Diego Franco arrived in Australia from Brazil on Christmas Day 2016. A few months into his new life in Sydney, he became a Deliveroo motorcycle driver. For three years, Franco worked predominantly for Deliveroo, a food delivery service listed on the London Stock Exchange, and supplemented this modest income with additional work for similar services Uber Eats and Door Dash. But on April 23, 2020 – barely a month into the Covid-19 pandemic – Franco’s world came crashing down.

Deliveroo regularly reviews delivery data. It compares the difference between the time its algorithms anticipate the delivery should take and the actual time taken. The gap for a particular driver is then compared with the average for others in the same zone. If a driver’s delivery times are too slow, they face investigation and, ultimately, the possibility of removal from the app.

One day Franco received an email from Deliveroo stating his deliveries were too slow and that he was in breach of his agreement with the company. The Brazilian emailed back, pleading his case and asking the company to reconsider. It refused. On April 29, 2020, Franco delivered his last meal for Deliveroo; the following day his access to the app was disabled.

The exact reasons why Franco was, according to Deliveroo, between 10 and 30 per cent slower than comparable colleagues have been lost to history. But here began a two-year legal fight that culminated last week with a decision from Australia’s industrial relations umpire, the Fair Work Commission (FWC). In a remarkable condemnation of the High Court’s recent case law on the distinction between contractors and employees, the commission highlighted major frailties in Australian employment law – but said it was legally unable to find in Franco’s favour.

Deliveroo v Franco may yet have a happy ending for Australian workers, if not for Franco himself. The Albanese government has promised to make federal employment law fit for the gig economy age. Franco’s case provides impetus – including a push from the union movement.

“This finding allows gig behemoths to carefully adjust the wording in their contracts to avoid all accountability towards worker safety and rights, while exercising high control over workers who have no ability to negotiate,” says Transport Workers’ Union (TWU) national secretary Michael Kaine. “We cannot close our eyes to the reality of this industry, which is killing, maiming and unfairly sacking workers.”

An issues paper released by Treasury ahead of the government’s Jobs and Skills Summit, which begins on Thursday, estimated 8 per cent of the workforce operated as independent contractors, including at least 250,000 gig workers. “There are significant concerns that the current workplace arrangements underpinning the gig economy may be restricting the rights of some workers,” it said. The gig economy, plus use of labour hire and casual labour, raised “pressing concerns about their impact on job security and wages”.

Australia’s employment framework evolved from British common law roots, predicated on a binary divide between employees and independent contractors running their own businesses. This division is at the heart of Australian labour regulation today: employment entitlements and protections cover employees – and not, barring a few rare exceptions, contractors.

Hence the author of this article, a contractor, will be paid a fee after submitting an invoice. The legal relationship with The Saturday Paper is a one-off, with no guarantee of future work and no rights or protections. On the other hand, the editor who commissioned this article and the production staff who edited it and placed it on this page are employees. They are entitled to annual leave, sick leave, parental leave and long service leave, plus protection from unfair dismissal and entitlements relating to redundancy, maximum weekly hours and so on.

For much of the past two centuries, this division was unproblematic. Employees were employed, with corresponding protections, and contractors ran their businesses, reaping the rewards and bearing the risk of entrepreneurship. But in recent decades, contracting and labour hire have distorted the national workforce. It started in the construction sector and is now proliferating across the economy.

Since Uber first launched in Australia in October 2012, the company and its competitors have supercharged the gig economy. This has undermined Australian employment law and left many workers without access to minimum entitlements and protections. Workers such as Franco.

Franco lodged an unfair dismissal application against Deliveroo, with support from the TWU. Deliveroo hit back by arguing that the Fair Work Commission had no jurisdiction because Franco was a contractor, not an employee. As much was specified in the written agreement between Franco and Deliveroo. He was permitted to work for competitors (and did so), required to provide his own equipment (a motorbike), was paid per delivery and was responsible for his own expenses and taxation. All of these things have, traditionally, been considered indicators of a contractor relationship.

Yet a FWC commissioner, Ian Cambridge, found that Franco was an employee and had been unfairly dismissed. His view rested on the control Deliveroo exercised over Franco – which was “camouflaged” by superficial flexibility – and that he wore a uniform, presenting “himself to the world as a part of the Deliveroo business”.

Cambridge said employment law must evolve “in the context of a modern, changing workplace impacted by our new digital world”.

Deliveroo appealed. But in the interim, two High Court judgements fundamentally reshaped the law. In Personnel Contracting and Jamsek, delivered in February, the High Court rejected the existing test based on the reality of the workplace relationship, in favour of an almost-exclusive focus on the legal relationship set out in the contract. It was a black letter approach, notwithstanding the power imbalance between workers and businesses and the beneficial intent of labour regulation.

