Fair Work Ombudsman investigates Uber for sham contracting: Employment Law Update
Ride-share company Uber has come under fire for allegedly failing to comply with federal workplace laws amid claims of sham contracting. The Fair Work Ombudsman has launched an investigation following a campaign from several ride-sharing associations which have alleged that Uber has underpaid tens of thousands of drivers by classifying them as independent contractors rather than employees. Ride Share Drivers United have called for any drivers that have been with Uber for longer than a year and drive an average of 35 hours or more a week to be part of the investigation.
What is a sham contract?
A sham contracting arrangement is when an employer attempts to disguise an employment relationship as an independent contracting arrangement.
Under the sham contracting provisions in section 357 of the Fair Work Act 2009 (Cth), an employer cannot:
- Misrepresent an employment relationship or a proposed employment arrangement as an independent contracting arrangement;
- Dismiss or threaten to dismiss an employee for the purpose of engaging them as an independent contractor; or
- Make a knowingly false statement to persuade or influence an employee to become an independent contractor.
The Fair Work Act provides serious penalties for contraventions of these provisions. Fair Work inspectors may also apply to the courts to grant an injunction if an employer seeks (or threatens) to dismiss an employee for the purpose of engaging them as an independent contractor. The purpose of the injunction would be to prevent the dismissal from occurring or otherwise remedy the effects. Courts can also make other orders to have the employee reinstated or compensated.
Employee vs Independent Contractor
In this case, it has been alleged that Uber drivers have been wrongly classified as independent contractors who use the Uber application as a service to access customers. Drivers say this is unfair, as they have no ability to negotiate or have a say over pricing or any other important business decisions that actual subcontractors are able to make.
The approach currently being adopted by Australian courts to determine whether an employment relationship exists is the ‘Multiple Indicia Test’. This test involves making a balanced evaluation of all the features of a relationship to determine whether there is a sufficient quality and quantity of control by one party over another to indicate the existence of an employment relationship. The High Court in Stevens v Brodribb Sawmilling Co Pty Ltd  HCA 1 outlined a list of non-exhaustive factors which may be indicative of an employment relationship including:
- Mode of remuneration;
- Provision and maintenance of equipment;
- Obligation to work;
- Hours of work;
- Provision of holidays;
- Tax arrangements; and
- Ability for employee to delegate work.
In the sham contracting case of Hollis v Vabu  HCA 44, the High Court decided that a bicycle courier was in fact an employee of Vabu. This overturned the prior NSW Court of Appeal case which found that the workers were independent contractors, based on the fact that:
- The couriers supplied and maintained their own vehicles at their own cost;
- The couriers described themselves as independent contractors (and as such they were taxed as contractors rather than employees);
- The couriers provided their own tools (bicycles, street maps, and so on); and
- The mode of remuneration was a fixed rate per kilometre rather than a wage or salary.
The High Court overturned this NSW Court of Appeal decision, based on the fact that:
- The parties have no control over the manner in which they performed their work;
- The couriers were required to wear a uniform to present themselves to the public as emanations of Vabu;
- Vabu was aware of dangers which its couriers presented to pedestrians, yet failed to adopt any means for personal identification of individual couriers by the public;
- Vabu administered the couriers’ finances and offered no scope for couriers to bargain for their remuneration. In addition, their employment left the couriers with limited scope for undertaking any business enterprise of their own; and
- The fact that the couriers were to provide their own transport and equipment was not determinative.
This demonstrates the complexities involved in determining whether an employment relationship exists. This test is evidently highly dependent on the particular circumstances of a case and may be interpreted in different ways.
Impact on Uber
If Uber is held liable for sham contracting, the company will be forced to pay its drivers minimum wages and superannuation, resulting in a massive increase in labour costs. A casual employee classification would require the Uber to pay drivers at least $22.86 an hour, taking into account the latest increase in the minimum wage on July 1.
This classification is also critical as all new and existing Uber drivers must be registered for GST from August 15 and will be required to have an ABN to access the app. For more information on this, see our previous blog.
Checklist for businesses
- Take comprehensive analysis when engaging workers in non-traditional arrangements, such as contracting and labour hire firms;
- Merely engaging workers through a labour hire arrangement is no guarantee that it is a genuine labour hire arrangement. This will not be enough to avoid sham contracting provisions under the Fair Work Act;
- If you’re unsure, contact an experienced employment law solicitor.
Unsure on whether you may be held liable for sham contracting? Want to know more about employment law? Please don’t hesitate to contact one of our experienced solicitors at Butlers Business and Law on (02) 4929 7002 or fill out an enquiry form on our website.
Image: ‘!Taxis!’ by Theirry Hudsyn available at Flickr under a Creative Commons Attribution 2.0.