July 10, 2020
The recent decision of the Ontario Labour Relations Board (“OLRB”) in Canadian Union of Postal Workers v Foodora Inc. 2020 CanLII 16750 is a landmark decision for employers and workers in what has come to be known as the “gig economy.” In the Foodora decision, the OLRB determined that fast food couriers working for Foodora are “dependent contractors”, and therefore have the right to unionize. The Foodora case illustrates some of the risks of classifying a worker as an independent contractor, when they are more akin to an employee.
The “gig economy” provides flexibility for employers and workers, usually by connecting workers to jobs (“gigs”) via a software application (“App”). Customers ordering food from Foodora’s clients use the App to request delivery. Once an order is made, Foodora dispatches couriers to complete the requested deliveries, with all payments processed through the App. Similar systems are used by other “gig economy” participants like Uber Eats and Skip the Dishes.
Prior to the Foodora decision, workers in the gig economy had been classified as independent contractors. The distinction between independent contractors and employees relates primarily to whether there is a business relationship or an employment relationship.
True independent contractors generally work for themselves and, as their title suggests, have greater independence from the person retaining their services than employees. Independent contractors are subject to different taxation rules, and are not subject to certain labour and employment laws. If independent contractors are on one end of the spectrum of worker/hirer relationships and employees are on the other, “dependent contractors” fall somewhere in the middle. For the purposes of Ontario’s Labour Relations Act, dependent contractors and employees are essentially one and the same.
The Foodora case highlights the risk in attempting to label an individual as an independent contractor, when they are truly a dependent contractor and akin to an employee. Having analyzed the relationship between Foodora and its couriers, the OLRB determined that the Couriers were dependent contractors, and were therefore entitled to become members of a Union. The consequence for Foodora, if it had remained in operation, would be that it must enter into and be bound by a collective agreement with the Union representing all of its couriers.
The classification of Foodora couriers as dependent contractors is crucial because of its implications for the gig economy in general. Foodora stopped operating in Canada just months after the decision, citing profitability as its reason. If Foodora couriers could be found to be employees for the purpose of joining a Union, this precedent may also apply to similar business models including Uber Eats and Skip the Dishes.
This case is also a reminder that employers should be very careful when engaging a worker as an “independent contractor”. The consequences of improperly classifying independent contractors as workers can extend beyond unionization to significant employment and tax law consequences as well.
In the Foodora case, the OLRB focused on a few crucial points in concluding couriers were dependent contractors. These points included the central importance of the App to Foodora’s operations, the company’s limitation of its couriers’ economic mobility, and its control over the means by and the manner in which couriers do their work. These factors tend to suggest the relationship between Foodora and its workers more closely resembles that of an employment relationship as opposed to a business one.
The OLRB found that the App granted Foodora a huge degree of exclusive control over essential aspects of its business, including customer lists, goodwill and brand recognition, and the ability to “continually grow and develop its business.” The OLRB emphasized that Foodora’s control over the App was not equivalent to its couriers’ ownership of other tools (like smartphones or bicycles), stating that “the App [was] the single most important part of [the company’s] system.” The Board’s determination might have been different if the App were sold or licensed to couriers. Still, the fact that it was owned and controlled exclusively by Foodora was crucial.
The OLRB analyzed the ways that Foodora restricted its couriers’ economic mobility by controlling their shifts and schedules (including couriers’ ability to swap shifts), “thinning” its lists of couriers annually based on performance (i.e. demanding that couriers maintain an ongoing relationship with the company), and not permitting couriers to decline orders selectively. The OLRB also noted that Foodora couriers were not truly able to generate their own customers or line of business due to restrictions imposed on them by the company.
The OLRB also determined that Foodora maintained a high degree of control over how its couriers completed their work. Foodora’s App permitted its dispatchers to use GPS tracking to monitor courier behaviour and to send text messages to drivers directing them to take particular routes, for example. The OLRB also noted a “strike” system used to discipline couriers, and the discretion that dispatchers have in assigning “strikes” of different levels. The Board said this system was similar to progressive discipline, which characterizes the employer/employee relationship, noting that some couriers had been subject to severe punishment that is characteristic of an employer’s treatment of an employee.
Finally, it is essential to note that while couriers were called “independent contractors” in the contract that they were required to sign before working for Foodora, the OLRB was not concerned with this. Any assessment of whether an individual is truly an employee or independent contractor is concerned with how the parties conduct themselves, not necessarily the terms of any written agreement.
The takeaways from this decision are that employers, including novel business ventures, should carefully evaluate whether their workers are truly “independent contractors”. Despite the attractiveness of such an arrangement both for employers and some workers, those workers may be “deemed” employees or dependent contractors for income tax, employment and labour law purposes. In the Foodora case, the improper classification of workers as independent contractors ultimately led to Foodora becoming unionized, with the result that it was no longer economically viable and it ceased operations.