How does the sharing economy affect employment law?

sharing economy
Joanna Fitch


written on March 11, 2016

The rise of a sharing economy and growth of freelancers who sell services directly to consumers has led some to claim we are experiencing an uberfication of work. At the same time, companies are increasingly outsourcing routine work. For some, these changes give workers greater flexibility and control over their work and working conditions. Others claim this makes work and increasingly precarious, insecure and fragmented, and places the inherent business risks on workers themselves.

Consulting with staff

There are, however, legal obligations that apply to outsourcing and engaging freelance workers that organisations need to know.

Before outsourcing, organisations might need to consult with employees, with the scope being determined by any applicable modern award or enterprise agreement. Generally, organisations must provide information to employees (and their representatives) about the proposed changes in writing, meet with affected employees to discuss the proposed changes and give genuine consideration to any matters raised by employees before reaching a final decision. Failure to consult in accordance with the applicable industrial instrument exposes organisations to the risks of prosecution and civil penalties.

Outsourcing work often leads to in-house roles becoming redundant, which might lead to severance pay and redeployment obligations. Organisations might also be obliged under an applicable enterprise agreement to take steps to avoid redundancies.

Hiring former employees

Where organisations enter into outsourcing arrangements with companies that then employ the organisation’s former employees, the transfer of business provisions of the Fair Work Act 2009 might be triggered. In these circumstances, the new employer must comply with any enterprise agreement that covered the employees regarding the transferring work, unless the Fair Work Commission grants an application to terminate or vary the agreement, or makes an order that the agreement does not cover the new employer. In most circumstances, the new employer will also need to recognise the employees’ period of service with the old employer for certain purposes, including for the calculation of leave entitlements.

When outsourcing and engaging freelance workers, employers also need to be mindful of their obligations under the sham contracting provisions of the Act. Those provisions prohibit employers from misrepresenting a contract of employment as a contract for services under which the person performs work as an independent contractor. The High Court recently confirmed this prohibition extends to misrepresentations to employees that they are working as independent contractors under a contract for services with a third party (see Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] HCA 45).

Staff or freelancer?

To determine whether a worker is truly an employee or an independent contractor, courts consider a range of factors including the degree of control the worker has over their work and working conditions, whether the worker can perform work for others, how the worker is paid and whether the worker is represented as part of the organisation’s business.

Freelance workers who can legitimately be characterised as independent contractors rather than employees still have some legal protections. For example, independent contractors are protected from adverse action under the general protections provisions of the Act. Organisations might also be required under occupational health and safety laws to provide and maintain a safe working environment for independent contractors depending on their level of control over those contractors and their work practices.

While the sharing economy has the potential to erode the traditional employment relationship and circumvent the protections afforded to employees, the engagement of freelance workers does not occur in a regulation-free space. Organisations must be aware of their obligations when outsourcing and engaging freelancers.

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