FWO delivers Foodora bad news after Sham Contracting Arrangements Exposed
A recent prosecution by the Fair Work Ombudsman for sham contracting at food delivery company Foodora has raised concerns about the concept of misclassifications between employees and independent contractors.
Sham Contracting resulting from Misclassification
Misclassification is where a worker is given the wrong employment status, which can result in heavy penalties for employers if not immediately rectified. This often occurs when there is an ambiguity or false representation of a worker’s classification as an independent contractor; commonly referred to as “Sham contracting” – frequently leading to disputes. Under sham contracting arrangements, workers may:
- Be paid below minimum or Award wages
- Have Superannuation withheld
- Have allowances, penalties or leave entitlements withheld or underpaid.
This may render businesses liable to hefty penalties, regardless of whether the error was intentional or not.
The workers were classified as independent contractors rather employees, resulting in $1,620.74 unpaid wages.
Food delivery company Foodora has been prosecuted under Federal Court action initiated by the Fair Work Ombudsman (FWO) Natalie James, for misclassifying two delivery riders and one delivery driver in 2016. The workers were classified as independent contractors rather than employees, resulting in $1,620.74 of wages being underpaid in total.
Despite the workers being required to attain an Australian Business Number and sign an Independent Contractor Agreement, the FWO used the multi-factor test to determine that the relationship between Foodora and its workers was in fact an employer-employee relationship.
Foodora different from Uber
Interestingly, the 2017 case Mr Michail Kaseris v Rasier Pacific V.O.F conversely found Uber drivers to be genuinely classified as independent contractors, rather than as employees covered by the protections of the Fair Work Act.
The FWO considered several factors to determine that the Foodora workers involved in the dispute were employees, rather than independent contractors, which contrasts with Uber’s practices.
- The high level of control, supervision and direction that Foodora exercised over the workers’ hours, location and manner of work more typical to an employer-employee relationship. Uber, on the other hand, gives their drivers complete discretion on when and where they perform their work, whether they accept or decline a job, and sets no minimum quotas for their drivers.
- Foodora require their delivery workers to represent the company by wearing a uniform, and using Foodora branded food boxes and bike racks, whereas Uber’s contractors are not permitted to display branding of the company’s name, logo or colours on their vehicles or clothing.
- Foodora workers were not considered to be conducting their own delivery businesses, and therefore did not promote their services to the public, nor could they decline or delegate delivery duties to others. They did not have their own specific customer base, business premises or insurance responsibilities. Uber’s contractors are required to provide their own business equipment, inclusive of internet, registration and insurance costs.
- Lastly, Foodora workers were payed at fixed, hourly rates with set rates of payment per delivery. There was no negotiation of rates of pay. Uber’s contractors are paid depending on the number and distance of fares that are completed, and have the right to accept or decline fares as desired.
Costly penalties handed down
Consequences for misclassification depend on the circumstances of each case, although they are often costly for businesses. In 2017, two transport companies were fined $36,000 each by the FWO for falsely treating a courier as an independent contractor, despite the employer’s full knowledge that he was an employee. As such, the companies were also accountable to back pay the employee his outstanding wages and leave entitlements.
In a more recent case, a Pizza Hut franchisee in Queensland was charged with misclassification of a delivery driver. The franchisee provided false records to cover up the worker’s employment as an independent contractor in order to avoid paying minimum wages, penalty rates, leave and superannuation. However, it was revealed that the worker was an employee due to the level of control, direction and supervision that the franchisee had over the driver, proving that the driver was not operating his own business. The franchisee was personally charged a penalty of $36,700 and the business was charged a further $180,000.
Key points to consider
The issue of misclassification is not exclusive to the hospitality or transportation industries, and can occur in all professions and across all businesses. If your business engages workers under any arrangement that is not a direct employer-employee one, we encourage you to consider the following:
- Are your workers correctly classified?
- Do you understand the difference between the rights of employees and the rights of independent contractors?
- Do you pay all employees in accordance with the appropriate Award?
- Are all your workers receiving all employment legislation entitlements (Leave, Superannuation etc.)?
- Are your policies & procedures up to date and compliant with current legislation?
If you engage workers through a third party you may also wish to consider your accessorial liability risks. For more information, download our free Accessorial Liability eBook.