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Disruptive innovators are rejecting traditional working practices in favour of more casual arrangements, meaning definitions of ‘employees’, ‘workers’ and ‘contractors’ are becoming blurred. Resolving this uncertainty is the new battleground of global employment law.
The use of alternative working models has rocketed in recent years. Zero-hour and short-term contracts; platform labour, organised through online exchanges; and payrolling are just some of the prominent examples. The so-called ‘gig economy’ is well and truly on the rise. The reasons are many and various: millennials’ dissatisfaction with the nine-to-five treadmill; baby boomers staying in work for longer; increased competition; and, of course, the eternal drive for increased revenue with less cost. ‘Technological innovations have transformed both how companies do business and how consumers seek and obtain goods and services,’ says Erika Collins, a partner at Proskauer in New York and Co-Chair of the IBA Employment and Industrial Relations Committee.
Martin Schirmbacher, a partner at Härting Rechtsanwälte and Co-Chair of the IBA Technology Law Committee, says the gig economy would not have developed without the internet. ‘Both new forms of co-working [a hub where likeminded freelancers can share office space but work for different organisations] via the internet, as well as the development of platforms for selecting and evaluating potential assignees, are only possible with easily accessible and easy-to-use techniques,’ he says.
‘People want something they can get at the click of a button, rather than having to search,’ says Emma O’Leary, Employment Law Consultant for the ELAS Group. ‘Organisations are looking to maximise profits by minimising overheads.’
Uber, the taxi hailing app, is typical of the emerging gig economy. The company has proved it is possible to manage a huge multinational operation without owning assets or real estate, but merely by brokering transactions via a digital platform.
By engaging workers as independent contractors, Uber and other digital platform companies, such as Deliveroo, are not only gaining an advantage. Patrick Benaroche is partner at Stikeman Elliott and Vice-Chair of the IBA Employment and Industrial Relations Committee. ‘If a person is classified as an independent contractor, there are no minimum wages to offer, no social benefits that apply, no minimum hours of work,’ he says. ‘The requirements of minimum standards legislation do not apply to such workers. In the event of a dismissal, recourses available to employees are not open to independent contractors and the entire framework of health and safety laws designed to protect workers generally do not apply.’
Legislation is generally outdated. However, the fightback across the globe is beginning, with governments and courts introducing measures to curb this new Wild West of employment law.
Schirmbacher warns that, although it seems obvious that certain practices need to be stopped, for many, the gig economy opens possibilities that they would not otherwise have. ‘A lot of people actually like the freedom this gives. With too much regulation of the platforms, these advantages would be taken away.’
However, from a legal point of view, says Collins, it is irrelevant whether gig economy workers prefer the freedom and benefits of an independent contractor relationship to a traditional employer-employee relationship. ‘Worker classification always has been a legal determination and not a creature of contract or a matter of private agreement.’
Recently, UK tribunals and courts have appeared unimpressed with the ‘self-employment’ models set up by gig platforms. ‘Increasingly [they] are looking at the relative bargaining power of the parties involved in these arrangements and the reality of direct/indirect control over how work is performed by gig workers, rather than at the labels applied in contracts,’ says Osborne Clarke partner Kevin Barrow.
Uber, Addison Lee and Pimlico Plumbers have sought to prove their workers are self-employed. The latter case is presently being heard in the Supreme Court. In September, Transport for London revoked Uber’s licence to operate in the city over safety concerns, with an appeal due as Global Insight went to press.
Co-Chair, IBA Employment and Industrial Relations Committee
Of particular importance to the UK gig economy is the Court of Justice of the European Union (CJEU) decision in The Sash Window Workshop Ltd and another v King, that workers are entitled to carry over leave when they are unable to take it for reasons beyond their control.
‘Employers who find that [workers] they have always regarded as self-employed contractors actually have worker status will now potentially be faced with a significant financial liability for unpaid holiday pay,’ says Trowers & Hamlins partner Nicola Ihnatowicz.
Nevertheless, the UK remains a relatively benign place to operate self-employment models from a tax and employment law perspective. Deliveroo won an important victory against the Independent Workers Union of Great Britain (IWGB) last autumn when the Central Arbitration Committee refused to grant Deliveroo riders union rights. This was because their freedom to ‘substitute’ – that is, other riders could take their place on a job – meant they were self-employed.
‘Judges have been at pains to point out [that] it is possible for gig workers to be genuinely self-employed,’ says Coffin Mew partner Leon Deakin, ‘they just did not think they were in [some of] the specific cases before them.’
Provided the ‘innovative disrupters’ play by the same rules as everyone else, any competitive edge seems fair game. ‘The success of these businesses shows there is a demand out there for the services they provide (for both end-user and gig worker),’ Deakin says. ‘However, the current law is outdated and not fit for purpose, which needs to be addressed. This will ensure those who are prepared to play fair can do so without fear of criticism and those who are not can be punished.’
