THE GIG ECONOMY – INDEPENDENT CONTRACTOR OR EMPLOYEE

Digital platforms have brought about significant convenience in the way people access many essential services such as accommodation, transport, food, odd jobs and maintenance work through apps such as AirBnB, Uber, UberEats, Deliveroo and Airtasker, commonly referred to as the “gig economy”. Unsurprisingly, this rapidly growing industry does not seem to be slowing down any time soon.

The Victorian Government commissioned a survey of more than 14,000 people to support its inquiry into the on-demand workforce led by the Fair Work Ombudsman. The survey recently released results which found most workers on digital platforms are paid per task or job and 40% did not know what they earn per hour. Furthermore, it was found younger people (aged 18-34) were working through digital platforms in higher proportions than any other demographic group.

Notably, the gig economy makes the traditional approach to workplaces far more complex and significantly blurs the line between employees and independent contractors. Accordingly, in this week’s article we discuss the key differences between employees and independent contractors, the concerns surrounding the gig economy and what you need to understand as an employer.

Gig Economy

An increased number of Australians are now working within the gig economy. The flexibility of working around busy lifestyles and the ability to earn some extra income, together with the accessibility of digital platforms has become increasingly attractive for many people. However, for others, it may mean insecure work, low pay and no employment rights or entitlements. Notably, it has been revealed three in four delivery riders earn below minimum wage and many of the gig workers are on student and working visas, prompting allegations of exploitation.

The emerging gig economy phenomenon continues to raise the question of what constitutes an employment relationship. For instance, last year, Foodora was ordered to backpay delivery workers after the Fair Work Commission found Foodora’s delivery riders were in fact employees and not independent contractors. By classifying workers as independent contractors, Foodora avoided the need to pay annual leave, personal leave, superannuation and other employee entitlements.

However, in contrast to Foodora, the Fair Work Ombudsman (“FWO”) recently finalised a two-year investigation into Uber Australia (“Uber”) and found its drivers to be independent contractors, not employees. Its decision confirms that Uber drivers are not entitled to receive the minimum wage, annual leave, sick leave or any benefit commonly received by employees.

The FWO considered a number of factors in making the determination, including the fact Uber does not have control over whether, when, and for how long the drivers perform work, on any given day or on any given week. However, the Transport Workers’ Union (“TWU”) has slammed the decision and has called for law reform. The TWU specifically referred to another decision last year where a Foodora rider was not only found to be an employee but also won an unfair dismissal case.

It is likely that although FWO has made a decision in this regard, there will be continued debate surrounding whether gig economy workers are indeed independent contractors or employees. Significantly, a Deliveroo rider has recently launched a sham contracting test case in the Federal Circuit Court, claiming the company should have paid him as a casual employee rather than an independent contractor. The employee is claiming $9,600 in unpaid wages, entitlements, superannuation, compensation and damages.

Employees v Independent Contractor

A person who enters into a contract of service is an employee, however where there is as an arrangement that provides for a contract for services by an individual or entity, this will be an independent contractor arrangement. The difference between a contract of services and a contract for service (or in other words an employment relationship versus an independent contractor relationship) is complex and not always clear.

An employee usually works full-time, part-time or casually and works as the employer directs. A contractor, unlike an employee, is not subject to the provision of the NES and is not entitled to the benefits of employment including the operation of Modern Awards, leave, superannuation and the like. A contractor also usually works the hours required to complete a task and has more control over the way they work.

Australian Courts will look at the ‘real substance of the relationship in question’ and will rely on a multifactor test in determining whether the relationship is one of employment or not. This requires the Courts to considers a number of factors including, but not limited to:

  • Degree of control over how and when the work is done;
  • Expectation of ongoing work;
  • Who provides the tools and equipment;
  • Method of payment (e.g. whether paid on a regular basis or by invoice);
  • Whether superannuation is paid;
  • Ability to work for other companies;
  • Does the worker have their own ABN;
  • What are the income tax and GST arrangements; and
  • Whether the worker bears any financial risk.

However, despite the obvious attraction of engaging workers as independent contractors, doing so inappropriately when in fact the worker is an employee can mean significant liability and cost for the employer. The Fair Work Act 2009 (Cth) (“FWA”) has specific penalty provisions for sham contracting designed for the very purpose of preventing and discouraging the misuse of independent contractor arrangements. This issue of contractor arrangements has been prevalent in the headlines, with many cases of contractor arrangements being deemed as shams by the Federal Court. It is extremely important that if your business intends to engage a contractor, that the relationship is in fact one of genuine independence. The consequences of having a relationship deemed as a sham contract may include significant costs including backpay of entitlements owed to the employee (including unpaid wages, leave entitlements, overtime and allowances and superannuation), penalties against the company and its directors, and tax liability and penalties for breach of the relevant tax legislation.

It should be remembered proper independent contractor arrangements do have some protections including pursuant to the Independent Contractors Act 2006 (Cth) and the FWA. The Independent Contractors Act 2006 allows independent contractors to sue the principal where the contract is unfair, harsh or unconscionable and goes some way to protects the rights and entitlements of independent contractors.

Key Lessons For Employers

The failure to properly address the working relationship and ensure employees are engaged correctly can have significant adverse consequences as is illustrated by the number of decisions in this area. Specifically, the spread of the gig economy across many other industries and its increasing prevalence has continues to raise issues.

With the increased scrutiny around independent contractors, employers should be more aware and diligent in relation to how they are engaging their workers. We recommend employers do the following:

  • Review engagements with independent contractors and ensure they are genuinely independent contractors;
  • Ensure independent contractors enter into appropriate contractor agreements with built in safeguards for the business; and
  • If employers are unsure as to whether a working relationship is in fact an independent contractor or an employment relationship, seek legal advice.

If further information in relation to any aspect of this alert is required, or should you need specialist employment law advice, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

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