Foodora, Sham Contracting, Minimum Wage, the Restaurant Industry and the Fair Work Ombudsman

Foodora Sham Contract

FWO to test Foodora Sham Contracting in Court

Multiple newspapers are reporting that the Fair Work Ombudsman has alleged that Foodora is engaged in “Sham Contracting” and has been underpaying workers.  The Foodora sham contracting case centres around 3 workers which Foodora labelled as independent contractors.  It is being described as a landmark case for the Gig economy, with the Fair Work Ombudsman arguing that Foodora workers are entitled to the minimum award wage and that the company should be fined hundreds of thousands of dollars for underpayment, sham contracting and breaches of the Fair Work Act.

Natalie James, the Fair Work Ombudsman who was appointed by the Governor General in 2013 and is responsible for promoting harmonious, productive and cooperative workplace relations and ensuring compliance with Commonwealth workplace laws, stated in a statement that they “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.”

By labeling workers as independent contractors, Foodora is able to avoid paying the minimum wage, penalty rates, leave and other provisions under the Fair Work Act that employees are entitled to.  Some workers claim they earn as little as $6 per hour.

Smart Company is quoting workplace lawyer Peter Vitale as saying that, “It was inevitable these matters would find their ways into the courts, and there are potentially big ramifications for the wider gig economy.”   He says that the import part of the FWO submission is that each worker “was not genuinely conducting their own delivery business.”

The difference between an employee and independent contractor

The Fair Work Ombudsman is arguing that the level of control exerted by Foodora over workers means that they are legally employees.

“Courts have found again and again that merely labelling the relationship to be one of independent contracting does not make it so.”

Areas of interest to the court will be:

  • The uniform worn by Foodora riders;
  • The level of negotiation over rates;
  • Control over the hours worked;
  • Location of work;
  • Riders development of their own customer base; and
  • Ability to subcontract work.

Foodora also faces legal action from the Transport Workers Union for unfair dismissal of a number of couriers.  He stated, “The sham contracting comes as no surprise to the thousands of delivery riders, but action must go broader than just one company and just a few riders.  This area is crying out for regulation.”

Crikey has a very interesting article  detailing some of the nuances of the case.  It quotes Sarah Kaine, an associate professor of industrial relations at University of Technology Sydney, who discusses the intricacies of determining when a worker is and isn’t an employee.  The ATO looks at six factors – delegation, basis of payment, tools and other assets, commercial risks and independence, but legislation for superannuation and workplace safety use different definitions.  This has enabled gig economy companies to get around the definition of what an employee is.  She stated, “I’ve been on a panel with the head of Foodora and he said ‘we will not do this or that because we don’t want it to look like we have employees’. They’re quite explicit about it.”

The case is to be heard on July 10 in the Federal Court in Sydney.

Is this the end of Foodora in Australia?

Foodora, which we believe is third in order volume of the delivery aggregators is a long way behind UberEats and Deliveroo.  In the Australian market, which may not be big enough for 2 operates to create the economies of scale required to be profitable, it is highly unlikely that 3 operators will be able to operate profitably.  This follows the retreat from Australia of Delivery Hero which failed to gain sufficient market share in the fierce fight in Australia.

That fight has only gotten fiercer with the entrance of Just Eat subsidiary Menulog into the delivery space.  This is a curious move, but potentially necessary as Menulog was quite profitable providing order taking only and the move into the fierce competition of delivery aggregator has been driven as UberEats and Deliveroo took market share from Menulog in the capital cities.

An adverse ruling in the  Foodora sham contracting case , which could see it fined $54,000 for each contravention of the Fair Work Act could very well see Foodora leave Australia.  It remains to be seen how much resources it will commit to it’s legal defence.

It’s not just Foodora, UberEats, Deliveroo and now Menulog do the same thing.

The Foodora sham contracting case is not an isolated case and the implications for the Food Delivery business are massive.  The bedrock of the Gig economy delivery aggregators has been their ability to pay less than the minimum wage by labeling workers as independent contractors.  If Foodora riders as seen as employees, it could mean that the delivery aggregation business model is fundamentally unprofitable.  The industry has struggled for profitability since it’s inception and this may mean that it will not be long term economically feasible in countries that see the role of the riders as being that of an employee.

How the Gig economy undermines Restaurants

UberEats and Deliveroo, the pioneers in the industry like to trumpet the innovation that they are bringing to the Restaurant industry, but the fact remains that Restaurants have been delivering food for over 30 years.

One of the innovations in the delivery aggregator model is the ability to pay delivery riders below minimum wage, making it difficult for Restaurants to compete when they are paying the minimum wage, along with the other entitlements that the workers are entitled to.

This ability to pay below minimum wage, along with the branding work that they do and the ability to gain the customer’s email address have lead to the rise of the online aggregator.  The business model sees a customer history across multiple restaurants and denying the restaurant access to the customer contact details.  This is being used by companies like Deliveroo to feed into dark kitchens.  It has even seen Deliveroo state that it intends to cook it’s own food, in direct competition to the Restaurants.

A level playing field should see Delivery Aggregators paying the minimum wage and entitlements, just as the Restaurants have been doing since they started doing delivery many years ago.

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