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Threat of the gig economy needs urgent answers

Waiting another five years to address the problems the gig economy is bringing to New Zealand is not an option, writes Thomas Coughlan

London has become the centre of an international debate between regulators and tech giants over the gig economy and how (or if) it should be regulated. In the last month, Uber has launched appeals against two unrelated cases that both threaten to radically alter how it does business in London, one of its 10 largest urban markets. The outcome of these appeals will have wide-reaching consequences, potentially changing the way Uber and companies of its ilk operate in New Zealand.

On Friday, Uber lodged an appeal against Transport for London’s (TfL) decision to not renew the company’s licence to operate in the capital.

The initial decision by TfL not to renew the licence was not made with regard to Uber’s questionable interpretation (or exploitation) of rules around self-employment, for which it has brooked much criticism, but rather on the basis of the company’s poor corporate responsibility.

Uber’s record here is incredibly poor. The company’s disgraced former CEO and co-founder Travis Kalanick presided over a company culture that condoned serious gender-based discrimination, and in some instances celebrated the misogyny of some employees. Kalanick once boasted that he nicknamed the company ‘Boober’ for its tendency to help him attract women.

TfLs findings suggest that this culture has filtered down to the day-to-day workings of its London operation. The regulator raised concerns for client safety, particularly relating to issues of the company reporting serious criminal offences to the police and carrying out background checks on drivers. It concluded that the company was not a ‘fit and proper’ private car hire operator.

In the aftermath of the decision, several former customers have come forward detailing Uber’s dismissive handling of their allegations of sexual abuse from drivers. In one case, the company neglected to pass on relevant driver details to the police so that the claim could be pursued allowing that same driver to assault another passenger not long after.

It’s worth remembering that this competitiveness doesn’t actually come from any technological innovation on Uber’s behalf, but rather a legal innovation that uses the technology to exploit outdated employment laws.

Uber has played a careful political game in London, on the one hand intimating that the ban is the manifestation of London Mayor, Sadiq Khan’s union bias and TfL’s anti-competitive prejudice (Khan has been quick to clarify that he has no authority to interfere in TfL’s decision making), while on the other, trying to charm the city’s regulators with statements of contrition and ambitions for change.

New CEO Dara Khosrowshahi, in an open letter to the city published in the London Evening Standard confessed that the company had ‘got things wrong along the way’ and apologised for his company’s behaviour. In the wake of the Harvey Weinstein scandal (London’s Metropolitan Police are currently investigating five British allegations made against Weinstein), Uber will no doubt face an even higher level of rigour to demonstrate its suitability to operate in London.

The other case against Uber, which is receiving considerably less attention, could have an even more lasting impact. The appeal concerns a case brought against the company last year by two drivers, James Farrar and Yaseen Aslam and concerns the crucial detail in Uber’s apparently unbeatable business model.

Uber does not operate as a traditional taxi company, but rather classifies itself as an intermediary, which coordinates bookings between clients and drivers, who are classified as self-employed contractors and not employees of Uber.

This allows Uber to avoid having to give its drivers the statutory rights of ordinary employees, like sick pay, maternity leave, and the minimum wage. The last point has been a particular bone of contention for drivers as Uber has steadily driven down the price it charges for rides, slashing drivers' pay.

Farrar and Yaseen successfully argued that the conditions of their employment were not akin to self-employment and that they were, in fact, employees of Uber. Should the decision be upheld, it will massively increase Uber’s costs in the UK as it rolls out full employment provisions for its 40,000 drivers.

Uber’s interpretation of the law has also enabled it to avoid paying a large portion of VAT (Value Added Tax — the UK’s version of GST). As its drivers are technically self-employed, they are liable for their own VAT arrangements. As most drivers fall below the £85,000 threshold to pay VAT, the millions of pounds of sales handled by Uber incur almost no VAT, depriving the government of almost £40 million in tax revenue.

Just half a decade ago, in the lifetime of our current government, most of the gig economy companies didn’t exist, now they threaten to radically change the face of employment.

Again, this is essential to Uber’s business model. VAT is charged at 20 percent, a saving the company can partially pass to the consumer, making it far more competitive than many of its peers, who take a more orthodox interpretation of the law.

Uber’s New Zealand operation works similarly. In the three years it has operated in New Zealand it has drawn criticism from established taxi companies who have argued that its subversion of existing rules not only endanger riders, but allow Uber to bypass costs that other companies are forced to pass on to the consumer, giving the company an unfair advantage.

An Uber spokesperson confirmed to me that in New Zealand, Uber ‘connects’ driver-partners with users looking for a ride. When you book an Uber you’re really interacting with two companies: Uber, the booking agent, and the self-employed driver.

Uber collects GST on the service-fee it charges to connect clients with drivers. Drivers are required to pay GST on their share of the fee only if their turnover exceeds $60,000, as GST rules stipulate. As many drivers will earn below this, Uber can undercut rivals with more traditional employment structures who will have to charge GST on the entire fare, not just the small percentage that Uber collects.

All of this conspires to make Uber far more competitive than its rivals. It’s worth remembering that this competitiveness doesn’t actually come from any technological innovation on Uber’s behalf, but rather a legal innovation that uses the technology to exploit outdated employment laws.

This has all but been acknowledged by gig economy businesses in the UK. Deliveroo, which uses self-employed drivers to deliver take-away food has said that hiring its self-employed workforce and affording them statutory benefits like maternity leave and sick pay would force it to up its delivery fees from £2.50 to £3.50, an enormous percentage increase which exemplifies the advantage current employment law gives to gig companies willing to exploit it.

Technology companies argue that London’s reputation as a hub for innovation is on the line. Their opponents counter that the city has a unique opportunity to affect material change in Silicon Valley’s chauvinist culture. The city should be applauded for its audacity in taking such issues on.

Just half a decade ago, in the lifetime of our current government, most of the gig economy companies didn’t exist, now they threaten to radically change the face of employment. The problems they raise need urgent answers, waiting another five years is not an option.

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