Name: Sprintlaw
Rating: 5

On 18 May 2021, the Australian Fair Work Commission delivered a landmark decision that Deliveroo driver Mr Diego Franco is an employee, not an independent contractor.

However, it may not be the victory we hoped for as Deliveroo has since expressed its intention to appeal the decision, and uncertainty around the gig economy still remains. Nonetheless, it is an indication that laws around gig work and digital platforms continue to evolve.

The Current Situation & Previous Rulings

Currently, many workers in the gig economy are categorised as independent contractors. A consequence of this is having very little protections against job insecurity or unsafe work conditions. Therefore, if an employment relationship is found for gig workers, it would offer more rights and support for them.

Up until Diego v Deliveroo, the Australian law has not been very clear on this issue – whether gig workers are employees or independent contractors. In fact, it’s nearly certain this case will be appealed by Deliveroo, and while we can’t be certain of the outcome, it definitely could be a successful appeal.

We’ve also previously considered whether Australian law provides enough protections for gig economy workers, which can be found here. Even just last year, a 2020 decision regarding UberEats still leant towards the independent contractor classification. Notwithstanding, the uncertainty has mainly been a result of the industry being simultaneously new and rapidly changing.

Can the decision in Diego v Deliveroo finally settle the debate? Let’s break down the case.

What Happened & Why Is Diego v Deliveroo Significant?

Like several cases involving gig economy giants, the current decision also involves an application for an unfair dismissal remedy. The application was made by Mr Diego Franco against food delivery app Deliveroo on 21 May 2020. Deliveroo had terminated Mr Franco’s services with effect from 30 April 2020, as he was going into his 4th year as a rider on the app.

The reasons for dismissal were due to:

Circumstances where orders had not been received but rider had marked as delivered
Circumstances where delivery times were significantly delayed

As a result, there were 2 questions to solve:

Is Mr Franco an employee or independent contractor?
Was the dismissal unfair?

Deliveroo maintained that Mr Franco was an independent contractor and therefore could not be unfairly dismissed, whereas Mr Franco maintained that he was an employee.

Mr Franco and Deliveroo both brought compelling arguments to the table (more detail later). Further, the analysis and conclusion by the Fair Work Commission was significant (also more detail on this later).

Commissioner Cambridge presented quite the imagery in his conclusion. He stated that when you look at all the aspects of the case, “like the colours from the artist’s palette, emerged to form a complete picture” Mr Franco and Deliveroo were employee and employer. The picture created from the colours is “impressionistic” – not precise like a photograph.

For example, think about some famous impressionist paintings such as ‘Starry Night’ by Van Gough or ‘Water Lilies’ by Monet. If you zoom in, all you can really see are an explosion of stippled brushstrokes that make it difficult to determine the subject. But if you step back, even though it departs from hyper-realistic art movements, we can still tell what the painting is of and see their beauty.

Similarly, Commissioner Cambridge says that there is a “compelling conclusion” when you look at the whole picture. There is a clear answer to whether Mr Franco is an employee or independent contractor.

Establishing that Mr Franco is an employee is what has made this case so significant. Many unfair dismissal claims put to the Fair Work Commission have not been successful thus far. Because he is an employee, this means that he could be protected from unfair dismissal – a protection that is not extended to independent contractors. After considering the facts, Commissioner Cambridge also ruled that Mr Franco’s dismissal was harsh, unjust and unreasonable. An order was made for reinstatement, continuity of service and restoration of lost pay.

Hearing the conclusion first, it’s a happy ending to the story – Mr Franco should be able to get his job back according to this decision. Although, we should remain on our toes for what’s next as Deliveroo will be appealing this decision.

The Two Sides

Let’s take a step back from the outcome, for a deeper dive into each side’s arguments. Which side is more convincing?

Mr Franco’s Case

Mr Franco addressed the two main issues:

Whether Mr Franco is an employee or independent contractor
Whether the dismissal of Mr Franco was harsh, unjust, or unreasonable

1. Employee or Independent Contractor?

There were four points to answer this question. A “multifactorial examination” of the relationship between Mr Franco and Deliveroo was made.

