On 24 March 2022, Maartje Govaert, Global Head of Employment and Labour, joined the panel for the JP Morgan virtual Global ESG Conference, discussing “How the Gig Economy is reshaping labour markets: Exploring ESG Risks and Opportunities”.

Below is a summary of some of the points raised by Maartje in the discussion.

What is the gig economy and how is it impacting labour markets?

The gig economy describes the business model where workers rely on a digital platform to be put in contact with clients to provide their services.  It is predicted globally that the number of workers providing their services in this way will grow as there is an increased demand for home delivery and for more flexibility and easily accessible work.  The nature of the gig economy is also extending to other sectors, beyond those provided through apps to those where traditionally there were “banks of staff”.

The difficulty for most jurisdictions is that those working within the gig economy do not fit easily within the parameters of the laws that govern the traditional relationship between an employee and the employer and globally we find that jurisdictions have struggled to define the nature of their employment status.  Assessing the correct employment status is important for determining the rights that the worker has.

This form of “gig economy” work is having a significant impact on the labour market. We are seeing a move away from traditional, fixed term and permanent contracts and much of the work through these providers are flexible contracts rather than permanent jobs.  The traditional forms of contracts tend not to provide the level of flexibility required.

Participating in the gig economy can save companies costs as the individuals are not being hired with the rights associated with a permanent employee.  The down side and the reason why these platforms are under scrutiny is that workers have less employment protection .

While for some workers, the flexible gig economy can be a benefit, for others, the lack of certainty can be more far reaching, affecting their ability to plan for the future.  In addition, if the self-employed individuals are paying less tax or social security contributions then this can often be seen as undermining the social security system.

While employers may benefit from reduced costs, they can feel that there is a lack of loyalty and obligation, as staff no longer have a long-term connection to a particular business.  This can lead to difficulties in being able to attract, train and retain high quality staff.

What are the main legal and regulatory challenges associated with the rise in the gig economy?

The main legal challenge associated with the gig economy is that most jurisdictions have found it difficult to fit the gig economy workers within the traditional definitions governing employment status resulting in uncertainty for companies on whether their workers are classified in the right category.  Many jurisdictions have workers who fall into two categories:  Self-employed (otherwise known as independent contractors) and employees, while in other jurisdictions, for example the UK, Canada and Italy,  there is an additional employment status which falls between the employee and self-employed categories.  Globally there is limited statutory guidance in defining this different status and employers are generally required to consider case law.

Although many jurisdictions apply similar tests to determine an individual’s employment status different weight or importance can be given to these factors.   Additionally, the problem is that many of these traditional tests are now outdated and have little relevance in today’s working environment.  For example, guidance on the level of control of a worker now should consider whether algorithms result in such a degree of control that these amount to an employer giving instruction.

The main difficulty regarding the test for establishing employment status is that the test is very much made on a case by case basis.  In addition, the courts tend not to look at the terms of the contract alone, but look at the whole relationship – meaning that they must look at the substance of the relationship rather than any labels that the parties have given to that relationship.

The key issue is that gig workers who are classified as self employed and not employees do not enjoy the same legal rights and protections as other traditional permanent employees .  This can include rights to claim unfair dismissal, the right to sick pay and paid holiday and the right to benefit from certain social security protections or retirement provisions.  It can also impact on the right to collective representation.  As more individuals are becoming aware of these potential rights we are seeing more claims by workers against the providers for inappropriately classifying them as contractors or self –employed.  This can be costly for employers.

Employment status can also have an effect on worker representation and collective bargaining.  So for example, these digital platforms could fall under a collective labour agreement and so may find that they are required to comply with the obligations under that agreement.

How do you see this legal and regulatory landscape evolving globally?

There is no doubt that the contribution of gig workers to the economy will continue to increase.  As a result, many jurisdictions are considering what steps they can take to deal with the perceived inadequacy of the traditional definitions applying to workers particularly due to the growing concern with the lack of legal protections afforded to gig workers.  We have seen moves in various jurisdictions to legislate.  For example in Canada the Labour Code has also been amended to prohibit misclassification and puts the burden of proof on the employer to establish that a person who files a complaint is not an employee.

Obviously one of the key developments is the EU directive to reform conditions for digital gig economy workers in the EU. The purpose of the proposals is to improve the working conditions of platform workers, support the growth of the platforms and provide legal certainty.  The directive focuses on the employment status and includes a presumption of employment.  The directive sets out a list of “control “criteria and if an individual satisfies just two of the criteria there is a presumption of employment.  The platform provider is able to rebut the employment presumption, but it will be more difficult.

This is a dynamic area of law.  Our global guide for employers on doing business in the gig economy looks at the position of gig economy workers in various jurisdictions as well as what legal developments are expected in the future.

Doing business in the gig economy: A global guide for employers | United Kingdom | Global law firm | Norton Rose Fulbright