The Fair Work Ombudsman (FWO), Natalie James, on Tuesday said the FWO would commence legal proceedings against Foodora, which it claimed engaged three workers under sham contracts in 2015.

The FWO said the workers had been led to believe they were independent contractors when they were in fact employees, and as such entitled to the minimum wage rates and entitlements, including superannuation, that accompany employee status.

According to the FWO’s investigation, Foodora engaged two Melbourne workers aged 19 at the time and an Indian migrant, who was 30 at the time.

Finding these workers to be employees and not contractors, the FWO said Foodora underpaid the three workers $1,620.74 over a four-week period, not including the withheld superannuation monies.

“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,” Ms James said.

“The activity of delivering food from restaurants and fast food outlets to customers is not new, and nor is the 'test' for what determines who is and is not an employee entitled to award rates.”

She said work agreements in the gig economy are of particular interest to the FWO and to the public, and the Foodora case will demonstrate the extent to which similar contracts are used in the gig economy.

“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,” Ms James said.

“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.”

The Transport Workers’ Union (TWU) of Australia noted that it is already “fighting sham-contracting” at Foodora, with a test case hearing to be held in Sydney in early July.

National secretary Tony Sheldon said the TWU welcomed the FWO’s announcement and cited the TWU’s survey, which found that three out of every four Foodora riders were paid below minimum rates.

“Foodora [is] a company which has openly flouted the law by denying its workforce’s rights. But action must go broader than just one company and just a few riders. All workers deserve the rights and protections that generations have fought hard for. The on-demand economy is a tired example of old-fashioned exploitation with tech billionaires reaping the benefits at the community’s expense,” Mr Sheldon said.

He said gig economy workers would not be surprised by the FWO’s announcement, arguing companies like Foodora control all aspects of riders’ work, and in doing so, treating them as employees. 

“The flexibility is all on the side of the companies with the riders bearing all of the risk. Riders have no superannuation, no guaranteed minimum rates and can work shifts for no pay at all,” Mr Sheldon said.

“They can be sacked without warning and for spurious claims as the companies argue they have little or no rights. This area is crying out for regulation.”

The Australian Council of Trade Unions told the economics legislation committee in early June that plans to boost penalties against employers who fail to pay superannuation won’t go far enough as long as the impetus is on the employee to notice the underpayment.

“The penalties proposed in the bill sound exciting and tougher penalties for rogue employers are warranted but that is if the employers are caught and only if they fail to pay after they’re caught and then only at the discretion of the Commissioner,” the ACTU workers’ capital organising officer Joseph Mitchell said.

“It’s ridiculous to think that many employers may face harsher penalties as a result of this law, especially given the amnesty that has been given to employers who have ripped off their staff for more than 26 years.”

The underpayment of super to workers in the gig economy will also lead to poorer outcomes in retirement, the Committee for Economic Development of Australia said in April.

“The government should explore the adequacy of superannuation, pension and savings products for contingent workers to ensure this does not become an issue in the future,” CEDA said.