This article was written by Urszula McCormack, Evan Manolios and Marco Sin.
The gig economy is upon us. The gig economy (or sharing economy) model affects how large parts of modern society work, interact, and in what capacity. How governments grapple with new and emerging working models is important: for maintaining and enhancing business, for the protection of workers’ rights, and for promoting and realising Hong Kong as an innovation hub it desires to be.
This article explores some of the key drivers and international developments. It also explores a number of employment law-related questions that existing companies, new entrants and start-ups should consider.
The term “gig economy” is a collection of markets that match businesses to consumers via “gig workers”. The gig workers typically sell their labour through an app or an online platform to the platform providers on per job / “gig” basis. They receive compensation per job / gig.
The best known examples are Uber and Deliveroo. However gig economy operates in many sectors, including professional services (eg Freelancer), and consumer goods (GoGet, AirTasker).
The gig-model is made possible with exponential improvements in technology, and changes in attitude to work, money and life generally. The model is not for everyone, and there are a number of clear risks and potential disadvantages. However, if managed properly, it can also be mutually beneficial to both workers and the company. Some of these benefits are described below:
How big of a gig are we talking?
It is hard to come up with any meaningful data on the number of Hong Kong workers that make up the gig economy. That is due to a number of different factors. For example:
- the term is notoriously vague – it is difficult to delineate the differences among contingent workers, independent contractors, freelancers and gig workers with precision;
- the concept and model are relatively new; and
- there is no overarching business model that encapsulates it.
Despite this, there are some useful statistics and trends from Hong Kong and abroad:
- Casual employees, part-time employees and self-employed persons in HK went up by 40% from 1999-2015;
- Uber is reportedly using more than 30,000 drivers, with 80% working part-time;
- The number of gig workers in the U.S is expected to double in the next 4 years to 9.2 million;
- There are an estimated 1.1 million people in Britain’s gig economy (which is as many workers as in the National Health Service in England); and
- 1 in 4 young Britons (aged 16-30) said they would consider some form of ‘gig work’ in the future.
It is clear that the gig economy is growing. As the model continues to grow, businesses, workers and governments need clarity on respective rights and obligations. We address a few of these issues below.
The (many) million-dollar question: employee or contractor?
Platform providers often hire gig workers as independent / self-employed contractors, although business models vary. The law has long recognised and drawn the distinction between independent contractors and employees. In Hong Kong, courts apply a multi-factorial, factual assessment of the parties’ relationship. A court will look beyond labels and determine the substance of the relationship. Below is a non-exhaustive list of factors that a court may take into account:
- the degree of control the platform operator exerts over the worker. This includes the degree to which policies and procedures must be adhered;
- the degree of financial risk the worker bears over its business;
- the worker’s responsibilities as to tax and insurance;
- ownership and provision of work equipment, tools and materials; and
- the worker’s role and integral nature relative to the company.
The assessment of a person’s working status is determined on a case-by-case basis, as it is very fact-dependent. The difficulty with many gig economy models is that they often exhibit features of both typical employees and independent contractors. For example, some platform providers will expressly restrict the gig workers from performing work for competitors. This restriction of free movement of labour is not observed in freelancing, and is a feature more akin to an employee-employer relationship. In some instances, the degree of control, in terms of adherence to policies, is quite high. This stems from the fact that the gig worker is ‘client facing’ and will greatly affect brand value.
Disputes and government reviews have arisen in several jurisdictions as to whether workers in the gig economy are employees or contractors. In the UK, Uber has appealed a decision classifying drivers as employees, while in Australia the government ombudsman is undertaking a similar type of investigation. We anticipate similar investigations, reviews and actions will become more common as the model expands.
What does this all mean?
How a worker is legally categorised has significant consequences:
- for the individual, employees have much greater benefits in terms of wages, pension, and statutory enshrined leave, to name but a few. Many of these protections are not available to independent contractors; and
- for companies, it is important to get a worker’s classification right from the outset. Getting it wrong may lead to investigations, payment of benefits to workers who should have been considered as employees, change the risk/liability profile of your business and potentially also result in penalties and other costs. Often a change in working status can affect the underlying business models and viability of the enterprises.
Often professional advice is needed to undertake a proper assessment.
For governments, there is a growing call to specifically acknowledge, address and develop policies to address the changes in working practices (for example zero-hour contracts). The UK government only recently issued its Taylor Review into modern working practices. Clearly however, there is a need to strike a delicate balance between promoting innovation, while enshrining fair and equitable working practices and conditions. This also ties into the broader question of how the regulation of industries now involved in the gig economy (hospitality, travel etc) will modernise. While we await further clarity, it is essential to:
- carefully assess your regulatory status – being regulated typically overlays additional requirements beyond basic employment law requirements;
- map the people upon which your business depends; and
- understand the employment, outsourcing and other legal / regulatory implications (including data protection) obligations you have in relation to those persons.
Information in this article is based on public information and is not advice.