Briefing Book Article, 47th Parliament

Regulating the ‘gig’ economy as a form of employment

Jaan Murphy

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Key issue

The gig economy is characterised by workers contracting to complete short-term task-based work via digital platforms which facilitate labour transactions between workers and businesses. The rapid rise of the gig economy represents risks and opportunities for gig economy workers, many of whom are characterised as independent contractors rather than employees and lack workplace entitlements and protections.

The increase in the number of gig economy workers has brought into question the appropriateness of the employee/independent contractor distinction in relation to gig economy workers and whether reforms are needed to provide better job security, income, and retirement savings for gig economy workers.

The policy challenge for the Parliament would seem to be finding a balance that preserves much of the flexibility and advantages of digital platform enabled gig work for both businesses and workers in a way that also provides appropriate protections, rights and benefits for workers participating in the gig economy.

What is the gig economy?

A range of terms describe the gig economy (p. 7): on-demand, gig, sharing (p. 6), collaborative, crowdsourcing, and short-term, project-based and outcome defined independent or ‘freelance’ work.

The Productivity Commission (pp. 5, 9), Actuaries Institute (p. 9) and Foundation for Young Australians (p. 6) describe the gig economy as one where workers contract to complete a task via a digital platform that facilitates labour transactions between workers and businesses seeking to have tasks completed. Gig economy digital platforms collect a portion of job earnings, control the brand of the platform, the worker (via ratings mechanisms) and the worker‑client relationship (for example, non-circumvention clauses). Gig work, therefore, differs from freelance work or traditional independent contracting models since workers are not building or managing their own reputation or ‘business’ (p. 6).

The appropriateness (p. 23) of classifying gig workers as independent contractors or employees (pp. 10–11) is a contested issue. As such, this Briefing book article defines the gig economy as operating where:

work is divided by businesses into specific tasks with defined outcomes
the tasks are made available on a digital platform
workers provide on-demand services via the digital platform and complete the tasks
the workers are usually classified by the digital platform as independent contractors and therefore do not have workplace entitlements.

Why is the gig economy expanding?

The OECD notes (pp. 18–19) that rise of the gig economy is powered by digital platforms that facilitate an on-demand-driven monetisation of underutilised human resources by making them accessible for temporary use for remuneration. Examples include (pp. 13; 34):

Uber and Shebah (private transport)
Uber Eats, Delivero and Menulog (meal delivery)
Freelancer, Fiverr, OneFlare, Hipages and Airtasker (task-based services).

In the Australian context (p. 3) the main drivers (pp. 9–11) of the expanding gig economy include:

digital platform enabled advances in technology that increase the scope and frequency of transactions, reduce transaction costs, increase accessibility, and enhance trust regarding payment between workers and businesses
changing economic behaviour and increases in the number of workers seeking supplemental income
workers seeking more flexible and autonomous work-life environments and businesses seeking more flexible workplace arrangements
demand by consumers and businesses for the convenience of on-demand services, including improved job matching
the absence of (adapted/targeted) regulation and lower barriers to entry that allow consumers and providers to switch roles easily and quickly.

How many people participate in the gig economy?

While it is widely acknowledged that gig economy is rapidly expanding (p. 4) there is currently no ‘reliable workforce data’ yet available on gig economy workers (para 2.58). As noted in the Senate Select Committee report on job insecurity:

On-demand platform work has grown but there is no real way to measure its true extent at this stage. Some gig workers are illegal, and some are working on the black market—certainly many of the multiple jobs that gig workers hold are not captured by official statistics. (p. 40, emphasis added)

In that regard the Australian Bureau of Statistics confirmed that additional funding provided in the 2020-21 Mid-year economic and fiscal outlook will be used to invest in new data collection in relation gig economy workers (para 2.118). Whilst reliable data on the size and number of participants is unavailable, one recent study concluded:

… 7.1 per cent of the population had offered to work on a digital platform in the past 12 months, although at the time of the survey only about 0.2 per cent were doing full-time gig work and entirely reliant on that source of income. Gig work was concentrated in transport and food delivery (18.6 per cent), professional services (16.9 per cent) and odd jobs (11.6 per cent). (p. 15, emphasis added))

Benefits and risks to gig economy workers

The rise of the gig economy poses both benefits and risks for workers. Benefits include:

more flexible or autonomous work-life environments
lower barriers to entry (p. 47) and improved job matching (pp. 9–10)
the ability to earn supplemental income, potentially reducing income variability (for example, during periods of unemployment, p. 22)
increased job satisfaction (pp. 86–87).