All the relevant circumstances should be considered, without one particular factor being determinative. The totality of the relationship is important.
Was Mr Franco running his own business or working in Deliveroo’s business?
The focus should not be on previous cases on whether an employment or independent contracting relationship had been found. Rather, we should concentrate on the facts of this particular case.
The use of technology by food delivery companies such as Deliveroo resulted in new and unusual aspects of engagement similar to a casual employee.

Deliveroo asserted that Mr Franco was a contractor conducting his own business. To that, he gave reasons as to why he was not:

He was not trying to earn profits, but just remuneration for the work performed
He did promote his business to the public or as a separate entity from Deliveroo
There was no capacity for Mr Franco to generate goodwill to run a business in an entrepreneurial fashion

Other factors pointing to an employment relationship:

Clothing:
Mr Franco wore the branded rain jacket and food delivery bag during his work. While not compulsory, it is Deliveroo’s hope and expectation that workers wear it. Mr Franco abided, and became the “human embodiment” of Deliveroo to restaurants and customers.
Right to delegate work:
Mr Franco had the right to delegate work performed under the supplier agreements (contract between Mr Franco and Deliveroo). However, this is more of a theoretical idea because there are so many impracticalities in implementing it (such as the rate of pay).
Control:
The supplier agreement permitted termination for any reason – which represents a high degree of control. Deliveroo is also able to monitor riders, analyse performance, terminate contracts all of which point to an employment relationship.
Supplier agreement:
Even though the contract expressly says that Mr Franco is a contractor, it is not determinative of whether he is a contractor or employee . The document is a list of things Mr Franco must adhere to, and he had no real capacity to negotiate the terms.
Expenses and Skill:
Mr Franco purchased two motorcycles costing him about $5,000 which was not significant. This is considering he also used it personally. The work performed by Mr Franco was also relatively low skilled.

When you look at all the relevant factors above, and consider everything as one whole picture, Mr Franco’s argument was that there is an employment relationship between him and Deliveroo.

2. Unfair Dismissal

Reasons submitted as to why the dismissal was not valid:

Slow deliveries:
Average delivery times or expected delivery times were never notified to Mr Franco or other rides, so Mr Franco would have not known that his delivery times were not reasonable.
No procedural fairness:
Mr Franco was never notified that he was at risk of termination. There was no specificity about the issues of performance or what he could do to remedy the concerns.
Disproportionate consequence:
Being terminated for not being sufficiently fast enough with deliveries a few times was not a proportionate sanction – too harsh of a consequence for his conduct.

Deliveroo’s Case

Mr Felman, who appeared for Deliveroo said that when you consider the totality of the relationship, Mr Franco is an independent contractor. Completely opposite arguments to Mr Franco!

In response to the multifactorial test, Mr Felman said it is not correct to focus on refuting whether someone runs their own business to determine the relationship. It is just one part of the whole picture.

He referred to the Automatic Fire Sprinklers case which held that employment relationships involve an obligation on one side to personally perform the work demanded under the contract, and the other side to pay for such services.

Factors that contributed to independent contracting:

Not required to perform services for Deliveroo personally:
The only obligation was for Mr Franco to arrange for the provision of services, but there was no obligation for him to do it personally.
Right to delegate work:
Although Mr Franco did not delegate any work, the capacity to delegate tied with obligation to arrange for the provision of services pointed to an independent contractor relationship. This ability departs from the criteria for employment relationships in past cases (e.g. ACE Insurance, Automatic Fire Sprinklers).
Reject or accept work without consequence:
It is a very unusual employment arrangement if you can attend or not attend to your liking and not advise anyone of your availability. Deliveroo never tracked the number of orders accepted or delivered, or the hours a rider was on the app. Also, riders are not disciplined, cautioned or reprimanded for unassigning a delivery order.

The Issue Of Control

Mr Felman submitted that control was almost completely absent in the relationship between Mr Franco and Deliveroo.

