  Nevertheless, it continues to be relevant particularly in the context of:

  • sham contracting;

  • transition into a gig economy; and

  • the changing nature of where, when and how we work.

It is therefore beneficial for us to revisit how the multifactor test is being applied to some of the new working relationships that are developing as a result.

Firstly, the multifactor test requires us to look at the totality of the relationship between workers and businesses by having regard to a number of indicators to see whether the worker is an employee or an independent contractor.  This includes considering a number of things, including:

  • the degree of control over the worker and how this is exercised.

  • is the worker PAYG or are they responsible for their own tax?

  • does the worker supply plant and equipment?

  • is the worker required to wear a uniform?

  • terms of the contract between the parties.

  • the place of work, ore more importantly, does the worker have their own independent place of work.

  • does the worker set their own hours or are they determined by the business?

  • is the worker exclusively bound to the business or can they work for others?

  • the method and intervals for payment.

  • is the worker registered or required to be registered to GST?

  • can the worker subcontract out, and if so, what limits are imposed on subcontracting?

  • is the worker responsible for defective work and any losses suffered?

  • is the worker required to have their own insurances?

  • does the business pay the worker superannuation?

Because the courts look to the totality of the relationship it is not a case of giving each indicator receiving equal weight.  Some factors might be more relevant than others, or others might not be relevant at all.

The key difference between employees and independent contractors is that employers are vicariously liable for the conduct of their employees, providing they are acting within the scope of their employment.  Furthermore, if someone is considered to be an employee:

  • the employee will be protected by unfair dismissal provisions;

  • in most cases the employee will be covered by a modern award that will entitle them to casual loading (if they are casual), certain leave entitlements if they are not casual, and superannuation; and

  • if the employer breaches the sham contracting provisions by attempting to present employees as independent contractors, the employer may be exposed under the civil penalty provisions.

Many of these factors were relevant in Klooger v Foodora Australia.  Mr Klooger was appointed by Foodora to work as a delivery driver in March 2016 for a rate of $14 an hour plus $5 for each delivery.  Foodora sought to appoint Mr Klooger as an independent contractor.   Work was managed through an app in which Foodora identified and nominated defined start and finish times and the geographical location in which the work was to be carried out.  Delivery drivers were then given a unique Foodora account through which they would provide services.  Workers would also communicate through a messenger account set up for the business on WhatsApp about things like swapping shifts.

Although Mr Klooger provided his own bicycle, he was required to wear a uniform and use branded material while working.  Within a short time, he was appointed to the role of Rider Captain.  This required him to help other riders in swapping shifts.  He Mr Klooger also Mr Klooger established his own substitution scheme where he subcontracted out some of the duties performed through his Foodora account to third parties for a fee.  Even though the agreement said subcontracting could only be done with consent, Foodora were aware of this and took no steps to stop this from occurring.

Mr Klooger continued to work for Foodora in different roles until his termination in March 2018.  During this time, he continued to do deliveries and to run the substitution scheme until Foodora modified shift allocation process so they could better assess and rank individual drivers.  Foodora also exceeded its user capacity on WhatsApp. 

Problems with the use of the WhatsApp messenger account for communication between drivers were circumvented by Mr Klooger setting up a new messenger account on Telegram.  Although he uploaded confidential and commercially valuable information belonging to Foodora onto the Telegram messenger account, Foodora was given administrator privileges to the account, knew about its existence but did nothing. 

In early 2018, Mr Klooger began making public complaints about reductions to the delivery fees paid to drivers.  After these public comments were made, Foodora terminated Klooger’s contract for breach of confidential information and intellectual property infringement.     

Mr Klooger successfully sued and received compensation for unfair dismissal.  Proceedings were also commenced against Foodora for breaching the sham contracting provisions in the Fair Work Act, however these proceedings were discontinued after Foodora went into administration.

Key features that contributed to the Fair Work Commission in deciding that Mr Klooger was an employee were:

  • Although Foodora used an app to allocate shifts, workers had little control over what shifts were allocated once availability was confirmed.They also experienced further restrictions with the introduction of performance ratings.

  • The Independent Contractors Agreement contained clauses that would normally be found in an employment agreement about rostering, attire, the nature of the engagement and compliance with policies and procedures.Similarly, the agreement also used the terms employee and contractor interchangeably.

  • Foodora had considerable control over its workers in other ways which was reinforced through the introduction of performance standards.

  • Although the arrangement was non-exclusive, this is similar to young workers or students who often have multiple part-time jobs.

  • Although Mr Klooger ran a substitution scheme that involved subcontracting, it was done with Foodora’s knowledge.Given that they did nothing to stop it, they appeared to endorse these arrangements even though they breached the assignment and subcontracting provisions in their agreement.

  • Through the use of attire, advertising and other corporate language, Foodora presented the workers to the outside world as if they were an integral part of the business.

  • Workers were paid at weekly intervals but were responsible for their own tax.

  • Workers did not have a separate place of work.As such, were not able to advertise themselves to the outside world as independent businesses.

At this point, it is not known whether Klooger v Foodora Australia will have precedential value. If it is not considered to be unique to its facts, it may have implications for taxi businesses, Uber Eats and Deliveroo.  The corporate structure for these businesses each attempt to characterise most of their delivery workers as contractors, through their delivery apps or shift allocation processes may too suggest they have  a reasonable amount of control over workers.

Some of these workers also wear uniforms and are required to use corporate branding.

Related area of practice
Employment Law