Disrupting the disrupters: what are the consequences of the Foodora ruling for the gig economy?

Last month, the Fair Work Commission handed down a much-anticipated decision in Klooger v Foodora Australia Pty Ltd [2018] FWC 6836 (Klooger). Josh Klooger, a Foodora rider, had made an application to the Commission claiming he was unfairly dismissed. Foodora objected to this as they contended he was an independent contractor and therefore not entitled to make an unfair dismissal application. It was ultimately held by the Commission that Mr Klooger had been unfairly dismissed as he was in fact an employee and not an independent contractor.

The gig economy business model is largely predicated on workers being classified as independent contractors and not employees. This allows companies such as Foodora, UberEats and Deliveroo to avoid paying the costs of employee entitlements such as annual leave, personal leave and superannuation. But what exactly will the Klooger ruling mean for the business models of other meal delivery platforms? And will there be ramifications for the ‘gig economy’ as a whole?

The case

Mr Klooger worked for Foodora as a bicycle courier, delivering food and drinks. Prior to his shift he would be provided with a Foodora insulated box and other Foodora branded attire and equipment.

He was engaged under a contract titled ‘INDEPENDENT CONTRACTOR AGREEMENT’ (the Agreement), which expressly stated that Mr Klooger was an independent contractor and not an employee. Under the Agreement, he was paid $14 per hour and received $5 per delivery.

During Mr Klooger’s time as a courier, Foodora used a ‘batching system’ to arrange shifts which ranked drivers/riders based on performance factors. This system was used to determine when access to shifts was made accessible to couriers, with better ranked couriers accessing shifts sooner.

Also during Mr Klooger’s engagement with Foodora, he allowed a number of other people to use his account to make deliveries. After receiving payment from Foodora for these deliveries, Mr Klooger would reconcile payments to the other riders after deducting 18% tax and a 1% fee for his involvement. This was despite the fact that the Agreement prohibited Mr Klooger from subcontracting.

On 22 February 2018, Mr Klooger’s services with Foodora were terminated after he refused to return access to a group message used by Foodora. Mr Klooger than lodged an application with the Fair Work Commission arguing he had been unfairly dismissed.

The finding

In determining whether Mr Klooger was an employee or independent contractor, Commissioner Cambridge applied the classic multi-factor test in Hollis v Vabu (2001) 207 CLR 21. This requires a range of factors to be taken into account and weighed up, with no one factor being determinative of whether a worker is an employee or independent contractor.

Ultimately, the Commissioner held that Mr Klooger was an employee, due largely to the level of control exercised by Foodora over Mr Klooger as due to the operation of the batching system, Mr Klooger was unable to pick and choose when and where to work, or how fast or slow to make deliveries. Another determinative factor was the requirement of Mr Klooger to wear a Foodora uniform and to use Foodora branded equipment.

The consequences

The ramifications for gig economy companies would be monumental if all of their workers were classified as employees instead of independent contractors. However, the Klooger ruling is not all doom and gloom and by no means “shatters the foundation that the on-demand economy is built on” as claimed by Tony Sheldon of the Transport Workers Union.

This is because it was not the whole gig economy on trial before the Fair Work Commission, but rather the Commission was required to consider the unique circumstances of Mr Klooger and his arrangement with Foodora. Klooger relied heavily on its own facts and does not set a precedent that all meal delivery platform workers, or all workers in the gig economy, are employees. The multi-factor test applied in Klooger is not new law being first used in the High Court in 1986 in the case of Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16. Indeed, in contrast, earlier this year the Fair Work Commission similarly applied the multi-factor test and held that an Uber driver was not an employee (link).

In addition, some of the facts in Klooger were unique to the Foodora business model and were not reflective of the workings of other meal delivery platforms. For instance, UberEats does not provide its workers with a uniform, which was one of the determinative factors in Klooger. This means that it is by no means certain that in a case before the Fair Work Commission involving UberEats, that it would be held that an UberEats worker is an employee.

However, it is likely that the Commission’s findings that Mr Klooger was an employee due to the high level of control exerted by Foodora over Mr Klooger, may cause a rethink at companies such as UberEats and Deliveroo. These companies currently tread a fine line between maintaining that their workers are independent contractors, with exercising a high level of control over these workers, more typical of an employment relationship, to try and guarantee a high quality of service and fast deliveries for their customers.

The ruling in Klooger is likely to embolden aggrieved gig economy workers and there is likely to be an increase in claims for underpayment and unfair dismissal. Legislative change may also be on the horizon as the Commissioner noted in Klooger that “there may be a need to expand or modify the orthodox contemplation for the determination of the characterisation of contracts of employment vis-à-vis, independent contractor, as the changing nature of work is impacted by new technologies”.

Despite not necessarily being the game changer some consider, it is clear that Klooger at the very least is a clear warning shot to gig economy companies that the questionable classification of its workers as independent contractors may be nearing the end.