19 February 2021

The gig economy is too important to leave to the courts

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The world was a very different place in 1996. Back then, fewer than one in five households owned a mobile phone, Google would not exist for two more years, and John Major was still Prime Minister. Today’s Supreme Court’s ruling that Uber drivers are workers, and not self-employed, was based upon legislation from that year.

You can’t exactly blame John Major’s government for failing to anticipate the rise of the gig economy. After all, even self-described experts on the future of work make predictions that are seemingly invalidated in a matter of months. Take Aaron Benanav, an academic who recently authored a book called Automation and the Future of Work. In the six months since he wrote a piece in The Guardian claiming Uber’s business model was doomed, the company’s share price has more than doubled.

But I think you can blame this government, and its predecessor, for leaving an issue as important as the gig economy to the courts. It’s time for legislators to do their job and draft a new law that is compatible with today’s economy, and which accounts for the flexibility that the gig economy offers.

Putting questions of legality to one side, it’s clear Uber’s business model works for drivers. If you don’t believe me, just ask them. Countless surveys have found that the majority of Uber drivers are happy with the status quo and would not sacrifice flexibility for greater security.

A survey carried out by Oxford University academics Carl Benedikt Frey and Thor Berger, in partnership with Uber, found that drivers reported higher levels of life satisfaction compared to other London workers, despite on average earning less. And, counter to the conventional wisdom, drivers typically worked full-time in other jobs before choosing to shift to Uber. Furthermore, more than four-fifths of drivers agreed with the statement: ‘Being able to choose my own hours is more important than having holiday pay and a guaranteed minimum wage’. They found that drivers would accept a move to fixed hours – but only if it came with a 25% pay rise.

In Uber’s home state of California, 70% of drivers backed Proposition 22, a ballot measure that created a carve-out for ridesharing services from the state’s tough laws on freelance work. The measure passed with 59% of the vote in November.

AB 5, the freelancer law which Prop 22 was responding to highlights how interventions designed to solve a problem in one market can have unintended consequences in others.

When it passed, Vox published an article: “Gig workers’ win in California is a victory for workers everywhere”. A month later they published another article: “Freelance journalists are mad about a new California law. Here’s what’s missing from the debate. The alternative to AB5 would be worse”. Two months later, Vox Media itself cut hundreds of freelance writing jobs in California.

Sadly, the views of drivers are often ignored. One academic responded with sheer confusion that Uber drivers opposed AB 5, but gig worker activist groups campaigned for it. The prospect that activist groups are rarely representative of the vast majority did not seem worth considering to her. The drivers’ reasonable concerns that a shift to employee status might lead to less flexibility in terms of scheduling was dismissed.

To return to today’s ruling, the Supreme Court held that employment law was designed to “protect vulnerable individuals… in a subordinate or dependent position”. But many of the restrictions that the judges ruled against serve a rational purpose. And drivers in a strong bargaining position (e.g. intense competition between ride-sharing apps) would happily agree to them.

One of the Court’s key concerns was that drivers who refused trips would get locked out of the app for ten minutes. But without measures to prevent trips going to drivers likely to reject them, the dispatch system might get clogged up. Both drivers and passengers would lose out from longer waits between trips.

Likewise, the judges said that Uber’s ratings system is way for the company to “exercise control” over drivers. But a ratings system is a standard feature in all manner of industries.  Airbnb hosts and eBay sellers, for instance, happily sign up to a user-feedback system. More to the point, I doubt any consumer would tick a box that allowed them to access drivers with bad ratings.

Another complaint is that Uber “restricts communication between passenger and driver to the minimum necessary”. Again, this seems perfectly reasonable. If Uber allowed drivers to contact passengers outside of the app then female customers would likely avoid the service due to the risk of unwanted male attention. Most Uber drivers would have no reason to contact a passenger after the trip is finished, nor would they want to be penalised for the misconduct of any of their fellow drivers.

What will happen next?

One possibility is that Uber changes their contract to an extent that drivers have greater freedom and flexibility. They might allow drivers to set their own fares as a multiple of Uber’s base rate and opt out of surge pricing, as is now the case in California. In fact, the company already give drivers more freedom than they did when today’s case was initially brought before an employment tribunal.

Alternatively, if they feel there’s no avoiding a further worker judgement, they may use the relationship to increase their market share by, for instance, preventing drivers from using competing apps while logged into Uber.

Uber themselves have advocated for greater legal freedom to provide benefits to drivers without incurring additional regulatory burdens.  Deliveroo have made similar calls. Rather than relying on the courts, a flexibility-preserving fix to employment law may be the best way forward.

This isn’t just about Uber, of course. Today’s ruling will have implications not just for ridesharing, but for food delivery, cleaning, childcare, and more. Gig economy start-ups without access to regulatory experts and legal teams will find it hard to attract funding under a climate of uncertainty.

The onus now is on Britain’s legislators to build a better system for regulating gig work – one that balances greater security and the flexibility consumers and gig economy workers value.

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Sam Dumitriu is Research Director at The Entrepreneurs Network.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.