After a long investigation, the FWO is prosecuting an Eastern States food delivery business for allegedly engaging in sham contracting that, the Ombudsman claims, led to underpayments.

The prosecution is seen as a major test case around the gig economy, which is a term used to refer to the casualisation of the workforce.

The Federal Court action, filed this month, involves two Melbourne bicycle delivery riders and a Sydney delivery driver who the FWO alleges were underpaid, in breach of the Fair Work Act.

It’s alleged the company made misrepresentations to the workers that they were independent contractors when they were, in fact, employees.

Each worker was allegedly asked to register an Australian Business Number and to sign a contract entitled “Independent Contractor Agreement” when they started work.

The Ombudsman’s reasons for believing the workers were employees include:

• the level of control, supervision and direction the company exercised over their hours and manner of work
• the requirement for the workers to wear company branded clothing
• their non-negotiated fixed, hourly pay rates

The prosecution argues that the workers were entitled to the minimum wage rates and entitlements, under the Fast Food Industry Award 2010.

The Ombudsman seeking a court order for back-pay of $1168.50, plus superannuation.

Speaking generally, Ombudsman Natalie James told Workplace Express that sham contracting had a direct impact on employees and offered unfair competitive advantage to businesses which undertake it.

“Relevant to the decision to litigate in this case is the extent to which contracting arrangements are utilised by this significant business,” James said.

“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.

“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.

“As the national workplace relations regulator, the Fair Work Ombudsman is now putting this question of significant public interest before a court to consider.”

James said all businesses, including those in the gig economy, that treated individuals as independent contractors needed to take “great care to ensure that the reality of the relationship matches the label.”

“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.”

A case management hearing has been scheduled in the Federal Court in Sydney for July 10.

Each contravention of the Act carries a maximum penalty of $54,000.

►Have an urgent HR query? CCI’s Employee Relations Advice Centre is a free service in most Membership packages, talk to the team today for customised advice.