Does the collaborative economy need a regulatory framework? We look at some possible answers with Nicolas Colin, co-founder and partner at startup investor TheFamily, and Arthur Millerand, an attorney at the Paris bar.
According to the Wall Street Journal, Uber has just raised a billion dollars in a new funding round. This values the startup at around $50 billion, the same as Facebook. However, Uber claims to have only 1,000 employees, as the company’s business model is to act as an intermediary. This situation raises the question of whether special legislation is required. Just over a month ago, the Californian Labor Commission ruled that Uber’s drivers were in fact employees, a decision that calls the company’s business model into question and, more importantly raises the question of how labour law should be applied.
In April Mathilde Cristiani interviewed TheFamily co-founder Nicolas Colin and Paris bar lawyer Arthur Millerand, author of the Droitdupartage (‘The Right to share’) blog, for a L’Atelier numérique (L’Atelier Digital) broadcast on the sharing economy and aspect of labour law.
L’Atelier: Uber is now valued at several billion dollars, with just 1,000 employees. The reason is clear: Uber’s business model is based on drivers who are not employees but independent contractors. One complaint that people level at the company is that it doesn’t have to pay any social security for these drivers. What do you think, Nicolas? Wasn’t this flexible approach basically a model for the launch phase? Was it intended to stay that way for ever?
Nicolas Colin: Well, I’ve just read a paper which agreed that Uber needed this flexibility in order to launch its service, but argued that Uber now needs to think about gradually transforming itself into a co-operative, i.e. allowing its drivers to buy shares in the company. The company would then be managed through a more mutual form of governance. By the way, this was an article in the left-wing US weekly politics and culture magazine ‘The Nation’.
One thing is certain: a start-up entering a given market is faced with so much uncertainty, so many constraints and pressures, especially given how little capital it has available and the initial lack of understanding of customer expectations, that it’s very important to stay as flexible as possible in the early stages.
That’s another reason why more and more startups nowadays set out straightaway with a collaborative business model. This flexible approach enables them to discover their first users, those famous ‘early adopters’. And these early adopters are critical to the success of the company because they’re the ones who will later on convince the wider community that they need this service.
I can see the situation evolving naturally in either of two potential directions. Either these occasional drivers gradually become – if this business model really catches on in a big way – incorporated into the organisation, i.e. they become employees or take on a status equivalent to that of employee. Or – and this is quite an interesting approach – these startups adopt the ‘mutual society’ structure we used to have in the old days, which in some ways fits in with today’s sharing economy. Remember that with the mutual model, contractors who work on an ad hoc basis are rewarded for helping the company to grow, without having to be enrolled in the organisation through a work contract which isn’t in line with the business model or indeed the needs of the people concerned.
What we also need to take into account is that in this new type of economy, there’s a freelance mindset – people don’t want to work for just one boss, or even don’t want to have a boss at all. The contractor likes having the flexibility to connect and disconnect as s/he chooses.
This also corresponds to the way society is changing. So what does it tell us about the concept of work nowadays?
Arthur Millerand: This sharing economy is bringing about a revolution, a huge change which affects our society, the economy and the legal system. And the legal aspect is key for two reasons. Today gaps are appearing in the legal system; new business models are developing to challenge the fixed way of doing things and in doing so they’re disrupting the market. Basically they’re moving faster than the legal norms. Legal standards can’t just be adapted, so there you have a legal void.
The second aspect is that this creates new risks. It means that when you enter these new types of market, you adopt a new structure and in doing so you’re exposed to a lack of standards.
Going back to the examples of ride-sharing companies, Uber for example, as you said we’re talking about self-employed entrepreneurs. But do we want to be a society of freelancers? Or a society where everyone contributes in his/her own small way to creating goods and services which other people can use? And then another question arises: is this way of working here to stay, or is it only a complement to the traditional system?
This is a key question. As far as ride-sharing companies like Uber are concerned, the issue of ‘false self-employed’ workers arises. The company has chosen to use huge numbers of independent people, self-employed entrepreneurs. We can ask whether they are using these people because they need to supplement their basic salaries, or just because they’re cheaper and bear their own charges. This mechanism means you can have employees in all but name. That’s the other side of the flexibility coin.
I’ve been contacted in my professional capacity by a number of drivers who wanted to take their case to an industrial tribunal and have their status re-assessed because they wanted to become employees.
Let’s talk about another player, Amazon, a company which is not part of the sharing economy, but which might not be blameless when it comes to employee working conditions.
Nicolas Colin: Well, we mustn’t forget that there is a gap, sometimes a very wide one, between the standard picture of the world of work and the actual reality. We’re starting gradually to get away from a picture of the world of work that is dominated by a single way of working – i.e. as an employee on a permanent, full-time employment contract, spending your entire career at one company.
Is that a good sign?
Nicolas Colin: Yes, because in a way this means adapting to a reality that has been with us for decades. It’s high time we realised that lots of people don’t work like that. It’s also interesting to start with the example of drivers in the personal transport sector. Now in fact there are very few employees in this sector. Most taxi drivers work on an independent basis, but are generally signed up with a booking office to which they provide their services exclusively, but they are in no way deemed to be employees of the company which operates the reservation system.
There’s also the other situation where the driver is a licensee. S/he rents a vehicle with a special licence plate. The only difference between today’s licence-holder, with a well-established status and a good income, and a ride-sharing site driver is the remuneration structure. The licence-holder pays around €4,000 a month, I believe, to rent the vehicle. So s/he only starts earning money when the number of rides takes him/her over the €4,000 mark. Meanwhile the ride-share driver hands over 20% of his/her earnings to the company. This percentage fee is far more flexible. The driver is sure of earning money no matter how few rides s/he takes.
What’s surprising here is that people are pointing the finger at a sector where in fact the majority of people work freelance, either with an independent status and signed up to a booking system, or as a licensee.
Will everyone be independent in the future?
Nicolas Colin: What is clearly more worrying is the rise of collaborative business models.
This will mean making a person work as a freelance in sectors which in the past were staffed by people with employee status which – let me repeat – is not the case for personal transport. This is a paradigm shift which will hugely shift the balance between those who are employees and those who are not. The percentage of non-salaried people will become far larger than those earning salaries. And this will force us to change the way we view the world of work. The authorities will be obliged to set up institutions for labour law, social dialogue and social protection which will fit these new types of work status more closely.
Arthur Millerand: Everyone is by turns a producer and consumer of services. This is perhaps a good thing from an economic point of view, but from a legal viewpoint, who is going to draw the line? I have two answers. It will be the legislator who will decide, perhaps through special bodies, perhaps by drawing up regulations to govern the status of these intermediation platforms.
On the other hand, as a lawyer, I observe that these companies, whether they are traditional firms or young startups, need legal reference points. They come to us to seek advice on these points. Secondly, it seems to me that we should avoid going too far. Legal rules can provide a framework and set acceptable limits. The key criterion might be when a supplementary worker is actually permanent.
Edited by Lila Meghraoua