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UPDATE: New Requirements Regarding Flexible Working Arrangements and Foodora Decision Serves as a Timely Reminder About The Employee or Contractor Classification

This month we look at changes made to all modern awards regarding requests for flexible working arrangements. These changes were effective from 1 December 2018.

We also look at the recent finding that a Foodora delivery rider was an employee not a contractor. This serves as a timely reminder about getting the ‘employee or independent contractor’ classification right.

Flexible Working Arrangements – changes to all modern awards effective from 1 December 2018

The Fair Work Commission has recently inserted a new clause into all modern awards in relation to requests for flexible working arrangements.

The new clause imposes additional obligations on employers when responding to requests and provides employees with the ability to raise certain disputes under the standard dispute resolution provisions of the award.

The new award clause supplements the flexible working arrangement provisions in the Fair Work Act and applies where an employee has made a request under section 65 of the Act.

The new clause closely resembles the existing Fair Work Act provisions but imposes additional obligations on employers when responding to requests, including:

  • To discuss the request with the employee before making a decision.
  • To genuinely try to reach agreement having regard to the needs of the employee, the consequences if the request is refused and any reasonable business grounds for refusing.
  • That the written response must include the reasons for the refusal, including the business grounds and how the grounds apply (it is the ‘how the grounds apply’ part that is new).
  • That the written response must state whether or not there are any other changes the employer can offer the employee.  If the employer can offer other changes these must be set out.
  • That the written response must set out any changes that are different to the initial request of the employee.

The new modern award clause also provides employees with the ability to raise certain disputes through the standard dispute resolution provisions of the award.

The new clause states that ‘disputes about whether the employer has discussed the request with the employee and responded to the request in the way required’ can be dealt with under the dispute resolution provisions of the award.

The dispute resolution provisions in awards require attempts at resolution at a workplace level before a dispute can be referred to the Commission.

Importantly for employers, the Act prohibits the Commission from dealing with disputes about whether an employer had reasonable business grounds for refusing a request under section 65 unless the parties have agreed in an employment contract, enterprise agreement or other written agreement.

There is prospect that such a dispute could be raised at the workplace level such as under an employer’s internal policies and procedures, employment contract or enterprise agreement.

Actions for employers

Employers will need to comply with these additional award obligations when managing requests from employees for flexible working arrangements under section 65 of the Act.

Employers may also need to review and update policies and procedures to incorporate the changes.

The changes took effect from the start of the first full pay period that started on or after 1 December 2018.

Foodora decision serves as a timely reminder about getting the ‘employee or contractor’ classification right

Last month, the Fair Work Commission found that a Foodora delivery rider was an employee and not an independent contractor.

The decision was hotly anticipated and has received plenty of attention on its potential impact, not only on the ‘gig economy’ but on all businesses engaging independent contractors.

With significant risks to be considered when engaging contractors and both recent and potential new legislative changes occurring, the decision serves as a timely reminder for all businesses about the importance of getting the ‘employee or contractor’ classification right.

Kluger v Foodora Australia Pty Ltd [2018] FWC 6836

Kluger was a delivery rider for Foodora and performed work under a written ‘independent contractor agreement’.

The Commission found that after he publicly raised concerns about his pay and working conditions, including on television’s ‘The Project’, Foodora terminated his services.

The rider brought an unfair dismissal claim and Foodora argued that he could not bring the claim as he was an independent contractor and not an employee.

The Commission found that he was in fact an employee and was unfairly dismissed, awarding him $15,559 in compensation.

