This article was written by Eric Kosack, James Russell and Peta Stevenson.
In what appears to be an emerging trend, a number of high-profile organisations are now facing class actions concerning allegations of worker exploitation.
Appco is the latest example of alleged worker mistreatment to hit the headlines, with allegations of 'sham contracting' which has resulted in a class action, with a former worker filing proceedings in the Federal Court of Australia on his own behalf and also for potentially thousands of others, with a claim value said to be up to $85 million.
Contractors or employees?
Appco Group is one of the world's largest sales and marketing organisations, and is active throughout Australia. It conducts face-to-face marketing and fundraising on behalf of a range of clients, including major Australian charities.
Former worker Jacob Bywater filed class action proceedings against Appco on 20 October 2016, alleging that he had been consistently underpaid over a two year period, with the total shortfall exceeding $130,000.
Mr Bywater had been an 'independent contractor' of companies that were not owned or related to Appco. It is alleged that:
- Appco assisted in the establishment of those companies;
- those companies provided sales staff to Appco on an exclusive basis; and
- Appco exercised a high degree of control over the staff.
As such, it is claimed that Mr Bywater had been misclassified as an independent contractor – that he was in fact an employee of Appco, and was therefore entitled to certain minimum remuneration terms set out in the Commercial Sales Award 2010. In particular, he had not been paid the levels of ordinary pay, leave entitlements, superannuation and reimbursement for expenses set out in the Award. The circumstances are alleged to be similar for other group members, and in each case a pecuniary penalty is sought under s 546 of the Fair Work Act 2009 (Cth) on top of the sum of underpayments. Such a penalty may, on application by an employee, be ordered as appropriate if the court is satisfied that the respondent has contravened a civil remedy provision of the Fair Work Act.
The group is defined as all individuals who undertook face to face selling in the Appco Group’s sports division campaigns in the period from 20 October 2010 up to the filing of the action, on the basis of 'Individual Contractor Agreements', and who have entered into an agreement with Chamberlains Law Firm (the law firm running the action) and Harbour Litigation Funding (the litigation funder). Rory Markham of Chamberlains has issued a press statement to the effect that more than 500 workers came forward in the weeks following the filing of the claim, and he expects thousands more to join.
The case will hinge on whether or not these workers were in fact employees of Appco, and were therefore entitled to the remuneration set out in the Award. The plaintiff will seek to highlight the strict financial and conduct controls imposed by Appco over the workers, as well as the pyramid-scheme-like career progression scheme under which a worker’s internal progression in the Appco Group is connected to the worker’s recruitment of new members.
Other corporations are also contemplating the possibility of facing a class action this year over the alleged underpayment of Australian workers, including new favourites in the sharing economy, Deliveroo and Foodora. These recent entrants to the Australian market are among a group of new organisations that bridge the gap between restaurants and consumers, providing delivery of meals from restaurants by bicycle, utilizing mobile apps and new technology. Uptake of the services has been strong.
However, like Appco, Deliveroo and Foodora now face allegations of underpayment of workers who have been treated as independent contractors. Maurice Blackburn has been collecting evidence from riders who say they feel cheated, and has stated that it may file a class action in the near future. Like Appco, such a case would turn on whether the workers are in fact ‘employees’, and therefore whether they are entitled to the remuneration terms set out in the relevant award – this time the Road Transport and Distribution Award. In making the determination, a court would examine factors such as the degree of control exercised by the companies, the flexibility of riders to work for competitors, whether they are required to wear uniforms, and whether they have to bring their own equipment.
Large-scale franchises are also facing class actions in respect of underpayment of workers.
A joint ABC-Fairfax investigation in 2015 reported that 7-Eleven franchisees throughout the country had systematically underpaid thousands of workers, as well as doctored payroll records. All in all, the backlash against 7-Eleven, which has also included protests and calls to boycott the company, has been severe.
The coverage sparked a Senate inquiry and resulted in 7-Eleven establishing a wage repayment program to investigate all claims, and make appropriate payments to affected employees. To date, approximately 1,400 claims have been determined under the program, to a value of over $50 million. Maurice Blackburn is reportedly representing 77 affected 7-Eleven workers on a pro bono basis.
7-Eleven has also proposed a new franchise model, which included changes to the profit split between the company and its franchisees, amid claims that franchisees were pushed to underpay employees in order to turn a profit. Dozens of franchisees who were not satisfied with the proposed changes signed up to a class action proposed by law firm Levitt Robinson. Although a franchisee class action has not yet commenced, it remains a possibility, with Levitt Robinson continuing to take registrations through its website.
More recently, Caltex is now facing the possibility of two class actions – one by workers and one by franchisees – after a Fairfax investigation resulted in allegations of severe underpayment of wages. There have been claims that the petrol giant’s business model is so harsh and unfair to franchisees, whose stores often make little profit, which has pushed them to cut back on the legal entitlements of employees.
ACA Lawyers is said to be undertaking an investigation of a possible class action and is calling on both former workers and franchisees to come forward.
Employers and franchisors are on notice to be careful in setting up arrangements with workers and franchisees. The repercussions associated with getting it wrong, including both media and public backlash, as well as a class action, can be severe. As the examples above have shown, the existence of a degree of separation between the company and the workers – such as a separate company or a network of franchisees – won’t necessarily be enough to protect from these consequences.
The class action mechanism have long been used to resolve industrial issues, with research showing that there was an industrial relations element to 13% of class actions filed between 1992 and 2014. 2017 could prove to be an interesting year for class actions as regards workers and franchise business models. Watch this space.