Insights + Resources

12 December, 2018

The rise of the gig economy and DDIs: a tough gig for lawmakers globally

The rise of the gig economy has transformed the way we book hotels, order food and complete house tasks. Below we have a look at some of the global legal and regulatory challenges of this new era, with particular focus on the Australian market.

Definitions

gig economy (noun) ~ Labour market characterised by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.  

DDI (noun) ~ Digital Disruptive Intermediaries. Dual-sided network business that disrupts an incumbent market by providing an exchange platform that digitally connects casual or non-professional suppliers with customers, often undercutting incumbent competitors.

Introduction

In recent years global market forces have seen an increasing trend towards workers opting for short-term or freelance work in place of permanent jobs. Turbo-charged by mobile technology, these workers are often young, digital natives for whom the vocational transience of “short term gigs” has replaced their parents’ generation’s conservative ideal of the security of the “job for life”. In this ‘gig economy’, working independently via mobile technology on a task-by-task basis for multiple decentralised employment nodes is viewed as a legitimate and perhaps more authentic alternative to dedicating oneself to traditional ‘9-to-5’ servitude for a single employer.  A study by Intuit has predicted that by 2020, 40% of US workers will be independent contractors.

This demand for flexible and autonomous work has been made possible by another force sweeping business and social life, as new forms of digital platforms increasingly step into and disrupt old industries, or discover entirely new markets. These Digital Disruptive Intermediaries (‘DDIs’) enable people to monetise their labour or their assets by becoming suppliers to these new marketplaces, and allow consumers to acquire substitutable products and services typically at discounted rates. DDIs compete with incumbent industries by capitalising on technology and flexible workforces to innovate and deliver services, often at lower costs of entry and operation.

Some of the best known cross-border examples of DDIs are perhaps Uber for personal transportation, Airbnb for accommodation, TaskRabbit for odd jobs and Foodora for home-delivered meals. Be sure to check out our detailed analysis on Uber and Airbnb. Increasingly these platforms roll out their business model in multiple global markets. However, the trend is growing fast, with just one example being the launch of ‘Need Charge’ a service that promises to be “the Uber of mobile phone charging”. Indeed, becoming “the Uber of ~ insert name of market you will disrupt~” is the new VC community cliché, as dozens of new platforms clamour for investment capital by promising to become the Uber in their category. With Uber recently valued at US$48 billion, one can hardly blame them.

However, DDIs can operate in legal and regulatory “grey zones” as their novel and disruptive business models outpace the implementation of jurisdictional laws, regulations and policies. A watershed moment in Australia was the ACT legalising the Uber service on 29 October 2015. Internationally, there are some similar examples.

As regulators realise that the gig economy and DDIs are here to stay, legal systems throughout the world are beginning to address the defining watershed moments new paradigms they create.
Below we have a brief look at some of the legal and regulatory challenges of this new era, including:

• Is that gig worker a contractor or employee?

• Am I renting a home or a hotel?

• Can this business meet its’ obligations under privacy law?

• What duties of care are owed to consumers?

This is not intended to be comprehensive of all issues raised, but rather to give a sense of the broad scope of the challenges in this maturing digital world.

Is that gig worker a contractor or an employee?

Whether gig workers are independent contractors or employees is a matter of legal ambiguity and debate. If the former, DDIs can avoid burdensome costs (both financial and otherwise) associated with employee entitlements required by Australian employment and industrial relations law, such as award rates, super contributions and various types of leave. Avoiding such costs may enhance the ability of start-up DDIs to compete with established players in the industries they seek to disrupt.

Consider a typical supplier to the DDI marketplace.  They may be a university student who bids for odd jobs such as assembling Ikea furniture on Airtasker.  On the same day, they may deliver meals for Foodora and drive cars for Uber.  These multiple identities are made possible by the geo-tracking, CMS and fintech tools on the operator’s mobile applications.

In Australia, the legal basis for distinguishing between employees and contractors is determined by a variety of factors. Broadly speaking, these relate to the degree of control and autonomy that the worker has over planning and performing the work, as well as the ways in which they expect to be paid for it. A simple example would be the difference between a worker who charges a company for the completion of a specific task (which they complete however they see fit), and someone paid an hourly wage to perform the same role in a closely prescribed way. The former will likely be a contractor and the latter an employee.

However, there are a great number of factors to consider here and workers in the gig economy may have relationships with DDIs that strongly suggest they are contractors in some respects and employees in others. Some examples are listed in the Uber case study below, in which the Fair Work Commission found one ex-Uber driver was more correctly characterised as a contractor instead of an employee.

The FWC decision distinguished these circumstances from a recent UK case in which it was held that Uber drivers were indeed employees, stating that the legislative definitions of “employees” were different between Australia and the UK. Despite comments from the FWC indicating the Australian test was outmoded for the gig economy, this decision sets a precedent until the issue is given legislative attention in Australia.

Globally, it seems that some DDIs may have preferred out-of-court settlements to avoid undesirable public rulings with respect to the classification of their workers. In 2017 Uber settled a US Federal Trade Commission (‘FTC’) complaint for $20m, whilst also paying more than $80m in settlement fees to just under 100,000 Ney York Drivers. This comes off the back of a $100m class action settlement with 385,000 drivers in April 2016 by which Uber protected its right to refer to the drivers as independent contractors in exchange for the pay out and undertakings drivers would not be terminated at will and would be provided more meaningful channels of communication and issue management with the platform.

