On 21 December 2017, the Fair Work Commission (FWC) handed down a significant decision involving ride-sharing giant Uber. In short, the FWC held that Uber drivers are not employees, but rather, are engaged by Uber as independent contractors. This provides guidance for employers on the important distinction between employee and an independent contractor arrangement which has a significant impact on the obligations and penalties businesses may face.
The decision follows a series of mixed rulings overseas, including the United Kingdom's Employment Tribunal decision which found that Uber drivers were not self-employed and should be paid the national minimum wage and holiday pay. However, the FWC rejected that decision because it was decided on the basis of an expanded definition of a "worker", which is broader than the definition of an employee under Australian law. FWC Deputy President Gostencnik noted that the UK definition goes as far to include some independent contractors.
The case before the FWC concerned an Uber driver who was deactivated for a low driver rating1. The driver filed a claim against Uber alleging unfair dismissal. Uber challenged the claim on the basis that the driver was engaged as an independent contractor, and was therefore not a person protected from unfair dismissal under the Fair Work Act 2009 (Cth) (FW Act). This prompted the FWC to launch into a detailed consideration of the question - who is an employee?
To complicate matters, there is no single definition of an employee under the FW Act. To distinguish an employee from a contractor, it is necessary to turn to case law. Over time, the courts have developed a ‘multi-factor' test, which involves asking a series of questions as to the nature of the relationship between a company and a worker. An important factor of this test relates to the question of control, that is, whether the organisation has the right to exercise control over how work is performed.
In reaching its decision, the FWC closely examined the question of control. In doing so, DP Gostencnik stated that the Uber driver had complete control over the way in which he wanted to conduct the services he provided, by:
DP Gostencnik said all of these factors weighed in favour of an independent contractor relationship. While the FWC recognised that there were some factors demonstrating control over the Uber driver (e.g. by enforcing service standards to protect the Uber brand) these were not considered strong factors. Ultimately, the FWC was persuaded by the fact that Uber drivers lacked the "work-wages bargain" fundamental to an employment relationship.
Interestingly, DP Gostencnik commented that the traditional notions of employment law may be outdated and no longer reflect the evolving nature of the "sharing" economy. However, the FWC stated that until this is addressed by legislation, the traditional tests will continue to be applied.
Fair Work Ombudsman (FWO) Natalie James has since endorsed the comments made by DP Gostencnik in her address to the 2018 conference of the Association of Industrial Relations Academics of Australia and New Zealand. Ms James acknowledged that the current state of workplace laws may need to be revisited to cater for the future of work in Australia. But until then, Ms James has indicated that the officers of the FWO will continue to apply the traditional tests of whether workers in the sharing economy are employees.
Uber is now waiting for a report by the Senate Select Committee on the Future of Work and Workers. The report may recommend that Parliament consider certain changes to the law to reflect the impacts of technology on the workplace. Uber has of course made its own submissions to the Committee. It argues that current employment classifications create significant disincentives: they can mean that offering training to its drivers can compromise the self-employed status of the individual. Uber believes that innovators should be incentivised, not penalised, for helping independent workers access training, as well as other perks and benefits under the Uber model. The Committee is due to release its report by 21 June 2018.
For employers in any industry, it is important to correctly categorise at the outset whether the relationship is one of employment or for the supply of services (i.e. a contractor). This will involve a process of considering the purpose of the relationship, and the rights and obligations of the "worker".
Employers will need to consider the true nature of the relationship (beyond whatever may have been agreed in writing). This is important because some employers present workers as independent contractors, where to all practical intents and purposes they are employees. Such arrangements are prohibited under the FW Act as it may constitute sham contracting arrangements. There are severe penalties for employers found to be in breach of these provisions.
We regularly assist clients dealing with the question of whether a worker is an employee or a contractor. If you would like us to review the arrangements you have with your workers, feel free to contact us.
This article was written by Callum Gribbin, Solicitor, and Sam McIvor, Partner
1Kaseris v Rasier Pacific V.O.F  FWC 661
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