Deliveroo driver ruled to be an employee by the Fair Work Commission
Yesterday, the Fair Work Commission handed down a decision in the matter of Diego Franco v Deliveroo Australia Pty Ltd [2021] FWC 2818, that could have significant ramifications across the Australian gig economy landscape.
Currently, online food delivery giants like Deliveroo and UberEats rely on their drivers being independent contractors, so they can have flexible work arrangements and work for multiple delivery platforms. This therefore means they lack the general protections that employees are entitled to under the Fair Work Act such as unfair dismissal.
Mr Franco launched an unfair dismissal challenge after being dismissed with seven days’ notice for late deliveries. The first determination for the Fair Work Commission was whether he was an employee and therefore prima facie entitled to unfair dismissal protections. Secondly, if he was an employee, they had to determine whether his dismissal was harsh, unjust or unreasonable under section 385 of the Fair Work Act.
Mr Franco submitted that the main factor contributing to him being an employee was that he was not running his own business, rather he was working for Deliveroo and obtaining renumeration from them directly rather than pursuing his own personal profit.
Other factors included the remuneration being non-negotiable, wearing Deliveroo clothing, and that Deliveroo exercised control over Mr Franco through the supplier agreement he signed.
While Deliveroo asserted it had no control over when or where Mr Franco worked which would point to an independent contractor relationship, this was not quite the reality when the working arrangements were examined closer.
Deliveroo utilised a SSB system that required riders to book sessions in advance and preference was given to riders with good performance metrics. This meant that Mr Franco was directed by the SSB system to work particular times, make himself readily available and not to cancel booked engagements. So while superficially it appeared there was an absence of control, Commissioner Cambridge noted that this was camouflaged into a significant capacity for control.
Mr Franco's submission that his termination was harsh, unjust or unreasonable was based on the fact that failing to deliver in a reasonable time was not a valid reason as Mr Franco had never been notified about expected delivery times for drivers.
Deliveroo submitted that Mr Franco was an independent contractor due to him not being required to perform services for the Deliveroo business personally, his ability to accept and refuse work, work whenever he wanted, being able to work for multiple entities at the same time, him signing a supplier contract, supplying his own delivery equipment and being paid on invoices.
However, Commissioner Cambridge said that with “consideration of all the relevant indicia, has, like the colours from the artist’s palette, emerged to form a complete picture… the relationship between Mr Franco and Deliveroo is that of employee and employer”.
Commissioner Cambridge emphasised the fact that Mr Franco was not carrying on a trade or business of his own, but rather working as part of Deliveroo and also took into account how much control Deliveroo exerted over Mr Franco with the SSB system.
When considering how Mr Franco could and did work for other competitors, Commissioner Cambridge contended that this must be assessed in the context of a modern, changing workplace impacted by a digital world and therefore will not always be a determining factor of an independent contractor relationship.
It was then found that there was no valid reason for Mr Franco’s dismissal relating to his capacity or conduct and the substantive reasons were not sound. He was therefore reinstated and will be awarded back pay for lost wages.
Shifting Attitudes
In previous gig work decisions, the Fair Work Commission has typically gone against the workers, finding that their working relationship is more indicative of a contractor relationship. An example from last year was Amita Gupta v Portier Pacific Pty Ltd; Uber Australia Pty Ltd t/a Uber Eats [2020] FWCFB 1698, where the full bench found that Gupta was an independent contractor by focusing on the flexibility of work arrangements and the ability to work for multiple corporations.
However, this is not always the case. A Foodora rider was awarded $15 000 in 2018 for unfair dismissal. In this decision, Commissioner Cambridge focused on the applicant being “integrated into the respondent’s business and not an independent operation”. You can read our article about this case from 2018 here.
This decision also comes after a recent UK Supreme Court decision of Uber BV v Aslam [2021] UKSC 5, where Uber’s appeal was dismissed and Aslam, an Uber driver, was determined to be a worker and entitled to the minimum standards under UK labour law.
