Foodora is being sued by the employment watchdog for alleged sham contracts

Foodora/Facebook

The Australian arm of the global food delivery company Foodora is being taken to court for offering its delivery drivers alleged sham contracts in a move that could dramatically change the local gig economy business model.

The Fair Work Ombudsman (FWO) has launched the Federal Court legal action over three workers engaged by Foodora ahead of its Australian launch in 2016. The FWO alleges Foodora Australia Pty Ltd breached sham contracting laws by misrepresenting to them that they were independent contractors.

The case involves two bicycle delivery riders, both then aged 19, in Melbourne and a car delivery driver, 30, in Sydney.

The employment watchdog alleges Foodora required the workers to have an Australian Business Number (ABN) and sign a contract titled ‘Independent Contractor Agreement’ before starting work.

But after looking at the roles and applying what it calls a “multi-factor test” about their employment status, the FWO argues the trio were entitled to minimum wage rates and entitlements under the Fast Food Industry Award and were thus underpaid $1,620.74 in total over a four-week period. Most of that figure, $1,168.50, involves the Sydney delivery driver.
thanks

Among the key issues for the FWO was the level of control, supervision and direction Foodora exercised over the workers’ hours, location and manner of work, the requirement that they wear Foodora-branded t-shirts and the fixed hourly rates and/or amounts paid per delivery.

The Fair Work Ombudsman alleges Foodora committed several breaches of the Fair Work Act and faces penalties of up to $54,000 per contravention. The organisation is seeking backpay for the workers as well as superannuation.

An initial hearing is scheduled for the Federal Court in Sydney on July 10.

Berlin-based Foodora, which operates in 10 countries, launched in Australia in March 2016 after acquiring a local delivery business, Suppertime, in late 2015 and rebranding it. The business now operates in Sydney, Melbourne and Brisbane.

But it wasn’t long before Foodora, along with UK-based rival Deliveroo, stood accused of using sham contracts for its Australian workers, claims denied by the companies, who argue the delivery teams work for the restaurants involved.

The delivery companies are believed to take a flat fee plus a 30% cut of the food bill.

Foodora has already lost labour cases in Italy over its contracts and other claims are now before the Fair Work Commission in Australia.

In March, leaked management emails revealed there were major concerns that the wording of the rider contracts could leave the business legally vulnerable.

“Our rider contracts have many key words in them that would blur the lines between employment and contractor arrangements,” the email to senior management said.

“If just one rider laid a successful case it could be devastating for us and could cause a dominos like effect with law suits.”

Meanwhile, unions have been running a campaign to put delivery drivers on a $24 per hour minimum wage, plus entitlements, as concerns continue to grow over casual jobs in the gig economy.

When it launched two years ago, Foodora paid new riders $14 an hour plus $4 per delivery, which increased by $1 following a successful trial.

Foodora’s German parent company, Delivery Hero, was valued at more than $US4 billion after launching on the Frankfurt stock in June last year.

Fair Work Ombudsman Natalie James said the extent of Foodora’s use of contracting arrangements was central to the decision to launch legal action, as well as the testing the employment relationship in the gig economy.

“There has been broad community and academic debate about the status of ‘models’ using smartphone-driven technology as a means for deploying a workforce that delivers food to consumers from restaurants and fast food outlets,” she said.

“The 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.”

James said engaging someone as an independent contractors requires more than just saying it’s so.

“Courts have found again and again that merely labelling the relationship to be one of independent contracting does not make it so, and it is the substance of the relationship that decides the status of the workers and the regulatory requirements that flow,” she said.

“The activity of delivering food from restaurants and fast food outlets to customers is not new, and nor is the ‘test’ for what determines who is and is not an employee entitled to award rates.”

In a statement to Business Insider, a Foodora spokesperson said: “As the matter is currently before the courts, Foodora is unable to comment. However, Foodora will be defending the claims and accusations that have been made against the business”.

NOW WATCH: Briefing videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.