The gig economy is best described as a labour market characterised by temporary and contractual based work where the internet connects customers with workers. Some of the most notable companies that make up the gig economy are; Uber, Deliveroo and Hermes. These workers tend to operate on a “gig” basis, i.e. get paid per journey or delivery. There currently an estimated 5 million workers (1) in the gig economy and that number looks set to increase as the prevalence of similar tech companies grows. Views of the gig economy however, are significantly polarized. Advocates claim the gig economy provides workers with unprecedented levels of flexibility and freedom without the added insecurities and difficulties associated with traditional self-employment. Critics claim that workers are being exploited and the gig economy is a form of “sham-self employment” where they are employees in every way but their title. They do not receive crucial employment rights such as sick leave or national living wage. Critics are calling for more regulation in the market to prevent this form of exploitation. This article will look at some of the recent legal cases that have had significant implications for the gig economy and opportunities and issues surrounding the market.
There have been a number of legal cases which have arisen in the gig economy. The most recent and high profile case is that of Pimlico Plumbers where they lost a lawsuit against one of their workers over his employment status. The worker was initially deemed a self-employed contractor and was not entitled to sick pay. After suffering a heart attack the worker was dismissed and he subsequently launched legal proceedings. The question here was whether the nature of his work was akin to employment or whether he was in fact a self-employed contractor. In this case he was deemed to be an employee as the worker wore Pimlico uniform, drove Pimlico vehicles and worked 40+ hours a week. Future cases will of course largely turn on the specific circumstances but this case undoubtedly sets a significant precedence for the gig economy. Other companies such as Uber and Deliveroo have also faced similar legal battles with their workers in the past. In October 2016, Uber lost a case in the UK which now requires them to label their workers as employees and provide all basic employment rights such as the national living wage. The Pimlico case however, is the most high profile of its kind.
In these cases, many of the defending companies argue are that the people who work for them get the benefits of self employment i.e. tax breaks, free working hours and so they should not also be entitled to employee benefits. Critics refute this argument, claiming that in many instances the company exercises high levels of control over the worker so the circumstances are more akin to employment and workers should be entitled to such benefits.
One of the key positives of the gig economy is the flexibility afforded to workers. Workers are generally free to choose when they work and for how long. This gives them significantly greater control over their income and leisure time than in a traditional employed role. A recent McKinsey study (2) shows that a large majority of independent workers were attracted by the “flexibility and autonomy of the work”. Furthermore, another recent study showed that drivers for Lyft, a ride sharing company in competition with Uber, a total of 75% of drivers (3) were satisfied working for the company. While this statistics may not necessarily indicate that all those in the gig economy are satisfied it does show an example of where the gig economy can work well for the workers as well as the employers.
On the employer side the positives are substantial. The cost and amount of work involved in hiring contractors or temporary workers is significantly lower than hiring traditional employees. This is why the use of temporary workers is often seen as part of a company’s efficiency drive. Contracted workers also have significantly less legal rights against a company than an employee does (ie unfair/wrongful dismissal). Clearly there are significant social issues with this which well be dealt with below but from an economic standpoint the implications are positive. If companies are making more profits this could in turn lead to increased investment and employment of local staff. Furthermore, ideally the more profit a company makes the more tax it will pay. While this doesn’t necessarily occur in practice, the general effects to the wider economy are largely positive.
The gig economy does however, pose some fundamental social issues as illustrated by the legal cases. The most notable issue with the gig economy is the lack of protection given to workers. Workers do not receive benefits such as pensions or holiday leave and have high levels of job insecurity. The fundamental issue is that despite the workers supposedly being self employed, they are expected to work or at least they must do so to make a reasonable amount of money. As a result they often work long hours for minimal pay without any additional benefits. This issue is further exacerbated in the US where free healthcare is not prevalent and most employers include healthcare plans in their employment package.
Another key downside of the gig economy is the major loss in tax income. According to a recent Trade Union Congress study the gig economy is costing the UK government £4 billion a year due to this lost income (4). This is due to two reasons. Firstly, the self-employed workers earn less. Secondly, due to insecurity of gig economy employment they are more likely to need state aid such as housing benefits or tax credits. The gig economy is on the rise and while this is beneficial for some individuals and companies, there are some negative implications for the wider economy.
The gig economy is in its relative infancy and like any other development in business world, it lacks certainty and adequate regulation. The gig economy has both positives and negatives and for the individuals involved these can only be weighed up on a subjective basis depending on personal circumstances. The reality is that for some individuals it provides the work flexibility they need in their life and for others its an exploitative labour market. For society as a whole it has the potential to be highly beneficial but there needs to be a balance between flexibility and worker protection. The introduction of extensive regulation could potentially kill off the industry, whereas insufficient regulation creates an unfairly insecure labour market. On balance however, the gig economy is beneficial for society and has created a new frontier in the labour market. While the social and legal debates rage on, the gig economy is growing at rapidly and doesn’t appear to be slowing down. PwC predicts that the gig economy will be worth £2 billion in the UK by 2020 and $63 billion globally (5). Therefore it is likely the cases we are seeing such as the Pimlico and Uber cases are the first in what is likely to be a flood of legal disputes regarding workers rights in the gig economy. Due to the varying nature of work carried out by workers it is unlikely that the uncertainty will be resolved for years to come. Therefore, don’t be surprised if you see more gig economy cases making the headlines on your news feed because the gig economy is here to stay.