The Courts did not determine whether Aslam was an employee however. As the UK labour law framework is quite distinct from the Australian framework the decisions cannot be directly followed, but as Commissioner Cambridge acknowledged in his reasoning, decisions like Aslam confirm the extent to which services on digital platforms are challenging traditional employment concepts.
In a statement to the media, Deliveroo said it planned to appeal the decision.
James Conomos featured for IR Global Member Spotlight Interview
Our Managing Partner James Conomos was recently featured for a Member Spotlight interview with IR Global. IR Global is a multi-disciplinary professional services network with membership of the highest quality boutique and mid-sized firms who service the mid-market. James is currently the exclusive Australian member for insolvency within IR Global.
Through this network, James has established professional relationships with a number of Australian and international lawyers. He has also acquired unique experience and knowledge that has culminated in the referral of further work.
In this interview they cover a number of topics including his pathway to law, his experiences as a young lawyer and how this lead to the establishment of JCL in 1992. He then looks at how work has changed as a result of the Covid-19 Pandemic and his hopes for the future of technology within legal services.
Have a read of the full interview here.
New illegal phoenixing laws to take effect this week
On 18 February 2021, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 will come into effect seeking to curb illegal phoenix activity by introducing new offences and granting additional powers to ASIC and liquidators.
The Act, which was passed by Parliament in February 2020, introduces new measures designed to:
- hold directors accountable;
- prevent directors from improperly backdating their resignation; and
- prevent directors from leaving their company with no directors.
Illegal phoenixing commonly occurs when company directors transfer the assets of an existing company to a new company without paying true or market value and leaving debts with the old company. Once the assets have been transferred, the old company is placed into liquidation and the directors continue to operate the business under the new company. When the liquidator is appointed to the old company, the creditors cannot be paid as there are no assets to sell.
From 18 February 2021, companies will no longer be able to remove the last remaining director on ASIC records. To enforce this, ASIC will reject lodgements submitted using a Form 484 - Change to company details or Form 370 - Notification by officeholder of resignation or retirement to cease the last appointed director without replacing that appointment.
Further, if ASIC is notified of a director’s cessation date more than 28 days after the effective date, then the effective date will be overridden and replaced with the lodgement date.
The introduction of this new legislation renders it vital that anyone who has resigned as a company director ensures that their resignation has been correctly lodged with ASIC.
Increase to personal bankruptcy threshold
As part of its response to the Coronavirus pandemic, the Australian Government implemented a number of temporary changes to the bankruptcy and insolvency laws. This insolvency moratorium was the subject of a prior post here, but in summary included:
- an increase of the minimum debt required to issue a bankruptcy notice from $5,000 to $20,000;
- an increase of the minimum debt required to issue a creditor’s statutory demand from $2,000 to $20,000;
- an extension of the timeframe for debtors to take action to resolve a bankruptcy notice or creditor’s statutory demand from 21 days to 6 months;
- the suspension of directors' personal liability for insolvent trading.
Whilst these measures were previously extended from 30 September 2020 to 31 December 2020, there was no further extension and they have now expired.
In late 2020, the Bankruptcy Amendment (Bankruptcy Threshold) Regulations 2020 (Cth) was passed to permanently increase the minimum required debt to issue a bankruptcy notice from $5,000 to $10,000. This change took effect on 1 January 2021.
A copy of the Attorney-General’s Media Release issued on 18 December 2020 can be accessed here.
There has been no corresponding increase to the minimum required debt to issue a creditor’s statutory demand.
Christmas Closure
We wish you compliments of the season and thank you for your support in 2020.
Our office will be closed for holidays from 3pm on Wednesday 23 December 2020 and will reopen at 8:30am on Monday 11 January 2021.
Insolvency reforms pass Parliament
Last week amendments to Australia's insolvency regime passed through Parliament, giving effect to the framework proposed by the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 (Cth). The Federal Government first announced the reforms as part of the 2020-21 Budget, touting that they would "strengthen our insolvency system to better support small businesses dealing with the economic impact of COVID-19."
The legislation draws on key features of the Chapter 11 bankruptcy model in the United States to introduce a new, simplified debt restructuring process that can be accessed by incorporated businesses with liabilities of less than $1 million.
