From Pieter Welten – Prime Ventures (@PieterWelten)
The vast majority of us are familiar with companies like Handy, Deliveroo, Postmates, Instacart and Uber. They run multisided platforms in which on one side there are people that need a job done and on the other side there are people who want to do that job. These companies don’t employ their cleaners, riders or drivers since they classify them as independent contractors (or freelancers). The structure allows companies basically to cut labour costs by 20-30% and ‘contractors to work at their own convenience.
You might know that these companies are fighting legal battles and as a result there is a lot of legal or regulatory uncertainty in the ‘gig economy’. You also might know that there was an important ruling of the UK employment tribunal with regard to Uber a few weeks ago. The ruling could have a massive impact on these new labour models and ever since I hear a lot of people shouting that the gig economy is dead. But is it? They say it quite bluntly. Moreover, I am personally not that pessimistic and I will tell you why. Lets have first a closer look at the ‘Uber case’.
Uber presents itself as a tech company that owns an app used by freelance drivers, rather than a taxi company (tagline: “Work for yourself, drive when you want, make the money you need”). As a result, Uber believes it does not have to provide their drivers with basic workers’ rights. However, in the ruling of 28 October 2016, the UK tribunal classified Uber drivers as ‘workers’ rather than self-employed contractors. Please be aware that a worker is not the same as an ‘employee’ – a worker has some of the rights of employees but not all. This basically could imply that Uber drivers are entitled to holiday pay, national minimum wage, paid rest breaks etc.
Obviously the likes of Uber are not going down without a massive fight. This is a first instance decision and we can’t rely too much on this outcome. However, it is not difficult to realize that a change in ‘workforce structure’ will have huge implications on on-demand businesses in the gig economy. If all these businesses have misclassified their workforce and denied them certain rights and benefits, costs can go up and negatively impact unit economics and such.
Whether you can talk about misclassification or not should be investigated on a case-by-case study across local and national courts. I believe a lot will depend on what actions and to what extend are they controlled by the platform (e.g. fixed time slots, where to work) and why drivers / riders / cleaners use the platform (e.g. hobby, income supplement or main source of income). At the end of the day, the definition of ‘employee’ in a tech-enabled world as well as the very existence of the gig economy is at stake. Therefore I expect years of tough legal battles, probably all the way up to Supreme Courts.
Although I am not a employment lawyer (I did study Tax Law though), I am personally not too pessimistic – I can’t believe that all these business models will be easily killed. It is estimated that more than one in three US workers are freelancers (and growing) and therefore probably millions of people in the US rely on these business models. The same applies to European countries. A lot of executives also indicated that they expect to rely more often on contractors in the future. As a result, I believe the labour market is simply changing and the future economy will have less ‘stable hours’. Many people appreciate the fact that they can control their own working life. They appreciate that they can basically pick their employers, mix different type of jobs at different offices, whenever they want etc. You will always find people that complain, file class action lawsuits and try to get more out of it. They have never been ‘forced’ to drive for Uber, clean for Handy or ride for Postmates.
It is obvious that the discussion should be resolved. Regulatory uncertainty only brings losers. At the moment it doesn’t seem that employment rights keep up with actual employment practices. Governments should therefore review employment practices, but review it in a very much tech-enabled world.
To be continued…