Could work whatever length of time, whenever and wherever:
Deliveroo had no control over which hours Mr Franco worked. Even during a period of time where Deliveroo used the “self-service booking (SSB) system” (where riders had to book sessions in advance rather than signing on at any time) he did not have to work in a particular zone and could work when he wanted to.
The supply agreement:
It is not a manifestation of control. It is common for contracts to provide the principal to terminate the contractor’s engagement if they breach the terms. A little control over ending a contract for non-performance is not enough to create an employment relationship.
No right to discipline:
Monitoring rider performance was not to control the riders but only to ensure that customers were getting the service in a reasonable timeframe.

Perform work for multiple entities at the same time:
Mr Franco worked for Deliveroo, UberEats and DoorDash. Sometimes he was logged on to all three platforms at the same time. This kind of “multi-apping” where Mr Felman could work for competitors further shows there is a lack of control that would usually exist in an employment relationship.
Vehicle:
Deliveroo had no control over the type of vehicle that Mr Franco used.

Further aspects:

Express contract stating he was a supplier in business on his own account
Paid on invoice for each delivery performed
Provided tools at his own expensive
Determined what route to take for deliveries
Required to indemnify Deliveroo for any loss incurred as a result of his or her delegate’s negligence

Mr Felman also raised similarities to the 2020 Gupta v UberEats case, that it was the lack of control that pointed to a lack of employment relationship.

Therefore, when Deliveroo applied the multifactorial test,Mr Franco was not an employee and not protected from unfair dismissal. Apparently, there had also been “irretrievable loss of trust and confidence” in Mr Franco so reinstatement would not be possible. Even if the Commission found that Mr Franco was an employee, the dismissal was not harsh, unjust or unreasonable.

The Commission’s Finding

The Common Law Position

Firstly, the Commissioner accepted that the common law position is very unclear.

For example, a food delivery worker riding a bicycle was an employee (2018) and a food delivery worker driving a motor vehicle was an independent contractor (2020). These show the “vagaries of the application of the common law upon the question of the ordinary meaning of an employee.”

The Multifactorial Approach

The multifactorial approach used in the Gupta case was adopted to determine whether a relationship is one of employment or contractor:

“The object of the exercise is to paint a picture of the relationship from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole.”

Control

Although Deliveroo did not require Mr Franco to work for a certain time period, or even accept a delivery order once logged into a booked session, the economic reality of the situation would motivate the rider to complete the delivery. The rider, after all, is trying to get paid.

The important point here is that Deliveroo possesses the capacity to exercise significant control:

Data:
Deliveroo has a huge repository of data on rider performance, and even though Deliveroo says it isn’t used to control anyone, it can surely be used as a means of control.
Duration of work:
While Mr Franco was not under any obligation to perform work, Deliveroo could control when, where and how long Mr Franco worked if it wanted to. (In light of the SSB system they had in place for a while).
Supplier agreement:
In the Gupta case, control of quality of work was considered a neutral factor. But Mr Franco was sent a number of emails about his work concerning delivery times and other issues. Deliveroo did not discipline Mr Franco prior to termination, despite having the capacity to do so. It only used the capacity to terminate his services.

Work Performed For Competitors

Mr Franco was able to work for multiple competitors at the same time, by multi-apping. In traditional employment for example, it would be impossible for an employee to work for McDonalds and Hungry Jacks as you can’t be physically present at two different workplaces.

Commissioner Cambridge notes that:

“Multi-apping is an example of the phenomenon of change that new technology is bringing to the traditional arrangements for employment”
COVID-19 has altered the way people work, and it has been facilitated by the introduction and application of new technologies.

Therefore, being able to work for two or more employers has become a reality because physical presence is no longer a key requirement. It does not point against an employment relationship, especially in the context of the modern and rapidly changing workplace.

Terms of the Supplier Agreements

Written terms are usually very important in determining the correct relationship between the parties. Here, the supplier agreement in question goes to considerable length to emphasise that there is no employment relationship.

However, Deliveroo determined the terms unilaterally, and Mr Franco had no capacity to negotiate any terms. Often in work contracts, the organisation offering work holds power and dictates the terms on a “take-it-or-leave-it” basis. Therefore, the supplier agreement must be treated with caution.

