Do We Need To Rethink Employment Law For The Gig Economy?

 By Maximilian Yoshioka

Are people who work in the “gig economy” self-employed contractors, or employees of the organisation they “gig” for?  In this article, the author discusses how these workers do not fit into those categories, and how employment law needs to accommodate them.

 

In a March ruling announcing a lawsuit against US ride-sharing platform Lyft, US District Court Judge Vince Chhabria pointed out that while “Lyft drivers don’t seem much like employees”, on the other hand “they don’t seem much like independent contractors either”.1 Lyft was being sued by a group of drivers who felt that the rules and regulations imposed on them by the company meant that they were not genuinely self-employed, and therefore wanted employee status instead. In a similar case, Lyft competitor and market leader Uber was also recently taken to court in the US over employment rights.

In the end, both companies preferred a financial settlement over proceeding to trial, but while Lyft’s $27 million payoff was accepted, a federal judge rejected Uber’s proposed $100 million offer, sending its lawyers back to the drawing board.2,3 In Lyft’s case, although the drivers won themselves a few minor concessions along with their (on a per capita basis relatively minor) financial reward, the result has to be seen as a victory for the ride-sharing giant, which – for now at least – will not have to pay the significant costs of reclassifying its drivers as employees.

The Uber and Lyft lawsuits are just two high-profile episodes in a saga that is taking place all over the world. From France and Belgium to Great Britain and the United States, the big question on everyone’s minds is: are workers in the so-called “sharing” or “collaborative” economy really self-employed contractors, or are they actually employees – with the very different legal status and entitlements this entails? In fact, there are reasons to believe that in many cases, neither category really applies.

The Uber and Lyft lawsuits are just two high-profile episodes in a saga that is taking place all over the world. From France and Belgium to Great Britain and the United States, the big question on everyone’s minds is: are workers in the so-called “sharing” or “collaborative” economy really self-employed contractors, or are they actually employees – with the very different legal status and entitlements this entails?

Some platforms – particularly those that enable people to share their homes, clothes, parking spaces and even pets from time to time – exercise only loose control and are clearly designed to supplement rather than exclusively generate income. One would never imagine calling users of Airbnb, ParkShare and DogVacay employees. But others, particularly those replacing full-time service sector jobs such as taxi-driving, food delivery and apartment cleaning – think Uber, Deliveroo, TaskRabbit and Handy – tend to dictate the employment relationship to an extent that makes them seemingly incompatible with genuine self-employment.

These platforms usually argue that their workers are freely contracted agents who appreciate the flexibility, but some disgruntled staff claim they are working like employees while being categorised as independent contractors. In their view, this allows the platforms to reduce costs by denying their staff benefits and the minimum wage. Yet the truth, as always, lies somewhere in between. While instances certainly exist of companies falsely classing their workers as self-employed to reduce costs4 – a phenomenon known as “bogus self-employment” – in many cases both the company and the worker value the flexibility and hands-off relationship that comes with self-employment.

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It is nevertheless true that many sharing economy platforms use their contractors in ways that closely resemble formal employment. When it comes to the ride-share drivers, cleaners and food-delivery bikers that epitomise the sector, it is hard to say with a straight face that they control the terms of their employment. Most have no say in determining the pricing of their labour or the regulations and procedures (uniforms, mandated equipment, task allocation, efficiency targets) surrounding their work. Furthermore, many work hours equal to, if not greater than those of full-time employees. So are they, or are they not, employees?

A deeper look at the legal troubles Uber has run into provides an answer of sorts. Uber’s lightning expansion into – at last count – 542 cities globally is a natural experiment in the different possible responses to the employment status conundrum. As we have seen, in the US Uber is attempting to settle with its drivers outside of court without changing their employment status, but the result will only apply in California and Massachusetts and will not prevent other states – or indeed the federal government – from launching further challenges.

And although in Belgium the government itself has officially endorsed Uber’s employment arrangements,5 in France the social security authority (URSSAF) recently initiated legal proceedings against the technology company, claiming social security contributions on the basis that its drivers are actually employees.6 Perhaps most interesting of all, a UK tribunal recently ruled that Uber drivers are “workers”, rather than employees or independent contractors.7 But more on that shortly.

This lack of clarity and consistency around employment status is creating uncertainty among both businesses and workers in the sharing economy, which is undesirable for several reasons. It is bad for workers, who are unsure of where they stand and (some of whom) are left feeling exploited. It is bad for companies – both established firms and start-ups alike – that rely on contractors and have to worry about being penalised by the regulatory authorities or being taken to court by their workers, with all the undesirable press coverage that entails.

Some companies might even feel pressured to knowingly hire the “bogus self-employed” if that is the only way to keep up with unscrupulous competitors. But above all, the lack of clarity is bad for the meaning of self-employment itself, which has begun to lose the entrepreneurial connotations it deserves and is instead increasingly seen as a byword for worker insecurity and corporate cost cutting.

An alternative employment status somewhere in between would allow us to acknowledge the more flexible relationship some workers have with their employers, without forcing us to pretend they are just as free as the genuinely self-employed.

This suggests that we need to update our way of looking at employment to move beyond the employed/self-employed dichotomy. An alternative employment status somewhere in between would allow us to acknowledge the more flexible relationship some workers have with their employers, without forcing us to pretend they are just as free as the genuinely self-employed. Such a status could provide workers in the “gig economy” with additional benefits and protections, without fundamentally undermining the flexible business model entrepreneurs in the sector increasingly depend on. Indeed, as Deliveroo CEO William Shu pointed out in a recent interview, the changing workplace means “there are laws drawn up years ago that may be less relevant for today’s economy”.8

The UK has seen a recent flurry of attempts to get to grip with the nature of employment in the “gig economy”. Most notable is the aforementioned October 2016 tribunal ruling in which Uber drivers were found to be workers, a third type of employment status in the UK that comes with entitlement to the national minimum wage, paid rest breaks and holiday pay. While offering fewer benefits than employee status, worker status offers some security while being suited to the sort of work typical of the sharing economy.