Inserting a new Part 5.3B into the Corporations Act 2001 (Cth), the legislation introduces:
- a streamlined debt restructuring process for eligible small businesses;
- a simplified liquidation pathway; and
- additional measures to support the insolvency sector to respond to the reforms.
The framework will be available for eligible small businesses from 1 January 2021.
A copy of the Media Release issued on 10 December 2020 can be accessed here.
A Safe Harbour from the perils of COVID-19?
As COVID-19 continues to have an unprecedented impact on businesses across Australia, it is likely the safe harbour regime will be utilised more than ever before. In this blog post we outline the protections offered by the regime and how it will complement the recently announced temporary insolvency reforms to offer a saving grace in such uncertain times.
A safe harbour applies from the time that directors, who suspect insolvency, start to develop and implement a course of action that is reasonably likely to lead to a better outcome for the corporation than immediate administration or liquidation. It also operates as an exception to the insolvent trading provisions of the Corporations Act 2001 (Cth), however under the Government’s recently announced temporary economic measures, personal liability for insolvency has been waived for six months.
Safe harbour rules require directors to take an active role in the restructure, while acting honestly and genuinely. They must also use up-to-date financial information to assess the likely outcome of a restructure and comply with obligations to pay employee entitlements when they fall due. Meeting all of the company’s taxation reporting obligations, while properly maintaining books and records is also a requirement.
Under safe harbour rules, directors must engage with key stakeholders to develop and implement the restructuring plan. Once it becomes clear that a corporation is not viable, the protection of safe harbour will cease. Protections are not absolute and will require extensive advice and planning as well as consultation with key stakeholders. Their object is to encourage a restructure if it is reasonably likely to lead to a better outcome for the corporation.
Safe harbour does not to protect against other breaches of the Corporations Act and a liquidator may well still be entitled to pursue a creditor for an unfair preference.
The Safe Harbour regime signals a significant change to the corporate insolvency and restructuring landscape in Australia. They seek to maximise the opportunity for preserving a going concern to assist with a corporate restructure in appropriate circumstances. The reforms present a useful step towards dispelling the long-held view that insolvent trading in Australia is focused on punitive outcomes rather than promoting entrepreneurship. Given the uncertainty posed by the rapidly evolving COVID-19 pandemic, the Safe Harbour regime complements the Government’s temporary economic measures to provide a lifeline for Australian businesses.
You can read more commentary on changes to corporate law in response to the evolving COVID-19 situation here.
AAT overturns ATO refusal of $65K luxury car tax claim
In the matter of Skourmallas and Commissioner of Taxation (Taxation) [2019] AATA 5535 the Administrative Appeals Tribunal overturned a decision of Australia Taxation Office after it disallowed a taxpayers claim for input tax credits and decreasing adjustment, resulting in a shortfall of $65,652.
Mr Skourmallas was a motor vehicle dealer who acquired an Audi R8 Coupe as trading stock for a purchase price of $263,750.01. He subsequently claimed GST input tax credits of $19,809 and decreasing adjustment of $45,843.
However, these claims were rejected by the ATO which asserted that he was not carrying on an enterprise but had instead obtained the vehicle for personal use. Mr Skourmallas subsequently applied to the AAT for review of the ATO’s decision.
Before the Tribunal, the ATO relied on the fact that Mr Skourmallas did not operate from a car yard or showroom to support its claim that Mr Skourmallas was not carrying on an enterprise. Further, the ATO asserted that Mr Skourmallas was dishonest and not a credible witness.
The AAT accepted that while Mr Skourmallas could be perceived as belligerent, this did not render him dishonest.
In making a determination as to whether Mr Skourmallas was in fact conducting a business, the court noted that the low kilometres travelled by the car were consistent with it having been obtained as trading stock. Further, it accepted that despite lacking the features of a traditional motor vehicle dealership, Mr Skourmallas’ business model was consistent with the niche market in which he traded.
Ultimately, the AAT ruled that Mr Skourmallas was entitled to the GST input tax credits and luxury car tax decreasing adjustment. However, it did advise that Mr Skourmallas ‘prudently improve’ his record keeping.