Nonetheless, he adds, with the UK government’s attention focused on Brexit negotiations, any overhaul of employment law seems a long way off. Indeed, although the UK government announced its intention to take forward many of the recent Taylor Review of Modern Working Practices’s recommendations, it has made few specific proposals. Much of the detail will be the subject of further consultation and some areas not tackled at all.
On the tax front, however, Yvonne Gallagher, partner at Harbottle & Lewis, says Her Majesty’s Revenue and Customs ‘will increasingly seek to place tax and social security obligations on the providers of gig or platform services, thereby narrowing further the distinction between employees on the one hand and workers or self-employed individuals on the other’.
Businesses characterised as part of the collaborative economy (such as Uber and Airbnb) have become more prevalent in Spain, which has led to an increased use of outsourcing, short-term contracts and freelance work. Spanish law has sought to promote self-employment and the social economy by introducing measures, such as reductions in social security contributions.
However, Spanish courts remain very protective of employees’ rights. ‘This means it is tougher for businesses based in Spain to become increasingly flexible (in terms of employment) than for those based in other jurisdictions,’ says Allen & Overy counsel Moira Guitart.
This stance was backed by the CJEU last year, when, in Uber Systems Spain v Asociación Profesional Elite Taxi, it ruled that the Uber platform should be classed as a transport service and not merely as an intermediation service. This means that EU Member States can regulate the conditions for providing that service.
Partner, Härting Rechtsanwälte;
Co-Chair, IBA Technology Law Committee
Since this judgment, collaborative economy businesses operating in Spain have altered the way they render services. ‘These changes, for example, have resulted in drivers having an authorisation, drivers being able to decline services and services being carried out through third companies,’ says Rick Silberstein, a partner at Gómez-Acebo & Pombo Abogados.
Silberstein says the Spanish framework is less permissive than in other countries. ‘This is mainly because the use of temporary contracts in Spain is limited to specific regulated cases. The courts tend to find an employment relationship instead of a freelance one, if some employment factors are met. The transfer of employees from one company to another is expressly prohibited by Spanish law (apart from temping agencies).’
Further, he says, the Labor Inspection of Valencia recently ordered Deliveroo to pay €160,800 in social security contributions after ruling that the firm concealed an authentic employment relationship and that ‘independent contractors’ were in fact workers. ‘In light of this success, it seems the Inspection has received new complaints that have been initiated by an important Spanish trade union against other similar companies, which will undoubtedly lead to future judicial disputes.’
There has been increasing demand for more social protection for so-called ‘platform workers’ in Belgium. ‘This is clearly illustrated by the Belgian Deliveroo case,’ says Allen & Overy partner Christian Bayart, ‘which cuts to the heart of the matter.’
Since 2016, Deliveroo couriers have had the option of becoming employees of SMart, which entered into an agreement/partnership with Deliveroo. This gave couriers safety training, accident insurance, cost reimbursements, minimum shifts and other benefits, in exchange for a percentage of their income. However, in 2017, Deliveroo announced it would stop its collaboration with SMart and revert to the self-employment model from 2018 onwards.
‘Although the services could be organised via a self-employment model, this decision was widely criticised by Deliveroo couriers, who announced they would object by striking or taking other measures. As a result of these threats, Deliveroo is now willing to enter into negotiations with the trade unions,’ says Bayart.
The Belgian Minister of Work has also announced a coordinated investigation to determine whether or not the Deliveroo couriers should be deemed employees or self-employed. There is increasing interest in the platform economy and what this means for the social protection of workers. According to Bayart, ‘some stakeholders have advocated the creation of a third statute, to cover individuals falling somewhere between an employee and a self-employed person, which would offer adequate protection and minimal rights, while still offering flexibility and autonomy’.
Recent Italian legislation has introduced the concept of ‘smart-working’, according to which an employment relationship may be performed away from the company’s premises and outside a fixed working time. ‘These reforms increasingly weaken the distinction between an employment relationship and a self-employment one,’ says Guido Callegari, a partner at De Berti Jacchia Franchini Forlani.
In the courts, UberBlack was found legitimate by the Court of Rome, while UberPop (which allows drivers to sign up and satisfy the clients’ trip requests) was banned by the Court of Milan on the basis that the platform is not a mere intermediary but a genuine transport service provider.
In Germany, says Schirmbacher, the key question is whether ‘mini-jobbers’ meet the legal requirements to perform the job. ‘The most obvious case is Uber. The German requirements of passenger transportations are strict: every driver has to have a licence and periodic car inspections. Uber drivers usually don’t meet this requirement, thus [UberPop] currently is not available in Germany, with a decision of the Federal Court of Justice pending.’