Risks include:

potential misclassification of workers as independent contractors rather than employees with the resulting lack of workplace entitlements and job security and
lower overall incomes and superannuation.

Australian evidence suggests that for most gig economy workers, the risks generally outweigh the benefits (pp. 4; 59–71; 88; 97).

Many of the benefits and risks relate, at least in part, to the characterisation of workers as independent contractors of the digital platform rather than as employees. Therefore, the gig economy poses challenges to existing models of regulating employment and work- not all of which are new.

Employment-related challenges posed by the gig economy

At issue is whether employment laws do, or should, apply to gig economy workers, and whether the workers are (or should be) employees or independent contractors. That distinction impacts on workplace entitlements, superannuation and other protections and is a key factor underlying lower overall incomes, superannuation and job security of gig economy workers.

Difference between employee and independent contractors

Australian law differentiates between employees and independent contractors. The Fair Work Act 2009 (Cth) provides that ‘employee’ (generally) has its ordinary meaning (that is, its common law meaning).

Until recently, the common law used a multi-facet test for determining whether a worker was an employee or independent contractor- it considered the substance and reality of the relationship by considering a variety of factors, of which the terms of any written contract were only one (see: Hollis v Vabu Pty Ltd (2001); Australian Air Express Pty Ltd v Langford (2005); On Call Interpreters & Translators Agency Pty Ltd v FCT (No 3) (2011)).

Previous interpretation of the law

Several cases have dealt with whether a gig economy worker is an employee or independent contractor of the digital platform through which they obtain work by applying the multi-facet test, with differing results.

The Fair Work Commission (FWC) found Uber drivers were not employees, as did the Fair Work Ombudsman (FWO). In contrast the FWC and Australian Tax Office (ATO) found workers of digital platform Foodora were employees, not independent contractors (pp. 3; 11) and the FWC concluded the same about Deliveroo drivers.

As such, prior to 2 recent High Court decisions, misclassification of gig economy workers as independent contracts was a genuine risk and the appropriateness (p. 439) of such a classification a contested and unresolved issue.

Latest interpretation of the law

In early 2022 two High Court decisions overturned the multi-facet test and confirmed the primacy of any written contract when deciding whether a worker is an employee or independent contractor, with subsequent conduct relevant only to determining the terms of vague contracts. The High Court stated (para 59):

Where the parties have comprehensively committed the terms of their relationship to a written contract the validity of which is not in dispute, the characterisation of their relationship as one of employment or otherwise proceeds by reference to the rights and obligations of the parties under that contract … the task of the court is to enforce the parties' rights and obligations, not to form a view as to what a fair adjustment of the parties' rights might require.

The High Court also found the multi-facet test approach of identifying the ‘substance and reality’ of the relationship by reference to the history of the parties’ dealings was erroneous, and any disparity in bargaining power has ‘no bearing on the meaning and effect’ on such written contracts (paras 45 to 48 and 62).

As a result it will be harder for workers, and in particular gig economy workers to challenge their characterisation as independent contractors, even where the relationship has features of employment.

Impact of being an independent contractor

A worker’s entitlements and protections vary depending on whether they are an employee or independent contractor, as set out in the table below.

