Taking advantage of the gig economy and sharing apps, like Uber, Airtasker, and Freelancer, can give you more flexibility to grow or scale your business, but it can also increase legal risk given many businesses aren’t aware of, or don’t consider, who will be considered an employee at law and the consequential legal implications.
The Fair Work Commission (FWC) recently considered whether Uber drivers are employees or independent contractors in Kaseris v Raiser Pacific V.O.F (the Kaseris case) and Janaka Namal Pallage v Rasier Pacific Pty Ltd (the Pallage case). In both cases, the Uber driver argued they were an employee and had been unfairly dismissed.
The FWC found that the drivers were not employees and therefore not entitled to bring unfair dismissal applications. In both cases, the FWC applied long-standing common law principles used to determine whether a worker is an employee or an independent contractor. Applying those principles, the FWC found that many of the factors pointing to an employment relationship did not exist and that the drivers were therefore independent contractors.
However, this is not the end of the story regarding contractors and the gig economy. This week, the Fair Work Ombudsman (FWO) filed proceedings in the Federal Court alleging Foodora has engaged in sham contracting. Whilst the proceedings only concern 3 food delivery “contractors” and the alleged underpayments are relatively small, the implications for businesses operating on this model are huge. Natalie James said “There has been broad community and academic debate about the status of 'models' using smartphone-driven technology as a means for deploying a workforce…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. As the national workplace relations regulator, the Fair Work Ombudsman is now putting this question of significant public interest before a court to consider”.
What’s the difference between your obligations to employees and independent contractors?
Employers have significantly different obligations towards their employees than independent contractors. For example, if someone is your employee you must:
- Remit pay as you go (PAYG) tax instalments to the Australian Taxation Office (ATO);
- Pay payroll tax to your state revenue authority;
- Pay fringe benefits tax on any benefits;
- Meet any obligations under superannuation guarantee legislation; and
- Meet minimum award and employment conditions.
There are a range of other potential legal obligations, for example around termination, redundancy and parental leave entitlements, that you also need to be aware of when you have employees.
Some of these obligations do not apply to independent contractors.
So, what does this mean in a gig economy?
If you use freelance or contract workers (whether via online marketplaces or otherwise), it is important to determine whether they are your employee, even if they only work for your business for a short period. There are several factors to consider when deciding whether someone is an employee or an independent contractor.
Those factors include:
- Control - The more control you have over how someone does their work, when they do it and where they do it, the more likely they will be an employee. In the Uber cases, the FWC found Uber did not control the driver’s hours, which trips they accepted and how they operated their vehicle.
- Expectation of work - Employees generally have an expectation of ongoing work, while an independent contractor is only required to perform a specific task or project. In the above cases, the FWC ultimately found the drivers did not have an expectation of ongoing work, although this was not necessarily clear cut. For example, in the Pallage case, the driver had worked 1,454 hours over 14 months, which indicated the relationship was not insubstantial or tenuous.
- Equipment and uniforms - Employees use equipment supplied by the employer and may be required to wear a uniform. In the above cases, the driver had to provide their own vehicle and phone and were not required to wear a uniform. In fact, they were not permitted to wear the Uber logo. The fact that Uber provided technology was considered in Pallage, but dismissed, because the actual services were that of transportation and the technology only aided this.
- Legal obligations - Employers must withhold PAYG and provide at least minimum award and employment conditions for their employees. Contractors will generally submit invoices and be responsible for their own taxation arrangements. In the above cases, the FWC noted that the ATO requires Uber drivers to have an ABN and collect and remit GST, and found that this pointed towards them being independent contractors.
- Risk - An employee does not bear the commercial risk of the work they perform, while an independent contractor does - many even have their own insurance policies.
In the Pallage case, the FWC was also swayed by the nature of the work performed by the driver. That work was unskilled, repetitive and performed over many engagements - all factors that could be consistent with an employment arrangement, but when combined with other factors, like control, equipment and legal obligations, indicated a contractor relationship.
What should my business do?
The Senate established the Future of Work and Workers Committee last year to look at the impact of technological and other change on work. Their report will be delivered by 15 August 2018 and may recommend further changes to the law. Hopefully, further clarity will also be provided when the judgments from a number of current “test cases” are handed down.
In the meantime, it is important to review the terms, conditions and contracts under which you hire workers to make sure they clearly outline the legal, taxation and other obligations of each party. If you do hire workers directly from an online platform, it’s also a good idea to review the terms and conditions of the website.