“The two High Court decisions wiped out a couple of decades’ worth of judicial developments,” says Professor Andrew Stewart from the University of Adelaide. “The decisions insist that, so long as you have a carefully documented arrangement, you look only at what has been agreed in writing, not the reality of the working arrangement.”

Last week, a three-member bench of the Fair Work Commission upheld Deliveroo’s appeal. But FWC vice-presidents Adam Hatcher and Joseph Catanzariti and deputy president Bryce Cross were unsubtle in their criticism of the new approach, listing facts that would have led them, like Cambridge, to conclude that Franco was an employee. “However, as a result of Personnel Contracting, we must close our eyes to these matters,” they said.

Because the law as stated by the High Court meant Franco was a contractor, not an employee, the commission had no jurisdiction.

“Regrettably, this leaves Mr Franco with no remedy he can obtain from the Fair Work Commission for what was, plainly in our view, unfair treatment on the part of Deliveroo,” the tribunal concluded.

Last week’s decision has elicited a strong reaction. “When an industrial tribunal is forced to close its eyes to reality because of the High Court, we know the law has gone wrong,” says Giri Sivaraman, a principal at Maurice Blackburn law firm. Stewart compares the situation to the parallel universes in the movie franchise The Matrix. “One is a universe dictated by what is written in the contract, and another in the real world. The Matrix version, if you like, prevails.”

Some legal experts have rejected the suggestion that, in this new Personnel Contracting era, all gig economy workers would be contractors. In a recent Federal Court decision, for example, a contracted teacher at a higher education institute was found to be an employee for tax purposes.

“Most of the decisions [post-Personnel] have resulted in the worker being deemed an independent contractor,” says Amanda Lyras, a partner at Clayton Utz, who advises large employers. “However, this isn’t just down to clever drafting – in half the decisions where the worker was found to be an independent contractor, there was no written contract in place, or it was otherwise not comprehensive.

“Conversely, in most of the decisions where a worker was found to be an employee, there was a comprehensive written contract in place.” Lyras says her firm had seen a small uptick in clients wanting to revisit their contractual arrangements, but “we have not seen the flurry of activity we might have anticipated”.

While these issues will be subject to further litigation, statutory change is now imminent. Tony Burke, the minister for Employment and Workplace Relations, has announced plans to give the Fair Work Commission new powers over the gig economy.

“Right now, if you’re classed as an employee, you have rights – but as soon as you’re classed as a contractor those rights fall off a cliff,” says Burke. “We want to turn the cliff into a ramp. A delivery rider with a bike who’s at the mercy of an algorithm on their phone is not the same as a genuinely empowered contractor who runs their own small business. All too often gig workers are getting underpaid and exploited because the law hasn’t kept up with new forms of work like this.”

Burke tells The Saturday Paper that he wants to modernise the law. “We want the technology of gig work – but 21st-century technology shouldn’t come with 19th-century working conditions,” he says.

Stewart says the government should go further. He proposes a new statutory definition of employment, reversing the High Court’s judgements and providing a presumption of employment where a worker is not running their own business. “There are many countries around the world with that presumption,” Stewart says.

This isn’t the only item on the government’s industrial relations agenda – it also plans to scrutinise the increased use of casual employment, after the Morrison government narrowed the statutory test in response to lower-court cases that had found long-term, ongoing “casual” arrangements were in fact permanent employment. Treasury’s recent paper noted that 23 per cent of Australians are employed as casuals.

The government has also promised to implement the outstanding Respect @ Work recommendations to address workplace sexual harassment. Wider changes to anti-discrimination law have been flagged, and on Monday the First Nations Employment Alliance will convene a symposium on First Nations-led employment policy approaches. The group is calling for an inquiry into workplace racism.

“Whatever way you look at it, workplace racism and the totally inadequate way it is dealt with in workplaces requires public scrutiny and discussion with a view to change,” says Professor Nareen Young from the Jumbunna Institute for Indigenous Education and Research. “It’s a serious and major participation and productivity issue. We haven’t had the capacity to even discuss it over the last 20 years because of the denial that it exists. Indigenous people need to be listened to and heard.”

Diego Franco, the Deliveroo driver, may have lost the battle, but serious industrial relations reform could help win the workplace war. The Brazilian remains in Australia and now works in a different industry.

“If you are an honest person, a worker who does everything right and realises that they are taking advantage of you, fight for your rights,” he told SBS last year. “You are not alone. Justice will always be done.”

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