Recent US decision on delivery workers

26 July 2018
The Fair Work Ombudsman’s recent commencement of a prosecution of Foodora for falsely categorising delivery workers as independent contractors has again raised questions as to how Australian law differentiates between an independent contractor and an employee.

The current test in Australia involves looking at the following factors to determine whether the worker in question is an employee or contractor:

  • Degree of control over how work is performed;
  • Whether there is an ongoing expectation of employer;
  • Who bears the financial risk of the work;
  • Who pays superannuation ;
  • Who provides tools and equipment;
  • Who pays the worker’s tax;
  • Pay periods (weekly, monthly etc); and
  • Entitlements to paid leave

The increasing use of technology platforms to employ workers (see Uber, Foodora, AirTasker) places significant tension on this test, as the line between employee and independent contractor is blurred. 

The Californian Supreme Court decision of Dynamex Operations v Superior Court of Los Angeles, No. S222732, 2018 Cal. LEXIS 3152 looked at whether delivery drivers working for Dynamex had been misclassified for the purpose of Californian employment law. Californian wage orders set industry specific mandatory minimum conditions in relation to wages, hours and other entitlements for those workers that are categorised as employees. Independent contractors are not covered by the wage orders. As of 2004, Dynamex had sought to circumvent wage orders and the mandatory minimum employment conditions by deeming workers to be ‘independent contractors’. A number of delivery drivers contested this classification and asserted that they were entitled to coverage under the wage order.

The Facts

In determining whether Dynamex delivery drivers were independent contractors or employees, the Court endorsed the ABC test. Previously, Californian courts had adopted a common law test based on eleven factors.

The ABC test is a three part test that establishes that the worker will be considered an independent contractor if:

  • …the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
  • that the worker performs work that is outside the usual course of the hiring entity’s business; and
  • that the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

What does this mean for Australian workers?

The decision in Dynamex represents a significant change in the test of independent contractor / employee status in the US. The application of the ABC test operates far more broadly than previous methods used to define the employment relationship. The ABC test essentially asserts that it is necessary for a worker to be truly ‘independent’ to be categorised as such under employment law, and that the false categorisation of the employment relationship will no longer operate to deny employee’s their statutory entitlements.

Under the ABC test companies like Uber and Foodora may have questionable legal standing on which to assert that their workers are independent contractors. It will be difficult to assert that they are compliant with part (B) of the ABC Test which requires workers to “perform work that is outside the usual course of the hiring entity’s business…”. As Uber’s business is concerned with transportation, and Foodora with the delivery of food, the operation of the ABC test would deny those companies’ assertions that their drivers are independent contractors.

Whilst this decision is very different to the test applied under Australian law, it would have significant implications if it were adopted here. The ABC test provides a decisive and clear method for determining whether a worker is an employee or independent contractor.

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