In last week’s podcast episode, I mentioned how Uber constantly runs into legal troubles that cost it millions of dollars. These are the product of 2 factors, Uber’s ambitious growth and a lacking legal framework to address the gig economy. This pertains to issues such as occupational licensing, background checks, or drivers’ employment status. Today’s entry will be about employment statuses and how it has advanced in the U.K.

Employment Status

For anyone with an interest in the gig economy, the issue of employment statuses should be familiar. After all, depending on the line of work, there should be certain rights entitled to the worker. In the U.K, there are 3 categories of employment statuses, each with a different set of rights. For a brief overview of the categories and rights, check out the table below:

Source: Bloomberg

A company like Uber for example, would assert that their drivers have the status of being self-employed. Employers prefer this classification as it allows for flexibility in assigning work while minimizing spending on employee benefits. In this sense, the picture that Uber paints of their driver is that they are their own boss. They decide how to provide their service and at the time of their choosing. While this narrative is somewhat true, the Uber driver is hardly the model of self-employment. After all, as mentioned in an article by Anna Dabek on the website of law firm Anthony Collins Solicitors, the drivers cannot provide the service without the app, they are only allowed to provide their services within some area, and that they have no ability to set passenger rates.

These features are important as they all play into the factor of control. Again, from Dabek’s article, if there is no right of Uber to control the manner in which the driver provides their service, then the driver is most likely self-employed. However, since the features mentioned above controls some manner in which the Uber driver works, it is unlikely that they are completely self-employed.

Landmark

This distinction would prove key in a landmark decision in late 2016, when a U.K employment court ruled that Uber could no longer classify their drivers as self-employed. However, the court also ruled out that Uber drivers were classified as employees either. They are thus workers, and will receive benefits such as minimum wage and holiday pay.

More recently however, a panel commissioned by Theresa May recently released a report on ways to regulate the “gig economy”. Most notably, this includes better definitions of U.K’s 3 employment categories and renames the middle category of “workers” with “dependent contractor”. Under this recommendation, many individuals in the gig economy could find themselves reclassified with more rights. Perhaps as means of compromise, the report did not suggest minimum wage benefits for “dependent contractors”. Instead, it adopted a surge pricing model where companies were allowed to adjust wages depending on demand.

Progress

This I would say, is progress. Instead of arbitrarily ruling out that Airbnb would not be able to compete in some area, or that Uber drivers would need occupational licenses, this U.K report is at least trying to come up with some middle ground. As Leila Abboud writes in an article for Bloomberg, they are “reflecting an honest attempt to balance flexible working with protecting citizens”.

Ideally, I would rather the government step out of regulating the gig economy altogether, though this is nigh impossible. At least now there is less legal uncertainty for gig companies, which should theoretically reduce their legal burden in the long run. In return for doing the groundwork to adjust the legal framework to a rapidly changing economy, firms have a clear path to compliance, and the government will receive increased tax revenue in return.

Caution

Alas, I could not end this article on too happy a note. And history would do well to remind us that actions, particularly that of government action, have their consequences. In this case, as Uber drivers celebrate their new entitlements, they should still ask who would be footing the bill. And they would be laughably wrong if they said that the company would pay it out of their profits. As covered in my recent podcast, Uber loses more than $2b a year, it has no profits at all.

The tragedy of the issue is that it might actually be hurting rather than helping drivers in the long run. This is as as the total cost of service does not change when you include new benefits. As Tim Worstall writes for Forbes:

The employer looks at the total cost of employment, not just at the wages that must be paid. How that total cost is sliced up between taxes upon employment, wages, holiday pay and so on makes little to no difference to the employer. They’re interested in the total amount that must be paid in order to gain access to the labour they wish to employ.

Wage Transfer

In the end, what the added rights actually amount to is a transfer of wages. In order to accommodate the additional benefits, the company pays less in outright wages. Of course, if the amount is spread a year, then the actual decrease might be negligible. However, consider what freedoms were given up in exchange. As Wornstall says:

Some employees will prefer to have some portion of their income in holiday and sick pay, others would prefer to just have the cash as wages. Paying the total cost entirely as cash wages makes those who would prefer such better off and those who would prefer the “benefits” have the money to provide them for themselves if they should so wish.

If the wages were paid in cash as it used to be, then the individuals would be free to use it as they wish. They could save it for retirement, pay for some medical treatment, or take a holiday. Now, when employers are forced to give rights and benefits, this option no longer exists, and their wages will be slightly lower to boot.

In the face of this, would they still be celebrating?

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