The GIG Economy
25 Aug, 2016
Daily we are seeing new businesses strategies and models emerging around the globe; some of these are now contributing to what we are calling a GIG economy. This is the overall businesses environment in which organizations and companies outsource labour, via direct or third party contracting for shortterm independent employment. A recent study conducted by Intuit predicted that by 2020, 40% of US workers would be independent workers, and looking at the growth of companies such as Uber, AirBnB and TaskRabbit, we can expect a further expansion of the GIG economy throughout Europe and Asia in no time.
However, this type of business has left space for much controversy and issues relating to employment and contracts, evidenced by some of the recent lawsuits brought towards Uber, from contracted employees who wished to have similar benefits as a full-time employee. Clearly, there are loopholes and voids that need filling in this market, and legislative development can take some time, relying mostly on judicial precedents.
Lawyer Monthly wanted to hear your thoughts on this matter, and set out to hear from various professionals worldwide on what the legal implications, expectancies and conclusions might be in relation to the GUG economy; here’s what they had to say.
Jonathan Maude, Partner at Vedder Price
The large amount of money in the recent Uber settlement has grabbed headlines. However, it comes as an anti-climax and disappointment to many who have been waiting for the Court’s decision and hoping it would provide some much needed guidance on the status of those working and serving in the fast changing GIG economy, and the uncertain employment landscape it is ushering in. The ever growing digital on-demand or GIG economy relies on contractors working “gigs” or doing piecework – rather than on paying employees through the regular payroll. Whatever the benefits, those individuals who work “gigs” in this way lose a raft of social and employment protection they would enjoy as employees. It was this loss of status and protection which the Uber drivers challenged, claiming that they should be classified as employees.
This case therefore challenged the very basis of Uber’s business model. A definitive answer from the Court as to the drivers’ status would have been welcome, and would have provided some certainty and guidance not only to the individuals but also to the new and growing wave of on-demand businesses that operate on a similar model to Uber.
The settlement means that, for the moment, it looks as though we will have to do without definitive guidance from the Court, assuming the settlement is approved. However, this looks set to be a temporary stay only. This case has raised the consciousness of these issues – partly owing to the fact that Uber is becoming a household name and because of the size of the settlement – and on the real status of individual “gig” workers. We expect that many will share our view (looking at the case from the outside) that, had the case proceeded (and under English law), the drivers would have been said to be employees. This is primarily because of the level of control exerted by Uber and the overall brand management. To our mind, the size of the settlement recognises this risk, and looks likely to give impetus to further similar challenges. Businesses operating on the contractor model will be very aware of this, and the potential huge ramifications. They will be aware too of the need to prepare for and contingency plan for such challenges, or to change their relationship with their contractors.
While this case and others like it are shining the spotlight on the lack of protection and rights given to the new and growing army of workers working under these business models, it is too early to say precisely how this lack of protection will be addressed. One thing that does seem certain, however, is that this is an area where we can expect to see developments in further cases, law and policy, both in the UK and globally.
Paul Kelly, Employment Lawyer and Partner at Black Solicitors LLP
The problem with ‘the GIG Economy’ is that the law has been slow to catch up. A business model which shuns the traditional idea of employment in favour of a person working for themselves – taking on individual “gigs” – is increasingly common in almost every aspect of our lives. Whilst the Gig Economy can be viewed as having empowered those who want to work for themselves, in the post-recession landscape we find that more and more people are turning to – or being forced into – this type of work because they simply cannot find traditional employment. And in the process, the dividing line between employment and self-employment has become blurred.