Insolvent trading moratorium extended to New Year
This morning the Federal Government announced it will continue to provide regulatory relief for businesses impacted by COVID-19 by extending temporary insolvency and bankruptcy protections until 31 December 2020.
These measures, originally set to expire on September 30, include:
Bankruptcy changes
- Increase in the minimum debt threshold for a creditor-initiated bankruptcy procedure from $5,000 – $20,000;
- The time to respond to a bankruptcy notice increased from 21 days to 6 months;
- An extension of the protection period for individual’s declaring an intention to present a debtor’s petition extended from 21 days to 6 months.
Insolvency Changes
- Increase in minimum amount for a statutory demand from $2,000 – $20,000;
- Increase in time to respond to a statutory demand from 21 days to 6 months;
- Temporary suspension of directors’ personal liability for insolvent trading for six months (egregious cases of dishonesty will still attract criminal liability);
- Insertion of s 588GAAA which provides an additional temporary safe harbour provision during the six-month period.
Treasurer Josh Frydenberg commented that “the extension of the temporary changes to the insolvency and bankruptcy laws will continue to provide businesses with a regulatory shield to help them get across to the other side of the crisis.”
AAT rejects ‘very important’ claim for GST tax refunds
In a recent decision, the Administrative Appeals Tribunal has rejected a taxpayer’s claim for GST refunds after they claimed to be operating a gold refinery.
In Very Important Business Pty Ltd and Commissioner of Taxation (Taxation) [2019] AATA 1120, Very Important Business (VIB) claimed it was entitled to input tax credits with respect to scrap gold it made in the course of its business. In doing so, VIB contended that it was a refiner of precious metal pursuant to the A New Tax System (Goods and Services Tax) Act 1999. Further, VIB claimed that subsequent supplies of gold it had refined into bullion were GST-free supplies. Accordingly, it submitted that it was under no obligation to remit GST on those dealings and was entitled to claim full input tax credits on all its acquisitions.
However the Commissioner of Taxation disputed these propositions. In doing so, it questioned whether the acquisitions occurred as claimed in VIB’s invoices and records, arguing that VIB provided insufficient evidence of consideration for all acquisitions of scrap gold. Further, the Commissioner submitted that VIB’s record keeping was ‘seriously deficient’.
In March 2016, after seeking to verify the relevant GST return, the Commissioner withheld GST refunds that would have otherwise been paid to VIB. The following May, the Commissioner issued an amended assessment of net amount GST in which he disallowed the input tax credits. The Commissioner also conducted an assessment for penalty on the basis of reckless non-compliance with taxation laws.
In June 2016, VIB objected to the amended assessments on the basis that it had provided consideration for some of the acquisitions and that the Commissioner had erred in verifying those cash payments. VIB also contended that the Commissioner had erred in evaluating the legal position regarding input tax credits claimed for the purchase of scrap gold from unregistered suppliers. In doing so, VIB claimed that it had correct tax invoices. Despite this, in November 2016, the Commissioner disallowed VIB’s objection.
VIB subsequently brought the matter before the tribunal, seeking review of the Commissioner’s objection decisions.
Accordingly, the tribunal was required to determine whether VIB was entitled to input tax credits in the sum of $55,153 for the acquisition of $606,702 of scrap metal in the quarterly tax period ending 31 December 2015. Ultimately, determination of this issue was dependent on whether VIB had made creditable acquisitions for the purposes of the GST Act.
The matter was considered on 4 June 2019, at which the Tribunal was not satisfied that VIB had taken over the refinery business or that it was regularly refining prior to 31 December 2015. The Tribunal also concluded that there were inadequacies in the evidence and documentation of the alleged purchase transactions, including that a number of the transactions were actually made by the refinery’s previous operator.
Ultimately, the Tribunal was not satisfied that VIB was a refiner of precious metal in the relevant period, however did accept that VIB was undertaking some activities and was therefore ‘carrying on an enterprise’ for the purposes of the GST Act. In doing so, the Tribunal affirmed the Commissioner’s objection decisions in relation to both the assessment of net amount and penalties.
