Food delivery startup Foodora has been accused of sham contracting and worker underpayment by the Fair Work Ombudsman (FWO) in a case that has been called “unquestionably significant” for the future of Australia’s gig economy.

On Tuesday the FWO filed legal action against Foodora in the Federal Court in relation to the engagement of two bike delivery riders in Melbourne, and one car delivery driver in Sydney.

The ombudsman alleges that upon engaging the workers in 2015, Foodora fell foul of sham contracting laws by misrepresenting the workers as independent contractors, rather than employees of the company.

Despite each worker having an ABN and signing an ‘Independent Contractor Agreement’ with the company, the FWO alleges that the workers’ responsibilities and conditions meant the three should have been considered employees, and were therefore entitled to minimum wage rates and entitlements as per the Fast Food Industry Award.

Due to this, the FWO also alleges the three workers were underpaid a total of $1620.74 over a four-week period, due to the company not providing them with casual loading and penalty rates for weekend and overnight work.

“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,” Fair Work Ombudsman Natalie James said in a statement.

“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.”

In a statement to SmartCompany, a spokesperson for Foodora said the company was unable to comment, due to the case being before the courts, but said Foodora would be “defending the claims and accusations that have been made against the business”.

‘The case will be unquestionably significant’

Rumblings of issues with Foodora riders’ employment contracts have been building over the past few months, with a leaked staff email warning staff of sham contracting issues in April, and billionaire businessman Jack Cowin calling for a government inquiry into gig economy companies last month.

This isn’t the first time the FWO has looked into gig economy companies operating in Australia, with the workplace watchdog also beginning an investigation into ride-sharing operator Uber last year. However, speaking to SmartCompany, workplace lawyer Peter Vitale says action against a “bike courier” food delivery company was “undoubtedly a long time coming”.

Vitale believes the FWO was emboldened to take action against Foodora thanks to an array of previous cases, including a recent case from the UK where Uber drivers were found to be employees, and a 2001 case against bike courier company Vabu, where an independent contractor cyclist engaged by the company was found to be an employee, meaning Vabu was therefore liable for its cyclist striking a man and causing him personal injury.

“It was inevitable these matters would find their ways into the courts, and there are potentially big ramifications for the wider gig economy,” Vitale says.

However, Vitale warns it’s hard to draw a blanket conclusion on the effects of the FWO’s case against Foodora could have on other gig economy operators. He believes the extent to which the workers were considered to be running their own business will likely be paramount in the proceedings, a consideration he thinks would be harder to apply to Uber drivers, as they provide their own vehicles.

“The key issue with these food couriers is that they obviously get to choose when they work and when they don’t work, which will be a key point in the favour of concluding if they are contractors or not,” he says.

“Regardless, the case will be unquestionably significant.”

The FWO claims the workers should have been considered employees, due to Foodora’s level of control and supervision over the hours and location of their work, the requirement for the workers to wear Foodora-branded T-shirts and food boxes, and the fact that each worker “was not genuinely conducting their own delivery business”.

Vitale says, for all businesses, the last point is important, with the FWO taking into consideration in cases such as this whether the engaged worker is “indistinguishable from the remainder of the business”.

Foodora faces “several” alleged breaches of the Fair Work Act, with a maximum penalty of $54,000 for each.

This story was first published on SmartCompany