Perhaps the most high-profile recent example of the blurring of the employment/self-employment distinction concerns the taxi app, Uber. Uber has been taken to the Employment Tribunal by some of its drivers who claim, amongst other things, that because their work for Uber is their only source of income, they should be treated as employees. Delivery firm Hermes has also faced similar criticism. Many of their self-employed delivery drivers earn less than the minimum wage due to the rates Hermes pays – though this does not appear to have dissuaded Amazon who are said to be considering adopting a self-employed approach for some of their deliveries. Most recently the courier firm, Deliveroo, has hit the headlines by allegedly requiring couriers to sign contracts which not only confirm that they are selfemployed, but also provide that they will pay Deliveroo’s legal fees if they assert to the contrary in the Employment Tribunal.
The GIG Economy claims many advantages for those businesses that adopt the model. It can give companies like Uber and Hermes national coverage without the complication and cost of setting up regional operations. It also provides them with a flexible workforce that operates 24 hours a day. Most importantly, companies subscribe to this model because it involves lower overheads – the business has fewer employees and so is able to reduce the financial and administrative burden which accompanies things like paid sickness absence, disciplinary and grievances hearings, sick-pay, maternity, paternity and parental rights, and pension auto-enrolment.
The advantages for individuals – beyond the obvious attraction of flexibility – are not so clear to see. But two years ago when the CIPD surveyed those working on zero hours contracts they found that 65% of them were happy with their work-life balance, compared with 58% of their full-time colleagues – so any work model which has a lower level of commitment for the individual seems to be popular.
The GIG Economy is said to be a natural evolution of our working practices and a by-product of a ‘Millennial’ generation that values work-life balance and flexibility over income and status. However, further regulation is needed to clarify the employment status of ‘Gig’ workers. The model is open to abuse by unscrupulous employers who would seek to exploit those with little bargaining power by cajoling them into performing all the functions of an employee but without giving them the associated rights and benefits.
The GIG Economy is not going to go away. As we become more and more connected and dependent on technology, traditional companies need to re-examine their business models. This new model may or may not work for them. But better to consider (and perhaps discount) the model, than find that it has been successfully adopted by a competitor
Emma O’Leary, Employment Law Consultant at ELAS
The main legal consideration businesses should be making in regards to the GIG economy would be employment status. This is the big question when it comes to people working in the GIG economy – are they really self-employed or should be they be considered workers? There are various tests which can be applied depending on the circumstances.
Rulings in the recent Uber employment tribunal case as well as the cycle courier cases could be momentous and have a phenomenal effect on GIG economy business. They could even lead such companies to consider revamping their whole business model. Unions are calling for more regulation on these type of businesses and it may be that the judgements give some definitive guidance on employment status once and for all. The UK Government seems to be avoiding the issues in terms of regulation and, given the current political climate, it’s even less likely that they will get involved. Addressing the employment status issue could be expensive for employers and something this Conservative government is unlikely to want to tackle.
We can expect to see many more tribunal cases from the ‘workers’ which could then adversely affect the GIG economy – it’s already happening in the US as well as here in the UK. If the judgements in these cases don’t go the employers’ way then financially it could close them down. The flood gates will open, the workers will receive payouts for underpaid wages and holidays and there could be a knock on effect on the financial stability of the companies involved. This would ultimately affect their place in the competitive marketplace if these payouts result in a hike in prices for the consumer.
Very little is to be expected in terms of regulatory development on existing companies in this realm – the government won’t want to deal with it. It’s too difficult for them to resolve and they won’t want to give credence to the worker’s rights. The judgements in the recent cases will shed some light, we would hope, but they won’t technically be binding decisions unless and until one of the parties appears to the Employment Appeals Tribunal – only that court and above can create a legally binding precedent. Meanwhile, companies which operate on this GIG economy, or indeed any company that tends to engage ‘self-employed’ operatives, may want to take advice on how safe their employment status presumptions are and tighten them up if necessary.
Matt Walters SVP Operations for Capital GES
The staffing industry, in the legal sector and elsewhere, is in a constant state of evolution, where any semblance of a traditional model of recruitment now seems shortlived at best. Over recent years the ubiquity of reliable technology and connectivity, paired with a generation of digital natives with an expectation of instant availability, have led to a new world of work: the gig economy.
