Regulating the Gig Economy: Finding the Middle Ground

social worldThe development of technology has caused an entire generation and their working practices to evolve. This technology has enabled businesses to instantly outsource tasks to workers wherever they are in the world and has worked to complement the millennial generation’s desire for flexible working practices. As a result, we have seen the introduction of on-demand platforms such as Upwork offering projects or ‘gigs’ that require the services of highly-skilled or low-skilled workers.

The working relationships arising from these on-demand platforms cannot easily be grouped into existing legal definitions of an employee or contractor. Across the world, businesses are busily engaging gig workers, but many, not least governments and regulators, are questioning whether enough is being done to classify the status of gig workers to ensure that they are adequately protected.

This ambiguity in classification has been no better highlighted than throughout the ongoing suit brought by Uber drivers. Although strictly more the sharing economy than the gig economy, a similar set of arguments came forward when the ride-sharing behemoth was sued by California drivers who wished to be treated more like traditional employees. As it happens, the case was initially settled before it reached trial and concluded that drivers would be classified as contract workers rather than employees, although at time of this writing the settlement had been rejected by a judge and the final outcome is unclear.

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This case highlights the limitations of the binary system for classifying workers. In a new paper from the Brookings Institution, Seth Harris and Alan Krueger suggest that the solution is to find a middle classification, allowing workers and employers to retain some of the freedoms associated with independent work as well as some of the protections of employment.

Traditionally, governments have sought to restrict different ways of working so as to reduce the amount of abuse by unscrupulous employers who seek to classify their workforce as non-employees in order to dodge the employer costs, taxes and other liabilities associated with employment. In this new economy, however, that same set of protective measures is preventing workers and companies alike from engaging in a mutually beneficial manner. Furthermore, it seems clear that the absence of basic trust is a key element in the lack of change in national policy; governments seem concerned that the millennial workforce, primarily composed of 20 to 30-year-olds, will see the gig economy as a useful way to make money without properly considering their own obligations as self-employed workers. If these obligations are not heeded and workers do not plan for the future in an adequate manner, the state will be strained in 40 years when the workforce begins to retire without enough funds to support themselves.

The suggestion for a middle ground classification is certainly a valid one, and would provide a more apt way of working for companies and workers alike. However, both cultural and economic factors determine whether countries are ready and prepared to modify the legal framework that defines the relationships of workers and their employers. Highlighting the sheer scale of the task, former director of the National Economic Council Gene Sperling called reforming worker classification a once-in-a-generation endeavour.

Aside from the time and cost implications of changing employment legislation, there may also be resistance to any restrictions being placed on the gig economy while it is bringing in so much revenue across the world. A report from the European Commission entitled A European Agenda for the Collaborative Economy warned individual member states that placing restrictions on on-demand businesses should be used only as a “measure of last resort”. This could be down to the fact that the report revealed gross revenues from the gig sector reached £21.6bn in 2015 across the EU, which is double the collective gross of the previous year.

Even if new regulations were introduced that would specifically cover the engagement of gig workers, most countries do not have a government-provided safety net and so the industry would still need to step up and take some responsibility for these workers. Any such changes would need to allow for the inherent flexibility of the working model and would therefore likely involve additional costs to the contracting parties.

There is no doubt that the gig economy presents enormous opportunities for the developing and developed world but all parties need to take some responsibility for making it work effectively and fairly. Drawing up regulations around these new models is a huge undertaking but governments must take the lead in ensuring progress is made. Nonetheless, on-demand businesses must innovate and help to shape new labour markets and design the new social contract to protect the workers who are using their platforms; if they don’t, governments will do it for them and it will inevitably be more restrictive.

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Matt Walters

Matt Walters
Matt Walters specializes in labor leasing matters at European labor leasing expert Capital GES.

Matt Walters

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