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From the Desk of the Executive Director

Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Gig economy and unfair contract laws suit self-employed

Friday, November 18, 2016

Two current events occurring some 17,000km apart reveal regulatory tension over the “gig” economy. One event tears at the new economy while the other is working with this economic change.

Last weekend, Australia’s unfair contract laws covering small business people began. Late last month, a precedent-setting judgment in London declared two of Uber’s 40,000 British drivers to be employees and thus entitled to minimum wages.

The Australian event is accommodating the gig economy within a regulatory framework. The London event assaults the structural heart of the gig economy.

It’s a mistake to think that the gig economy is a technological revolution. Yes, the integration of apps, GPS location, mobile phone and related technologies facilitate the new economy, but it’s the use of those tools by people that makes this economic “thing” work. And it’s people who opt to be self-employed who are primary users of the technology. This is the cutting edge issue.

The heaviest driver of the gig economy is the willingness of people to become “businesses of one”.

The legal structure is that individuals walk away from wage-slave employment to self-employment.

Unions hate this. It diminishes their institutional power.

The Uber ruling was on a case brought by the GMB union to the Central London Employment Tribunal. In a 40-page ruling, the tribunal declared two Uber drivers were “workers” within the meaning of the British Employment Rights Act. The tribunal ignored or twisted key indicators of self-employment to reach its conclusion. No consideration was given to the fact that Uber drivers provide their own tools, a vehicle and pay all expenses.

Drivers have total control of when or if they work by turning the Uber app on or off, but the tribunal asserted that when the app was on, Uber controls the drivers because it gives directions as to driving routes through the Uber GPS map.

The tribunal dismissed much of Uber’s stated operational evidence preferring hearsay from off-the-cuff remarks by others as more reliable.

Uber intends appealing.

In comparison to the London ruling, Australia’s unfair contract law does not try to suppress self-employment but rather embraces the status.

The law is “revolutionary”. It is a likely global first in regulating the “fairness” of business-to-business contracts, but it’s light touch.

It applies only to standard-form contracts affecting small business people.

Offending clauses are void, leaving the balance of a contract intact. The law largely codifies the common law structure of a commercial contract backing the power balance inherent in commercial contracts with legislative “oomph”.

What is significant is that the unfair contract law does not go to the issue of price. Here is the big regulatory difference.

Employment regulations have institutions that define “fairness” based on determining and enforcing the price (income) that must be paid to individuals declared to be employees. The London ruling pulls Uber drivers into that framework. Compare this to competition law, of which the unfair contract law is part, where “fairness” considerations relate more to contract honesty, including preventing price manipulation.

The gig economy is regulated under competition laws because its contract structures are so dependent on people being self-employed. However, if the gig economy does not have regulation that effectively protects self-employed people, have no doubt it will be exploited by big businesses.

Here’s the tussle: employment-regulating institutions respond to the gig economy by seeking to pull individual workers into their ambit to impose price (income) controls.

This kills the creativity, innovation and wealth-creating potential of the market-dependent gig economy.

If competition regulators do nothing, employment regulators will move in to the regulation void, do their thing and damage competitive markets.

Competition laws and regulators must actively respond to this growth in self-employment by creating light-touch regulation to support the small business (of one) base of economic activity. The Australian unfair contract laws are a step in this direction.

Large businesses operating in the gig economy space should encourage such market regulation of their activity. If they don’t, the golden goose they desire from the gig economy will be attacked—potentially even killed off—by employment regulators.

[First published in The Australian, November 2016]

 

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