The federal workplace watchdog has dropped legal proceedings against collapsing delivery service Foodora, which had been accused of mistreating employees.

But the Transport Workers Union insists it will not let the company “off the hook over ripping off its riders”.

The Fair Work Ombudsman took the food delivery company to the Federal Court in June alleging two Melbourne bike riders and a Sydney driver were classed as “independent contractors” when they did the work of full-time employees.

The ombudsman said Foodora “breached sham contracting laws” and misled the workers about the nature of their employment.

Another rider appealed to the Fair Work Commission, saying he was unfairly dismissed after speaking out over low pay and poor conditions.

Foodora in early August announced it was going into administration and would cease operations in Australia by August 20.

The ombudsman on Monday announced its case could not continue while Foodora was in administration without approval from the Federal Court or the administrator.

The ombudsman confirmed it would not seek to continue proceedings.

The TWU last week said Foodora was being pursued by Australian authorities for unpaid taxes.

The union on Monday vowed to continue fighting the unfair dismissal case despite the ombudsman’s “startling inaction”.

“When riders stood up and challenged Foodora the company decided to avoid its responsibilities and leave Australia altogether,” TWU national secretary Michael Kaine said in a statement.

“We will not stand by and allow them to do this.”

Foodora has been contacted for comment.

-AAP