1. Business
March 30, 2021

More labour protection laws needed for gig economy workers as sharing economy grows

By GlobalData Thematic Research

Concerns for gig economy labour rights are putting pressure on sharing economy companies. These enterprises typically classify workers as independent contractors.

Objectors contend that this classification, which makes workers ineligible for the minimum wage and sick pay, is exploitative. In February, the UK Supreme Court set a precedent by ordering Uber to classify drivers not as independent contractors but as workers. Sharing economy companies must expect similar pressure and adapt to meet workers’ rights demands while preserving their market position.

The impact on profit margins is a concern for sharing economy companies

The sharing economy emerged relatively recently: Airbnb launched in 2008, Uber in 2009, Lyft in 2012. These companies are now huge and well-established in their sectors, but their competitors are younger and fresher, and loopholes in labour laws that they previously exploited are being closed.

In most countries, including the US and the UK, labour laws depend on distinctions between employees and independent contractors. Sharing economy companies have used the ambiguity regarding which classification gig workers belong to and a general lack of targeted regulation.

Categorizing employees as independent contractors allowed companies to avoid employee payroll taxes and exonerated them from the need to provide protection and benefits such as maximum working hours and paid time off. The subsequent low labour expenditure allowed companies to offer low prices and drive revenue growth.

Covid-19 has exposed the vulnerability of the sharing economy giants

Sharing economy companies operate on tight margins, with many (including Uber) making significant losses. They aim to invest in establishing a competitive advantage now so that they can secure profitability later when the market is much larger.

Covid-19 has hurt sharing economy companies in three ways.

One, demand for services such as shared accommodation and shared car rides has collapsed during lockdowns. Two, consumers have become increasingly mindful of product hygiene and the need to limit physical contact with others where possible. Three, many sharing economy employees were reluctant to work because of potential health risks.

Regulatory inertia on labour rights will be overcome

Historically, independent contractors were ineligible for unemployment benefits. However, a March 2020 amendment to the US Treasury Department’s Coronavirus Aid, Relief, and Economic Security (CARES) Act extended pandemic unemployment assistance to them.

Following the UK Supreme Court’s watershed ruling on Uber drivers, GlobalData predicts that other companies will have to classify gig workers as employees rather than contractors and that governments will begin to impose regulations enforcing this shift.

While the pandemic may relent, regulatory and societal pressure on sharing economy companies will continue to mount in 2021. Executives must re-examine their operating model to meet these demands and reducing regulatory risk without compromising service.