In recent years the concept of ‘gig’ work has gathered considerable pace as businesses come to fully embrace the notion of a flexible workforce. The GIG economy is a marketplace in which businesses engage with workers for short-term engagements, or gigs. The significance of this emerging economy is enormous, as workers, clients and staffing companies realise that vital experience, contacts and perspective can be gained without resorting to traditional hiring practices.
As an increasing number of workers are choosing to work ‘gigs’ rather than entering into full-time employment, it is critical that businesses fully understand the landscape of the GIG economy and the implications of engaging with these workers. Firstly, it is important to address the unparalleled opportunities that can arise from the gig economy. ‘Gigs’ allow businesses to access a wide talent pool of flexible workers.
This heightened level of flexibility and access to talented workers is one of the fundamental reasons for so many businesses to engage with ‘gig’ workers. The CEO of on-demand talent marketplace MBA&Company summarised the trend well, stating: “You can now get whoever you want, whenever you want, exactly how you want it.”
Indeed, one of the most pressing questions surrounding ‘gigs’ is that of worker misclassification or deemed employment. If a worker is generating a majority of their income from an engagement with a company, should that company not be deemed to be socially responsible for that worker? In other words, is the worker not just, in effect, an employee? This and other questions are inevitable in any major shift in working practices, and will present significant challenges and opportunities to companies and regulators over the coming months and years.
The GIG economy will change the staffing landscape, and we can expect that rules and regulations will be introduced to deliver clarity. Companies such as Uber are blazing a trail in this area by pushing countries and local authorities to clearly define when a user of a sharing app becomes an employee of the company. This precedent being set by the sharing economy (a subset in its own right of the gig economy) will allow companies in the wider gig economy to thrive in comparative safety.
The GIG economy is here to stay, and as the trend continues to expand it is critical that businesses consider how they engage with their gig workers. Staying informed and understanding the law is key to making the most of this new era of both flexible and talented gig workers.
Christopher Tutton, A Partner at Constantine Law
The GIG economy is undermining and redefining traditional legal concepts, particularly in relation to what it means to be an employee. The GIG economy relies on self-employed contractors to provide a flexible labour supply at much lower cost. This in turn creates significant cost savings for consumers.
Moving away from traditional employment models however, is not without risk. Operating a contingent labour supply brings its own challenges, such as how to deliver the same standard of service with a reduced level of control over the ‘workforce’. GIG economy companies need to put systems in place to ensure customer service and quality control are not compromised, or they will struggle to grow their brand.
Another potential risk is in relation to health and safety: direct employment arrangements have more regulation on working time limits and health and safety requirements. Health and safety standards could be eroded unless there is careful thought and adequate resources given to the issue.
Companies operating in the GIG economy also need to be mindful of the fact that whilst their business model may be popular with consumers, public attitudes towards the sector are divided. Companies can be viewed as controversial due to concerns about worker’s rights and unfair competition. Reputation management should be a key consideration for businesses in the sector.
We have seen litigation in California which saw Uber drivers being found to be employees. There is currently litigation in the UK employment tribunals against Uber in which drivers are claiming to benefit from a myriad of employment rights such as holiday and sick pay).
As with many changes arising from technological advances and changes in attitudes to work, the law has not been able to keep apace.
I would anticipate we see an attempt by unions and employee groups to put the brakes on the GIG economy by increasing regulation and lobbying for changes to the law to protect key employment rights. These include in particular the right to form trade unions, not be unfairly dismissed and to receive holiday and sick pay.
Whilst the sector may face further regulation, businesses should be looking at ways they can harness the power of the GIG economy, as, whatever the pros and cons of the model, it is here to stay. Businesses should seek to find a sustainable balance towards working conditions, quality control and health and safety whilst continuing to meet consumer demand for lower costs and flexibility.