Uber currently exclusively uses licensed professional drivers in Germany (UberTaxi and UberX), says Allen & Overy partner Markulf Behrendt, but the Federal Court of Justice ruled that UberBlack does not comply with the country’s Passenger Transportation Act. The case has been referred to the CJEU to decide whether its view was in line with broader EU law on free movement of services.
The engagement of freelancers is still common in German media, advertising, information technology and delivery services, says Dentons partner Frank Lenzen, with companies also using insignificant employment relationships (geringfügige beschäftigung), short-term employment or work on request (arbeit auf abruf) arrangements to bring on temporary workers in the context of the gig economy.
He adds that some groups in Germany ‘are trying to restrict fixed-term employment. Case law is unpredictable when it comes to pseudo-employment, but courts tend to favour employment relationships over hiring people on a freelance basis. It has become a great risk for a company to engage individuals as freelancers if they perform services typically performed by, or in close collaboration with, the company’s employees.’
Partner, Coffin Mew
Elsewhere in Europe, the two extremes of the debate are playing out in the Netherlands and France. In the Netherlands, the tide is turning against the gig economy, with unions recently launching a plan to enforce permanent employment relationships, rather than fixed-term contracts, and new legislative proposals expected from the Dutch government aimed at stimulating the use of permanent employment contracts.
In France, on the other hand, engaging independent contractors has become common, a trend facilitated by the simplified registration of independent contractors (autoentrepreneur) and a reduced rate of tax and social security contributions.
‘French law also recently provided new obligations for labour platforms in terms of insurance to cover the work-related risks of these independent workers,’ says Katell Déniel-Allioux, Co-Chair of the Europe Employment and Labour Group at Dentons. ‘In some cases, French social security authorities challenge the nature of the relations between these independent workers and the labour platform. Currently, there is a bill in discussion relating to the introduction of unemployment coverage for independent workers.’
‘Greater regulatory, licensing and tax requirements are putting reins on disruptive innovators in Canada,’ says Benaroche. ‘For example, some Canadian towns have introduced a new class of business licence for ridesharing/transportation network companies, such as Uber, Lyft, Sidecar and Hailo. Similarly, the Quebec government negotiated a deal with Uber requiring it to comply with a number of rules set out in a pilot project.’
The one-year deal with the Quebec government will see Uber acquiring the equivalent of 300 taxi permits, which gives the company 50,000 operating hours a week. In addition to collecting and paying taxes, Uber will also have to pay fees-per-ride to the government to respect the fact that traditional taxi drivers have high insurance costs. Social pressure has pushed various levels of government (federal, provincial and even municipal) to respond to the challenges faced by workers in the gig economy.
‘For example, by virtue of Bill 148, a new provision was added to the Ontario Employment Standards Act, which makes it a violation of law to misclassify a worker,’ says Benaroche.
Canada appears to be ahead of the game, having developed the term ‘dependant contractor’. ‘This means an individual has been identified as a contractor, but other factors are looked at,’ says Claire Brook, a partner at Aaron & Partners. These factors include ‘the exclusivity of that person, to determine if they are an independent or dependant contractor. Dependant contractors have specific rights in relation to termination.’
The US stands apart from many other jurisdictions because of the availability of class actions for misclassification of worker status, with potential seven-figure fines for any breach. ‘The enforceability of class action waivers remains a hotly contested issue,’ says Collins, ‘one that is particularly significant in the gig economy because many businesses (and their vendors) include class and collective action waivers in their contractor agreements.’
In Gold v New York Life Insurance, the court ruled that a class and collective action waiver in an arbitration agreement violated the employees’ right to engage in concerted activity under the National Labor Relations Act.
Other lower court gig economy cases involving Uber, Lyft, Handy and GrubHub have been filed, says Collins, but have been stayed pending the Supreme Court’s ruling – due this term – on the enforceability of class and collective action waivers in a consolidated review of three cases (NLRB v Murphy Oil USA; Epic Systems Corp v Lewis; and Morris v Ernst & Young).
Different legal tests exist for determining proper classification as an independent contractor in the US, depending on who is looking and under what law.
‘Courts evaluating misclassification claims under the Fair Labor Standards Act apply an “economic realities” test. The ultimate question under this test is whether, as a matter of economic reality, the workers depend upon someone else’s business for the opportunity to render service, or are in business for themselves.’
New York courts continue to rely on the control test set forth by the Court of Appeals in Bynog v Cipriani Group, Inc (2003), where the primary consideration is the putative employer’s degree of control over the mode or details of the work.
As technological disruption continues to shape the working world, the legal profession is being challenged, as never before, to become equally agile and innovative. For the time being, employment law remains a global legal battleground.
Lucy Trevelyan is a freelance journalist and can be contacted at firstname.lastname@example.org