A recent court action brought by the Fair Work Ombudsman against a courier business has prompted warnings from both startup founders and legal experts that further crackdowns could be incoming for companies in the “gig economy”.
On October 31, the Federal Circuit court passed down more than $70,000 in penalties against two companies operating a bike courier service in Melbourne due to deliberate “sham contracting”, where they were found to have categorised a worker as a contractor when they were actually an employee.
The case against the company was taken up after the employee complained to the Fair Work Ombudsman he was being underpaid by the two companies, Z Transport Pty Ltd and Boxbay Pty Ltd. After investigating, the ombudsman found the employee was being treated as a contractor despite the companies being aware his correct classification was an employee.
Due to this, the worker was not paid minimum wages and leave entitlements and was underpaid a total of $7,641 between February and November 2013.
Each company was fined $36,000, with the penalties being secured after the ombudsman office said it had provided the companies with “significant material” the year before around sham contracting laws.
While this case isn’t the first time a company in the “gig economy” has been hauled before the courts over employee classification, both legal experts and startup founders believe it’s an indication a “slew” of cases are to come.
Speaking to StartupSmart, regular advisor to startups on sham contracting and principal solicitor at Patron Legal, Shane Wescott. says the case is “one of the more clear judgments we have had around employers’ responsibilities in the gig economy”.
“I think there are businesses out there still grappling with these issues, and it’s not their fault – this area of the law is complicated,” Wescott says.
“There are wide-ranging determinations around if someone is an employee or a contractor, and every organisation is going to have to individually deal with this question.”
Founder of online jobs marketplace Tim Fung agrees, telling StartupSmart each sharing economy model should be assessed individually when it comes to deciding whether workers are employees or contractors, and “broad brushed approaches” should be avoided.
“We believe it’s important that we assess each ‘gig economy’ company individually,” Fung says.
“We need to address the specific issues that may arise rather than over-simplifying and applying the same policies or mechanisms that were used to address the specific issues in the permanent and full-time employment markets.”
Despite this, Fung strongly believes action should continue to be taken against gig economy companies who are involved with sham contracting, saying it’s “super important”.
Classification could be “line-ball” for many startups
Wescott says the rise of the gig economy means worker classification will be “line-ball” for a lot of startups, with his advice to clients being to engage all workers as employees where possible.
Relying on online tools to determine the status of a worker can also be problematic, with the judgment in the Z Transport case highlighting the companies had used a tool provided by the Australian Taxation Office to determine if the worker was an employee or contractor, but the tool had given incorrect advice.
“It seems some confusion also flowed from the use of an internet tool on the Australian Taxation Office website which appears to have been an automated tool that produced an assessment that [the worker] was a contractor rather than an employee,” Judge Riethmuller said.
“The tool provided by the ATO is particularly simplistic and fails to provide sufficient queries as to the nature of the work and the practical realities that may restrict a particular worker with respect to choosing a system of work or subcontracting.”
Startups looking to engage workers as contractors should seek professional advice, says Wescott, and take care moving forward, as he believes the Fair Work Ombudsman has indicated a “particular interest” in the area of sham contracting.
Fung agrees, believing there will be a larger crackdown incoming on the employee vs contractor situation within companies in the gig economy.
“We think that there should be and will be robust action taken to create the changes required for a number of platforms in the gig economy,” he says.
“It is super important that all businesses are scrutinised and meet their employment obligations.”
StartupSmart contacted Z Transport but did not receive a response prior to publication. StartupSmart was unable to contact Boxbay.