“Workers” only work when they want to, and can work for as many businesses as they like. In justifying the ruling, the tribunal pointed out that Uber drivers are not in business themselves, a key element distinguishing workers from the independently self-employed. In particular, the tribunal noted the degree of control Uber exerts over passenger information, route-setting and various other work procedures, describing Uber’s claim to be nothing more than a network linking small businesses as “faintly ridiculous”.9

It is unclear how applicable the tribunal’s ruling will be to the rest of the sharing economy. Perhaps the UK’s rather handy third category of “worker” will prove to be the middle way the sector seems to be crying out for, but given how tailored the argument was to Uber’s specific business model, this is far from certain. Meanwhile, plenty of others are having their say in the debate, such as a recent Office of Tax Simplification (OTS) report on employment status that – alongside the notion of a “middle way” – explored a variety of alternative solutions to the impasse, including a“statutory employment test” or a “de minimis” amount of work beyond which employment status would change.10 Demonstrating her awareness of the zeitgeist, in October Theresa May announced the launch of a major review of worker rights, so that she can be “certain that employment regulation and practices are keeping pace with the changing world of work”.11

For countries such as the UK fortunate enough to have an in-between category of worker – these include Germany, Sweden and Canada – using and perhaps adapting this is one way forward in rationalising sharing economy employment practices. But for countries without an existing third category, the solution is less obvious. The idea of an “independent worker” category has been floated in the US,12 as has that of a social security net decoupled from full-time employment,13 but so far to no avail.

Meanwhile, in June 2016 the European Commission released its long anticipated “European Agenda for the Collaborative Economy” providing guidance to national governments vis-a-vis regulation of the sector. While broadly positive about the innovative, job-creating potential of the sharing economy, it lamented the “patchwork of different regulatory actions” that “creates uncertainty for traditional operators, new services providers and consumers alike”, including in the area of employment law.14

Despite the implication that Europe needs a more unified approach to regulation, the Commission agenda simply notes that employment law remains a national matter, while providing some suggestions on approaching the issue, such as – echoing the OTS – “establishing thresholds based on the level of activity”. Yet in view of the current – to use the Commission’s own language – confusing “patchwork” of responses to the sharing economy, perhaps a more robust approach from the EU is needed to guarantee the long-term growth of the sector.

Collaborative economy platforms with scale-up intentions are currently discouraged by the contradictory mix of employment law rulings and regulations across national lines, which – if a recent PwC study is correct – is bad news. The study predicts that the value of sharing economy transactions in Europe will increase from €28 billion in 2015 to €570 billion in 2025, with the sector having the potential to “become a shining beacon of growth amid a new normal of lower growth across Europe”.15 Yet realising this vision will require active participation on the part of policymakers.

Regardless of any European solution to employment law that eventually emerges, it is likely that governments will be forming their own responses for some time to come. In doing so, they should keep in mind the damage that failing to provide a coherent employment framework will do – to businesses, to workers, and perhaps most importantly, to the integrity of genuine self-employment itself.

Featured Image: Many Londoners prefer to hail a ride using the Uber app instead of getting a traditional black cab. Courtesy of CNN

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About the Author

Maximilian Yoshioka is Lead Researcher at the Centre for Entrepreneurs, a London based think-tank that researches the role of entrepreneurs in creating economic growth and social wellbeing. His current research includes exploring the entrepreneurial potential of prisoners, and an evaluation of university start-up accelerators and incubators. He is deeply interested in innovation and the disruptive impact of new business models, including but not limited to the “gig economy”. You can contact him via [email protected]

References

1. Cotter v. Lyft, 13-cv-04065-VC (N.D. Cal. Mar. 11, 2015)
2. http://www.latimes.com/business/technology/la-fi-tn-lyft-settlement-approval-20160623-snap-story.html
3. https://www.bloomberg.com/news/articles/2016-08-18/uber-s-100-million-driver-pay-settlement-is-rejected-by-judge
4. Citizens Advice Bureau (2015). Neither one thing nor the other: how reducing bogus self-employment could benefit workers, business and the Exchequer.
5. http://www.politico.eu/article/belgian-government-uber-drivers-are-contractors-not-employees/
6. http://digital.freshfields.com/post/102dezf/urssaf-seeks-to-classify-uber-drivers-as-employees-in-france
7. https://www.theguardian.com/technology/2016/oct/28/uber-uk-tribunal-self-employed-status
8. http://www.cityam.com/247972/deliveroo-chief-says-employment-laws-behind-times
9. Mr Y Aslam, Mr J Farrar and Others v Uber Employment Tribunal reasons 28 October 2016
10. Office of Tax Simplification (March 2015). Employment Status report.
11. https://www.ft.com/content/bae24fae-8727-11e6-bbbe-2a4dcea95797
12. https://onlabor.org/2015/12/08/do-we-need-an-independent-worker-category/
13. https://www.ft.com/content/b1d854de-169f-11e5-b07f-00144feabdc0
14. European Commission (2016). A European agenda for the collaborative economy.
15. http://www.pwc.co.uk/issues/megatrends/collisions/sharingeconomy/future-of-the-sharing-economy-in-europe-2016.html