Urgent legislative change needed to address unjust outcomes in sham contracting disputes
The recent decision of the Full Bench of the Fair Work Commission in Deliveroo Australia Pty Ltd v Diego Franco  FWCFB 156 has once again highlighted the need for urgent legislative change to address unjust outcomes in sham contracting disputes, particularly within the gig economy.
Mr Franco worked as a delivery rider for Deliveroo from 22 April 2017 until 30 April 2022. He did so pursuant to a series of supplier agreements drafted by Deliveroo and signed, without negotiation or amendment, by Mr Franco. Deliveroo terminated the most recent supplier agreement with Mr Franco and disabled his access to the Deliveroo Rider App after notifying him on 23 April 2022 that he failed to deliver orders within a reasonable time. Mr Franco was not given an opportunity to respond to this allegation, was not previously warned that his performance was unsatisfactory and was not given any opportunity to improve.
At first instance, Commissioner Cambridge found that Mr Franco was an employee of Deliveroo and had been unfairly dismissed. As a result, Mr Franco was reinstated, with continuity of service and back pay. Deliveroo appealed the decision to the Full Bench of the Fair Work Commission. The matter was then deferred by the Full Bench pending the decisions of the High Court of Australia in CFMMEU v Personnel Contracting Pty Ltd  HCA 1 (Personnel Contracting) and ZG Operations Australia Pty Ltd v Jamsek  HCA 2 (Jamsek) concerning the distinction between an employee and a contractor.
Because of the decisions in Personnel Contracting and Jamsek, the Full Bench was compelled to find that Mr Franco was a contractor and therefore not protected from unfair dismissal.
At  of their decision, Vice President Hatcher, Vice President Catanzariti, and Deputy President Cross adopted the following summary of the key propositions from Personnel Contracting, as set out in the earlier Full Bench decision in Chambers and O’Brien v Broadway Homes Pty Ltd  FWCFB 129:
(1) When characterising a relationship regulated by a wholly written, comprehensive contract which is not a sham or otherwise ineffective, the question is to be determined solely by reference to the rights and obligations under that contract. It is not permissible to examine or review the performance of the contract or the course of dealings between the parties.
(2) The subsequent conduct of the parties may be considered to ascertain the existence of variation of contractual terms.
(3) The multifactorial approach only has relevance in respect of the required assessment of the terms of the contract.
(4) It is necessary to focus on those aspects of the contractual relationship which bear more directly upon whether the worker’s work was so subordinate to the employer’s business that it can be seen to have been performed as an employee of that business rather than as part of an independent enterprise. The question is: whether, by the terms of the contract, the worker is contracted to work in the business or enterprise of the purported employer.
(5) Existence of a contractual right to control the activities of the worker (including how, where and when the work is done) is a major signifier of an employment relationship.
(6) The label or characterisation placed on the relationship by the contract is not relevant even as a “tie breaker”, or at least it is not determinative.
Consistent with these principles, the Full Bench held that the analysis of whether Mr Franco was an employee of Deliveroo at the time of his termination had to proceed by reference to the terms of the most recent supplier agreement alone.
Citing the Full Court of the Federal Court of Australia decision in ACE Insurance Limited v Trifunovski  FCAFC 3, the Full Bench placed little weight on those provisions of the supplier agreement that were “merely consequential upon the labelling adopted in the agreement”, such as those relating to tax, insurance and the requirement that Mr Franco maintained an Australian Business Number. The Full Bench also rejected an argument by Deliveroo that a provision in the supplier agreement allowing Mr Franco to work for others was indicative of a contractor relationship, noting that it was also entirely consistent with casual employment.
The Full Bench did, however, place weight on a clause in the supplier agreement that allowed Mr Franco to decide whether, when and where he logged in and provided his services, noting that such a clause was inconsistent with any “conventionally-understood notion of casual employment.”
There were four key aspects to the supplier agreement that the Full Bench considered weighed decisively in favour of the conclusion that Mr Franco was an independent contractor:
- the lack of control exercised by Deliveroo over how and when Mr Franco performed work and the ability for Mr Franco to determine the route he took to deliver food, the type of vehicle he used and whether he performed work at all;
- the requirement for Mr Franco to provide his own vehicle at his own expense;
- the absence of any requirement for personal service and the ability for Mr Franco to delegate the performance of his work; and
- Mr Franco was paid per delivery (rather than by time), and a fee was deducted by Deliveroo for access to its application and administrative work performed.
Sadly, in a section of the decision entitled “realities we are obliged to ignore” the Full Bench noted that the application of the Personnel Contracting decision had obliged it to “ignore certain realities concerning the way in which the working relationship between Mr Franco and Deliveroo operated in practice.” These included the fact that it was never commercially practical for Mr Franco to delegate the work (and he never did so), the fact that the supplier agreements were drafted by Deliveroo without any negotiation or consultation, and the fact that Mr Franco was strongly encouraged by Deliveroo to use a Deliveroo-branded insulation bag, polo shirt, rain jacket and rain pants in return for a bond of $220 (which Mr Franco did), meaning he was presented to customers as an emanation of the Deliveroo business.
Ultimately, at , the Full bench stated:
Had we been permitted to take the above matters into account, as the Commissioner did, we would have reached a different conclusion in this appeal. As a matter of reality, Deliveroo exercised a degree of control over Mr Franco’s performance of the work, Mr Franco presented himself to the world with Deliveroo’s encouragement as part of Deliveroo’s business, his provision of the means of delivery involved no substantial capital outlay, and the relationship was one of personal service. These matters, taken together, would tip the balance in favour of a conclusion that Mr Franco was an employee of Deliveroo. However, as a result of Personnel Contracting, we must close our eyes to these matters.
The Full Bench then openly recognised the unfortunate consequence of this at , being that “this leaves Mr Franco with no remedy he can obtain from the Fair Work Commission for what was, plainly in our view, unfair treatment on the part of Deliveroo”.
This decision continues the concerning trend of preferring form over substance following the High Court decisions in Personnel Contracting and Jamsek (see our article on Personnel Contracting here). To have three senior members of the Fair Work Commission openly declaring that they are compelled to “close their eyes” to key aspects of the working relationship is an entirely unsatisfactory situation and removes the necessary discretion ordinarily afforded to decision makers to consider the totality of a situation in order to arrive at a fair outcome.
A stated object of the Fair Work Act 2009 (Cth) is to provide workplace relations laws that are fair to working Australians. Mr Franco, through no fault of the Fair Work Commission, was denied a fair outcome. In fact, the Full Bench explicitly recognised that Mr Franco was subjected to unfair treatment by Deliveroo and that had they not been forced to close their eyes to certain matters would have determined he was an employee and entitled to the remedy initially given to him by Commissioner Cambridge at first instance.
The case serves as another example of the need for legislative reform, specifically, amendments to the Fair Work Act 2009 (Cth) to clearly delineate between employment relationships and contractor relationships by reference to the totality of the working relationship, thereby removing the unhelpful restraints imposed by the High Court of Australia.
Written by Trent Hancock