Ian Dawson Head of Employment Law at Shulmans LLP
The suggestion that by 2020, 40% of people in the US may find themselves in a situation whereby they are self-employed under the GIG economy model, of course throws up questions in the UK about reference to employment security and fair play.
On the one hand, there are employment protections such as unfair dismissal, which do not necessarily apply when contracting an individual on a flexible and self-employed basis. The employee becomes a self-employed entity, allowing them to seek other revenue streams, removing almost all requirements of a business in reference to minimum benefits. Although it may seem as though businesses have the advantage here, this distribution of power will be unsustainable as the economy matures.
Inevitably, a time will come whereby the biggest companies in this economy, such as AirBnB and Uber, will be challenged by competitors of an equal footing, allowing the self-employed individuals to barter their own terms to seek the most profitable and convenient agreements. Any existing companies of this model would be wise to foster an environment of fairness at this early growth stage, in order to create a sense of community and loyalty. This should then help prevent a situation whereby the majority of its revenue earners ‘jump ship’ to pastures new, leaving the business unable to fulfil its services to the paying public and ultimately, to a potential demise.
One way to alleviate this threat could be to operate over two platforms; one in its current format and another with a traditional bank of full-time employees. With an ever-shifting market and with many businesses operating on a global scale, this will help employers meet the need for flexibility which the market requires.
It is evident that changes in legislation will be required to meet these fast-paced economic developments. However, the fundamental acknowledgement of treating employees fairly, whether actually employed or contracted, should be the best course of action – should they wish to grow and sustain their market share in the future.
Rhiannon Cambrook-Woods Managing Director, Zest Recruitment & Consultancy LLP
The GIG economy may still be in its infancy, but figures from the Recruitment & Employment Confederation predict that by 2025 the GIG economy will add £45 billion to the UK’s GDP and create work for 766,000 people.
Driving this are two key groups: millennials looking to take greater control over their careers, and those with a few more years under their belts who want more flexibility and variety in the work they are doing, opting instead to combine their main career with a number of often-diverse roles.
As the demand for this way of working increases, so too will the value legal employers place on it. But they need to be ready for it, its implications and the challenges that will need to be faced:
First, we are likely to see a change in work patterns. Law firms will be required to become more agile and turn many of their preconceptions of how employees work on their heads. Indeed, the use of temporary workers has by and large been to plug short-term gaps in the workforce. But this is likely to change, as workers at both ends of the skills spectrum will increasingly expect to be able to work flexibly. As it stands, law firms overall are less geared for such flexibility.
Second, increases in the number of people working flexibly could pose a perceived threat to those who work full time, or have less experience. This could see an increase in silo specialists who will be recycled from interim post to interim post. The effect of this could see an exclusion of other candidates, which in turn could see the talent pool become much smaller; thereby, creating an ‘us and them’ corporate culture.
A third major challenge facing law firms will be the way they manage quality control. As more people opt to become ‘gig workers’, firms need to ensure that contracts are allocated to the best person for the job, not the one who offered the cheapest rate.
Fourth, is the impact on the law firm’s brand. Managing a team of permanent and flexible workers will be a challenge, but so too is the ability to ensure continuity of service throughout the customer journey.
Fifth, with the downward pressure on pricing showing no signs of abating, the GIG economy is a good fit for the legal sector, as those with the skills that are needed can be drafted in ‘on demand’ and can quickly get to work to fulfil a specific role, within a specific timeframe.
Then there is the question of pay. Law firms will need to clarify the legal and tax status of gig workers to ensure they receive the same protections (and benefits) as other self-employed workers. One of the key challenges will be in the support afforded to gig workers, such as the provision of professional training.
The GIG economy may pose a number of challenges for legal firms, but it presents even more opportunities. As the firm’s needs change, having a flexible and external workforce that can be quickly scaled up or down could prove invaluable for practitioners under increasing pressure to reduce their costs while maintaining a high standard of service to their clients.