Table 1 workplace entitlements and protections of employees and independent contractors

Entitlement/protection	Employee[1]	Independent contractor
Minimum wage	✓	X
Paid leave	✓	X
Minimum/maximum hours	✓	X
Superannuation	✓	X[2]
Unfair dismissal protection	✓	X
Workers’ compensation	✓	X – only where deeming provisions in state legislation applies
Collective bargaining	✓	X – only if authorised by the Australian Competition and Consumer Commission
Covered by work health and safety laws	✓	Usually (p. 451) but not always (pp. 69–77; 141).

Source: As compiled by the Parliamentary Library.

Independent contractors are, unlike employees, responsible for their own income tax, GST, insurance, and superannuation. Generally where a gig economy worker is an independent contractor the impact is a lack of access to the above entitlements (pp. 4; 69), poor job security, lower overall income and superannuation.

Given the recent changes to how the common law determines if a worker is an employee or independent contractor, there is a risk that the proportion of gig economy workers without access to workplace entitlements may increase. Increasing numbers of gig economy workers having no or low superannuation balance will result in lower retirement income levels (p. 17) and will, in the long-term, put pressure on Australia’s social security system and, as a result, the Australian budget.

Possible gig economy employment law reforms

Under section 51(xx) of the Constitution (the corporations power) the Commonwealth can regulate any relationship that corporations (including those that operate gig economy digital platforms) have with third parties (pp. 8;16–17; 20), including employees, other corporations, trade unions or independent contractors.

Many of the issues raised by the gig economy, including the nature of the relationships are not new (p. 105). While digital platforms have altered the way (and ease) in which gig economy workers are engaged to complete tasks, relevant legislation has not been amended to clarify how gig economy workers are to be classified. Importantly though, they are issues that the Commonwealth can regulate and hence the rapid expansion of the gig economy presents an opportunity to provide greater certainty to participating parties.

The ’do nothing’ option is to make no changes, and let the courts apply existing laws to disputes regarding gig economy workers. This retains the advantages for businesses in terms of increased flexibility including:

responding quickly (p. 59) to changes in demand, funding or business requirements, their need for different expertise or skills, and changing relationships
the ability to rapidly deliver new products and services
reduced recruitment (p. 16), staffing costs and under-utilisation of worker resources.

However, this option may result in the risks to workers impacting on greater numbers of individuals, albeit with the potential accompanying benefits to workers. Alternatively, the Parliament could consider reforms to reduce the risks posed to gig economy workers while preserving some of the benefits to businesses such as:

introducing a new category of worker-business relationship, the ‘dependent contractor’, and extending certain entitlements to it to ensure job security whilst preserving business flexibility
expanding the definition of employment and employee to cover new and evolving forms of work
‘deeming’ certain categories of worker-business relationships as employment
extending some or all employment entitlements to independent contractors (p. 17)
extending the Superannuation Guarantee to cover all workers and ‘dependent contractors’ or, alternatively, requiring gig economy digital platforms to charge purchasers of services a fee equal to the superannuation guarantee charge and then remit that amount to a superannuation account nominated by the worker, or a default fund.

The ALP’s National Platform for the 2019 and 2022 election included policy commitments to:

ensure ‘appropriate coverage and protection for all forms of work’ and that gig economy platforms ‘are not used to circumvent industrial standards, or to undermine workers’ rights to collectively organise and access their union’ (p. 26)
regulate the gig economy and allow the FWC to ‘turn insecure jobs into more secure ones’ (p. 7)
ensure gig economy workers are ‘paid properly’ by ‘changing the legal test for sham contracting’ (p. 2)

The Coalition 2022 election policy platform did not deal directly with the issues posed by the gig economy discussed in this article.

The Morrison Government noted in its Digital strategy it would ‘consider issues relating to emerging digital industries, like the gig economy’ with a view to ensuring ‘that the regulatory framework for these industries remain fit-for-purpose and allow digital industries to maximise their productivity and utility to Australians’ (p. 37).

The Australian Greens policy platform for the 2022 election included commitments to provide the FWC the power to extend minimum wages, entitlements and conditions to contractors by requiring ‘the FWC to give effect to the principle that workers are entitled to the same minimum wages and conditions whether or not they are classified as employees’ (p. 3).