Fair Work Ombudsman Alleges Foodora Engaged in “Sham Contracting”, Underpaying Workers - Broadsheet

By Alan J. McDonald

The case could have massive ramifications for the food-delivery industry, and a precedent could mean tens of millions of dollars in back payments and penalties, an employment lawyer says.

On Tuesday afternoon the Fair Work Ombudsman announced it will take legal action against Foodora Australia Pty Ltd, the company behind online food-delivery company Foodora.

The ombudsman alleges the company engaged three workers in “sham contracting”, labelling them independent contractors but treating them as employees, meaning they were entitled to minimum wages and conditions under the Fair Work Act.

“The only way to answer the question of whether the workers delivering the meals are employees or ‘independent contractors’ is for someone to ask a court to consider the specific ‘relationships’ between a company and its workers,” says Fair Work Ombudsman Natalie James in a statement.

“As the matter is currently before the courts, Foodora is unable to comment. However, Foodora will be defending the claims and accusations that have been made against the business,” says Foodora in a statement provided to Broadsheet.

Trent Hancock, principal lawyer at Melbourne-based employment law firm McDonald Murholme, says the implications for the wider food-delivery industry – which includes companies such as UberEats and Deliveroo – are massive.

“If the federal court does determine the workers in question were in fact employees it might require a complete overhaul of the operating structure of businesses like Foodora who purport to engage these workers as contractors,” Hancock tells Broadsheet. “Employment contracts would need to be issued, minimum rates of pay would need to be considered, allowances, penalty rates, overtime will need to be considered.

The three workers being represented by the ombudsman include two bicycle-delivery riders from Melbourne and one delivery driver from Sydney, all of who signed on with Foodora in 2015 and also worked for the company into 2016. It’s alleged they were asked to provide an Australian Business Number (ABN) and sign Independent Contractor Agreements when they started.

Hancock says Foodora is likely to rely on the Independent Contractor Agreements it has entered into with the delivery drivers to defend itself against the allegations. But a federal court ruling would override that agreement.

“The court will consider substance over form. It will look at the true nature of the engagement rather than what the parties have purported it to be. That is something that has come through quite consistently in the decisions in this area.”

When they started with Foodora, the Melbourne workers were 19, and the Sydney worker – an Indian migrant turned permanent citizen – was 30. It’s alleged the Melbourne workers were underpaid $1,620.74 over a four-week work period, but the Sydney driver, who worked significantly more hours, was allegedly underpaid $1,168.50.

The Fair Work Ombudsman uses a “multi-factor test” to determine whether workers are employees or independent contractors – the former are entitled to payment under the Fast Food Industry Award 2010.

According to the ombudsman, the company controlled, directed and supervised the hours, location and manner of work undertaken by the workers, forced them to use branded uniforms or equipment it supplied, and didn’t allow them to negotiate hourly rates or amounts per delivery for Foodora.

It’s also alleged the workers did not genuinely operate their own delivery businesses as they did not advertise services to the public, delegate duties to their own employees, or have individual customer bases, insurance or business premises.

A case management hearing has been scheduled in the Federal Court in Sydney for July 10. At the hearing, the Fair Work Ombudsman will allege Foodora breached the Fair Work Act multiple times, with each carrying penalties of up to $54,000. The Fair Work Ombudsman will also seek a Court Order forcing the company to back pay the workers and make superannuation contributions on their behalf.

Hancock says the case could set a precedent for other workers in similar employment circumstances engaged as independent contractors.

“You may have workers lining up from Foodora and other organisations that engage workers in a similar way, looking to that characterisation and pointing to this decision. The Fair Work Ombudsman is acting on behalf of only three workers that were engaged for a limited period – there would be thousands of workers in a similar situation to these three. When you start to add up the potential underpayment that’s resulted from this characterisation, you could be talking about tens of millions of dollars in unpaid entitlements. On top of that penalties can be imposed by the Ferderal Court as well … current penalties for corporations sit at a maximum of $63,000 for each breach.”

Employers and employees seeking assistance can visit fairwork.gov.au, or call the Fair Work Infoline on 13 13 94.

Reference: Fair Work Ombudsman Alleges Foodora Engaged in “Sham Contracting”, Underpaying Workers, Broadsheet, Tuesday 12th June 2018