Equipment

Mr Franco did not have a substantial investment in the equipment used to perform the work. Further, “without being disparaging to food delivery riders or drivers”, there is not a high degree of skill used to operate the vehicle.

Personal Service

Usually the prospect that an employee can delegate their work to another person would go against an employment relationship. However, it does not prevent it.

In this situation, there would be clear financial constraints in trying to sub-contract the work. This is because Mr Franco’s pay from Deliveroo is not enough to cover a minimum wage for the delegate. So, delegation is not really a viable option.

Other relevant factors:

Presentation as part of the business: Mr Franco was encouraged to present himself as part of Deliveroo with the branded clothing and equipment.
Remuneration: Deliveroo generated an invoice based on the recorded time and delivery and utilised this information to pay Mr Franco.
Taxation: Deliveroo did not deduct income tax. Mr Franco was responsible for his own business expenses and payment of tax. This is a natural reflection of the supplier agreement.
Holiday and sick leave: No such leave entitlements were provided.
Entrepreneurial business with potential goodwill: There is no evidence to suggest that Mr Franco developed any goodwill or value from the work he performed as a food delivery driver. He also did not seek to distinguish himself from Deliveroo.

Unfair Dismissal

The dismissal was harsh, unjust and unreasonable because:

Slow deliveries: Factual confirmation that Mr Franco’s delivery time was slower than other riders does not necessarily translate to a valid dismissal. He was never made aware that it would be relied on to dismiss him.
Expectations not provided: Mr Franco was not told what the expected delivery time frames were, and hence it’s not a valid reason.
Dismissal via email: The email lacked a level of fundamental human compassion, as Deliveroo did not feel the need to even phone Mr Franco about the issue.
No opportunity to be heard: Mr Franco was not given any chance to provide an explanation, offer defence or plead for mercy.

UK: Uber BV v Aslam

This UK case was discussed here previously, and it was also mentioned in Diego v Deliveroo along with several other UK decisions. In Uber BV, it was found that its workers were drivers, not independent contractors.

The Commissioner noted that these are interesting as we are able to see how work for digital platforms has challenged traditional concepts of employment. However, he emphasised that the UK decisions did not affect the application of the multifactorial test, the overall picture and outcome.

The Changing Nature Of Work

Well, what does this decision tell us?

On one hand, it shows us that we need better laws and regulations to ensure that workers are treated fairly even in the context of digital gig work.

On the other hand, the ruling that Mr Franco is an employee and not a contractor points to a wider trend. Around the world, more gig workers are fighting back for better protections than what contracting relationships currently provide. The good news is, more and more courts are agreeing with gig workers. To a large extent however, we are left with uncertainty due to the varying outcomes of court decisions.

It is also interesting to see the role that technology is playing in how these decisions are made. In this case, the Commission clearly recognised that digital platforms have changed the way people work, and therefore traditional work relationships. It also considered how COVID-19 has altered how the world operates, and especially how performance of work has drastically changed as a result.

However, not all gig economy platforms are fighting for their workers to remain as contractors. Menulog, another food delivery giant, has taken a vastly different approach to others. They intend on making an application to the Fair Work Commission for a new modern award for the food delivery industry. If successful, it would mean all Menulog workers will become full employees. Only time will tell if such a move will be beneficial, or whether it can be practically implemented.

Although Deliveroo is appealing the current decision, it’s another example of how gig economy giants may lose the benefits they reap from implementing these contracting arrangements.

As of now, Diego v Deliveroo is a message for companies to be mindful of the way they are engaging workers, and to comply with the rapidly developing area of law.

Get In Touch

Need help with your small business legals?

You can reach out to us at team@sprintlaw.com.au or contact us on 1800 730 617 for an obligation free chat.

Sharon Choi

Sharon is the Social Media & Creative Coordinator at Sprintlaw. She has completed her law degree at UNSW and has experience working in law firms and in social media marketing.

Need legal help?
Get a free, fixed-fee quote.

We'll get back to you within 1 business day.

Ultimate Guide To Diego v Deliveroo: The Evolving Gig Economy