Other DDIs have sought to protect their business models through public cooperation with workers’ organisations. For example, in May 2017 an agreement was reached between Airtasker and Unions NSW under which the parties have agreed to work together in implementing comparative award rates, dispute resolution processes and ensuring workplace health and safety standards. Whether this form of self-regulation is widely adopted is yet to be seen, although it may be limited to specific industries given the Fair Work Commission’s decision in the Uber case study.

Am I renting a home or a hotel?

Short-term rentals are an important source of revenue in western economies including the US, UK and Australia, and regulation of homes that are used as short-term accommodation is a battleground of gig economy policy. According to some sources, Airbnb now has 4 million listings worldwide which is more than the world’s five largest hotel groups combined.

Around the world, some legal systems have laws that restrict or modify landlords’ ability to host paying guests for short periods. Confusingly, there is no uniform regulation of short-term rentals in Australia and the relevant parties need to negotiate a web of laws that apply on a case-by-case basis.

As of mid 2017, two Australian councils (Hobart City Council and Byron Shire) are considering introducing laws that specifically target providers of short-term rental accommodation.

The proposals are similar to measures adopted in San Francisco in 2015 which restrict the amount of time properties can be made available on the short-term rental market, and also require home owners to register themselves as providers of short-term rentals. These measures are intended to help regulate housing prices in affected areas, ensure short-term accommodation meets minimum legal standards, and ensure landlord workers meet their taxation obligations.

What duties of care are owed to consumers?

DDIs operating in Australia have a “baseline” level of obligations to consumers which will increase to varying degrees depending on the relevant industries the business is involved in. These obligations extend beyond their customers to all individuals whose information is collected, integrated or used in providing disruptive business models.

Unfair contract terms

DDI business models are almost always dependent on quickly and easily connecting consumers with gig service providers. To do this DDIs overwhelmingly rely on parties agreeing to standard form contracts when signing up to a platform – these are the terms that users rarely read after downloading a new mobile application.

Under the Australian Consumer Law (‘ACL’), consumers and certain small businesses are protected against “unfair” terms in standard form contracts, which will be void if they are unreasonably and unjustifiably in favour of the DDI. Determining when this is the case is always a relative exercise with arguments both ways, but it is more likely than not that many DDI standard form contracts contain problematic clauses – especially ones written in foreign jurisdictions that don’t have regard for provisions of the ACL which guarantee the merchantability and quality of goods and services.

Health and Safety

By operating online marketplaces that connect people in the real world, DDIs can become responsible for the acts and omissions of those people they have brought into a relationship of proximity. When Airbnb first launched, an inhibiting factor no doubt was the innate idea of the “axe-murderer” lurking over their keyboard, looking for victims to rent their spare room.

In reality, the powerful digital tools of identification and monitoring mean that in fact Airbnb has made renting a room a lot safer than finding someone in the anonymous shadows of Gumtree or Craigslist. The market has responded to health and safety issues, and Airbnb in particular has over time developed more sophisticated ways to assure people’s safety. It could be argued though, that such identification tools may be at the expense of rights to personal privacy.

Privacy issues of the gig economy

An ongoing issue in the gig economy is that increasingly data about consumer behaviour is seen as a major commodity of value, with the ability of the DDI to unlock deep data, and algorithmically monetise insights.
Participants in these marketplaces increasingly hand over their personal data in exchange for access to online platforms and services – both directly through registrations an account creation, but also through data that is passively collected by the usage of relevant platforms or services.

The recent Facebook/Cambridge Analytica scandal, exposed in March 2018, has turbocharged these concerns. Not only did the data breach wipe close to $A50 billion off Facebook’s total market value in one day, but it has also resulted in CEO Mark Zuckerberg testifying in front of two Congressional committees in the United States (whilst having refused to do likewise for a UK Parliamentary committee). The data breach has drawn widespread negative attention, having effectively painted a regulatory target on the backs of businesses that commercialise flows of user data.

In Australia, consumers and workers of the gig economy generally have statutory rights that relate to how this data and information is protected. The relevant laws, which primarily stem from the Privacy Act 1988 (Cth) and other state-specific legislation, protect the personal and sensitive information of individuals by outlining requirements for how DDIs must collect, treat and use such information. However, subject to certain exceptions, such obligations only apply where the business trades in personal information (e.g. buys or sells marketing lists), or has annual income in excess of $3 million. Hence some start-up DDIs may have a window of time before they are regulated by Australian privacy laws.

The imminent enactment of the European Union’s General Data Protection Regulation (‘GDPR’) is designed to protect the data of Europeans. This includes non-European entities that target or interact with the data of European individuals. These measures are the most draconian ever, especially in respect of consent provisions and requirements relating to data minimisation, and are backed by the threat of significant penalties of up to €20 million, or up to 4 % of a DDIs annual global turnover.

Some final words about global trends

Recent years have seen the gig economy boom globally as the ubiquity of mobile technology and innovative business models such as DDIs have disrupted and reinvented incumbent industries, as well as spawned entirely new market places. In the process, regulatory and legal grey zones have been revealed, that lawyers and policymakers are now scrambling to charter with meaningful rules and regulations.

Responding to these grey zones requires a delicate balancing act from regulators who need to harness and integrate the economic innovation of DDIs and the gig economy without compromising the public-interest benefits of regulatory standards. The tension between these interests is currently very apparent in global privacy laws, especially in the EU, which can be considered at the forefront of regulatory change in this respect. In this article, we have examined some of the ways in which this balance is currently struck in respect of laws around the world relating to employment, real estate, privacy and consumer protection. However, given the fluidity of digital disruption and the rise of the gig economy, there is no doubt still much change to come.

The information above is general in nature. If you want to learn more about disruptive business under Australian law, please contact us below.