In finding that the rider was an employee, the Commission noted that:

  • The written independent contractor agreement contained provisions similar to an employment contract, such as in relation to rostering, clothing, the nature of the engagements and that the rider had to comply with Foodora policies and practices;
  • Foodora had considerable capacity to control the manner in which the rider performed the work, including fixing the start and finish times and locations of shifts and exercising control over how the deliveries were made;
  • Whilst the rider did perform some limited work for other companies this was equated to circumstances where an employee might have two jobs;
  • Whilst the rider did ‘sub-contract’ some shifts to other people, this was done in circumstances where it breached the contractor agreement and was at times contrary to law and in these circumstances the sub-contracting should not be an acceptable basis for characterisation of the relationship;
  • The rider did not have a separate place of work nor did he advertise his services elsewhere;
  • The rider did not have a substantial investment in the equipment he used to perform the deliveries, nor did he spend a significant proportion of his remuneration on business expenses;
  • The rider had to wear a Foodora uniform and use equipment provided by Foodora displaying its logo;
  • Foodora presented the riders as being a part of its business on its website;
  • The rider was paid on a regular basis for shifts completed each week; and
  • The conduct of the rider could create goodwill or damage the public standing of Foodora.

It wasn’t enough that the rider had an ABN, had signed a written contractor agreement, was paid by invoice, had his own bike or that that was how ‘everyone did it’.  The Commission looked at the overall picture and found that the rider was not carrying on a business of his own but was working as part of Foodora’s business.

Risks of getting it wrong

There are significant risks of getting the employee/contractor classification wrong, including:

  • underpayment of wages;
  • non-payment of leave entitlements;
  • unpaid superannuation;
  • termination issues, including unexpected unfair dismissal claims;
  • workers compensation issues and potential legislative breaches;
  • PAYG and payroll tax issues and potential legislative breaches;
  • prosecution by the Fair Work Ombudsman for underpayments, sham contracting (see below) and other breaches.

Many of these potential consequences became a reality for Foodora with the rider bringing an unfair dismissal application, the ATO and Revenue NSW seeking unpaid superannuation and payroll tax and the Fair Work Ombudsman commencing prosecution for underpayment and sham contracting (the prosecution was later dropped as Foodora has since exited Australia and gone into voluntary administration).

Prosecution for sham contracting is a significant risk, for businesses with penalties of $63,000 per breach for a company and $12,600 for individuals, including accessories to the conduct such as business owners.  For example, in a recent case a company director was found personally liable for being ‘involved in’ sham contracting, and he was required to pay $43,000 in penalties (FWO v Raying Holding Pty Ltd & Anor (No.3) [2018] FCCA 668).

There also seems to be a current focus by the Government to reduce the effects and prevalence of sham contracting with recent and potential future legislative changes occurring.

Recent reforms have been passed giving the ATO powers to compel employers to pay unpaid super entitlements and undertake education courses.  This will mean that the ATO will now be responsible for identifying and collecting unpaid super, rather than individual workers.

Also, in response to a 2017 black economy taskforce recommendation the Government agreed in principle to amend the Fair Work Act to increase the penalties for sham contracting.

A current Treasury discussion paper is seeking views on what level of increase would be an appropriate deterrent and whether the level for prosecution for sham contracting should be reduced from ‘reckless’ conduct to a ‘reasonableness’ test.

Lessons for employers

There are risks in engaging contractors and it is vital that due consideration is given at the commencement of the relationship and throughout the relationship to limit exposure to risk.

There can be significant consequences for getting it wrong, including defending claims from workers, possible prosecution resulting in orders for back pay and large penalties as well as other administrative and reputational costs for your business.

Online employee/contractor assessment tools do not give consistent, reliable or accurate answers.  These tools have been criticised by the Fair Work Commission as being ‘particularly simplistic’ and using them may not protect your business from prosecution or penalties.

Correctly identifying a person performing work as either an employee or independent contractor requires an assessment of various factors as well as the current state of the law and it is best to seek legal advice to ensure you get the classification right.

 Contact us

Contact us for assistance with any award changes, employee or contractor queries or any other employment law matter.

Lisa Aitken
Managing Director
+61 7 5413 4000

Disclaimer:  The information contained this update is intended as a guide only.  Professional advice should be sought before applying any of the information to particular circumstances.  While every reasonable care has been taken in the preparation of this update, Aitken Legal does not accept liability for any errors it may contain.  Liability limited by a scheme approved under professional standards legislation.

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