Working by the rules: can gig economy companies thrive under regulation?

The rapid rise of the gig economy is not only relegating the 9-to-5 office worker to a smaller portion of the working population, it’s redefining the very nature of work and creating an ever-evolving regulatory paradigm.

According to the World Bank, 40% of US employees will be in non-traditional jobs (part-time, freelance or contractor) in the next five years. Around the world, non-standard employment contracts are becoming more prevalent. In 2012, 27% of workers in Poland, 24% in Spain and 14% in Japan had temporary contracts, according to the Organisation for Economic Co-operation and Development.

These temporary contracts offer myriad benefits, including allowing workers and employers more flexibility, but they also challenge existing regulatory paradigms in multiple ways.

Employees or contractors?

A key point of contention is whether workers on gig economy platforms are employees or contractors. The issue is about more than semantics — contractors do not receive many of the benefits and worker protections afforded to employees.

Ride-hailing company Uber has taken the position that its drivers are contractors, not employees. It recently settled a class action lawsuit — covering drivers in California and Massachusetts — that instituted changes while keeping drivers classified as contractors and not employees.

Meanwhile, Internet-based grocery delivery service Instacart recently turned some of its contractors into part-time employees. With the increasing presence of contract workers, Instacart felt it was important its workers were trained to fulfill customers’ needs, which include picking the best items, according to Co-Founder and CEO Apoorva Mehta.

Consumer safety is a key concern

Consumer safety has been another challenge in the gig economy, with people essentially relying on strangers (rather than taxicab companies or hotels, which are subject to safety regulation) for these services.

Like US-based Lyft, which has its background checks conducted by a third party, Chinese-based ride-hailing company Didi Chuxing (which completes around 11 million rides per day with 14 million drivers) uses background checks that include standard requirements such as a valid driver’s license and years of driving experience. Didi is also working to implement facial recognition and is the only ride-hailing platform working with the Chinese Government on background checks for criminals, according to Liang Sun, Didi’s Head of Communications.

Sun adds that the company is working on additional security measures for 2016. Didi is adding a push button to its app that would allow the rider or driver immediate access to a taskforce that can contact police, as well as an emergency telephone number (similar to 911) button.

Staying on the right side of legislation

With many services provided outside the traditional bounds of regulation, there are also concerns about whether service providers are paying relevant taxes.

Last year, Airbnb said it would work with municipalities around the world to pay its share of taxes, as well as provide data on its members.

“We have always said we want to partner with cities.” Chris Lehane, Airbnb’s Head of Global Policy and public affairs, in a November 2015 interview with The New York Times.

Airbnb has created a document, known as the Airbnb Community Compact, to work with the locales where it operates, including sharing anonymized data on hosts and guests, paying hotel and tourist taxes, and helping eradicate illegal transactions.

The European Commission (EC), which after months of looking at the impact of the sharing economy, recently released a paper saying these types of companies should not be banned, with that measure coming only as a last resort. However, Europe is still struggling with how to deal with these types of companies in terms of legislation and taxation, including the need for value-added taxes on these services.

“The Commission is looking at how we can encourage the development of new and innovative services, and the temporary use of assets, while ensuring adequate consumer and social protection”, the EC says on its website.

Partnering with the public sector

As technology evolves, the regulatory paradigm is slowly shifting with it. In many cases, companies are partnering with regulators in creative ways.

For example, Didi has worked with existing taxi companies in a number of provinces where ride-sharing is still technically illegal.

Sun notes that the company has worked with local governments in China to show it’s not competing against existing transportation infrastructure. Instead, Didi sees itself as a valuable supplement, going so far as to show taxi companies how to better manage their data.

“That’s one advantage of having strong on-the-ground operations — it’s not enough to have a cool online product, but you need real operations and real teams working with drivers and riders to show them why they want to use this structure and why regulators should support it.” Liang Sun, Didi Chuxing’s Head of Communications

Didi was the first ride-hailing company to receive an operating license in Shanghai.

Murky but promising future

Though gig economy companies are clearly working within existing regulations, the regulatory playbook is still being written.

New York University’s Stern School of Business Professor Arun Sundararajan, who wrote a book about the sharing economy, has argued these companies should regulate themselves, akin to the nuclear power industry.

Public opinion is split on how best to regulate these companies: 42% of respondents to a Pew Research survey feel ride-hailing apps in particular shouldn’t follow the same rules and regulations as taxi companies, while 35% of respondents feel they should, and 23% are unsure. Similar splits can be seen for home-sharing platforms, with 56% saying the platforms are legal and owners should not have to pay taxes, whereas 31% believe they’re legal, but taxes should be paid.

Lawmakers are faced with the task of trying to craft legislation so that these companies pay their fair share of taxes and protect their constituents — while regulating them in ways that are relevant and do not stifle innovation.

For companies operating in this rapidly evolving space, perhaps the only certainty is that things will remain uncertain in the near term. In the absence of a larger framework, regulatory issues will likely be resolved one local jurisdiction at a time.

Wherever possible, partnering with authorities can foster constructive, longer-term relationships. Companies should remember that the media and consumers are following these developments with interest — and that reputations matter in business models based on social networking and transparency. It’s entirely possible to win these regulatory battles and lose the PR war.


Originally published on