The Gig Economy and the European Court of Justice Decision on Uber

The Court of Justice of the European Union answered a question yesterday that regulators and policymakers have been asking worldwide since the birth of the gig economy — is Uber a taxi service?  In response, the Court declared that Uber is sufficiently like a taxi service that member states can regulate it as such. But that doesn’t mean they should.

The ECJ interpretation of law creates challenging implications for other Internet enabled businesses, further expands the divide in policy between the United States and Europe on how to interpret and respond to the rise of the digital economy, and creates new hurdles for European startups to enter the gig economy marketplace and challenge established firms.

If EU member States determine that Uber is a taxi service, then Airbnb is a hotel service, and Task Rabbit is a plumbing, painting, and hauling company. Those companies would all need to go through licensing processes built for a different kind of business and have managerial responsibilities they currently do not have for people that use their services to find a gig. And anyone wishing to enter the market and compete with existing platforms would fall under the same rules. That creates new barriers to entry and innovation. It also ensures that the more welcoming regulatory structure in the United States continues to be the destination of choice for startups and entrepreneurs.

But those of us who disagree with the ECJ ruling and the action it encourages have to recognize that the gig economy challenges regulators and policymakers are struggling with are real. Gig economy platform users are something between an employee and an independent contractor and consumers are something between platform customers and customers of the individual providing the service. It makes sense to say that we need new law to accommodate this new ecosystem rather than leave all actors involved in it to their own devices. But it does not make sense to superimpose old law on it.

As is becoming increasingly obvious in both the United States and the EU, our economic legal structure was not constructed with the gig economy in mind. It was built on the reality of the time those laws were made, in which the vast majority of people were working for an employer, not themselves. It was also built on the idea that most users of services would be using services provided by formal businesses rather than individuals using their individual assets. Beyond labor and transport law, our consumer protection and competition laws were built on the idea of regulating competing firms in a market with identifiable physical presence and responsibility for the operation of its facilities and the behavior of its employees.

That is all changing. Today, in Europe and the United States, an estimated 20–30 percent of workers, or 162 million people, work in the gig economy and those numbers are growing. The full McKinsey report is an excellent presentation of the demographics of gig economy workers, why and how they engage in gig economy work, and the degree of satisfaction they experience from it.

There are multiple think tanks, journalistic endeavors, and ideas for how to address the rise of gig economy work. They seek alternatives to simply saying services that are digitally enabled must be regulated in the same way that services delivering a similar outcome are regulated in the offline context. And promoting innovation, encouraging competition, and respecting consumer preferences for these new services are the reasons to seek out alternatives.

In the United States, some of our leading labor economists believe that we need to create a new category of worker, neither self-employed nor a direct employee, and ensure that platforms meet some basic level of worker benefits for that new classification of worker. The best work that I am aware of on the concept of creating a new category of workers with some, but not all, of the rights of full-time employees was done by the Hamilton Project in 2015.

The U.K. government commissioned a report on the same subject last year known as the Taylor Report that reached a similar conclusion. It recommended creating a new category of worker called “dependent” workers, much as the Hamilton Project work recommended. The new category of worker would have some but not all the protections of full time direct employees.

Platforms enabling gig economy work are global. It could break the economies of scale of global platforms to have to provide wildly varying sets of rights and privileges around the world to workers and consumers based on the place where they access the service. Also, the more expensive to the platform to comply with regulation and new law, the more likely they will be not to operate in any given location that does not return sufficient profit to justify the cost of compliance. As a result, platforms may be available in only the most densely populated and wealthy areas of cities around the world and only by a few players with the ability to negotiate with multiple regulators in multiple jurisdictions at multiple times. That would not serve the public interest.

The technology community and platform operators are sufficiently self-aware to understand that the risk of policymaker concerns gone unaddressed in the EU and elsewhere can lead to worse outcomes than negotiated rules and are working to construct workable compromises with regulators, EU and American regulators and policymakers should create a space for that conversation.