The tug of war within the gig economy

As if on cue, the European Union recently introduced a draft that aims to make platform companies such as Uber, Instacart, and Amazon classify their gig workforce as ‘employees’ and provide them with additional benefits. The proposal is still a draft and would probably need months of debate and discussion at different levels (the EU parliament and the member states) before implementation.

Nevertheless, this proposal raises several questions. Before we get into those questions, it would be helpful to recall that late last year, platform companies in California had warded off a similar threat and had won a battle that would allow them to continue classifying their workers as contractors as opposed to employees. The battle was over a new law in California, referred to as AB5, which reclassified gig workers as employees. When this law was contested and put to vote, 58% of voters backed a state proposal endorsing the classification of gig workers as contractors.

As per reliable reports, platform companies spent more than $200 million on public relations and communication campaigns to influence the outcome. This, in itself, is not particularly surprising given the stakes involved for the platform companies but this is not the end of the story. Both sides are taking their respective positions on this issue to other states in the US. And both US president Joe Biden and vice president Kamala Harris are pro-union and supportive of AB5, which classifies gig workers as employees. Clearly, the battle lines are rapidly taking shape.

It is quite evident that the views on this subject are extremely divergent, raising the question of whether there is a middle path at all. Is all this confrontation a part of the teething troubles of a new business model that would be resolved amicably as all parties understand the model better? Or are there fundamental and irreconcilable flaws in the model itself? And are there any lessons for India based on what is happening in the West?

Early signs of hostility between platform companies and gig workers in India have already begun to surface and the fault lines would only get deeper in the months ahead. With a rise in the number of platform workers, this is bound to come to a head and attract the attention of trade unions and lawmakers.

Fundamental problem

The fundamental problem that platform companies would be faced with if their gig workers are classified as employees is low utilization of their workforce and high operating costs. This will force them to employ far fewer gig workers on a full-time basis in order to optimize ‘utilization’.

In fact, Uber had warned their drivers as well as riders in California that if voters turned down the state’s proposal endorsing the classification of their drivers as contractors, then they would have to cut down the number of drivers on their platform by around 75%. Not many believed that Uber would be able to pull off this threat if things did come to a head, but nevertheless, this step would solve the problem of utilization and operating cost. However, it would utterly wreck the customer experience by increasing wait times. It would also increase the cost for drivers by increasing their idle run (distance between the drop point of a customer and the next pick-up point which cannot be billed to either customer directly).

The power of the platform model lay in being able to deliver a great customer experience along with high operating efficiency by relying on a large number of gig workers who were happy not to work full-time on the platform. Any proposal that would classify the gig workers as full-time employees would damage the fundamental premise and beauty of this model.

The current model of payout on platforms is based on work performed (even if it is for just an hour a day), and this takes the whole ‘utilization’ piece out of the equation and makes it irrelevant. When new technology and a new business model come together, they can unleash magic and that is what platform companies accomplished. This helped platform companies provide flexibility to workers who do not want to be wedded to any particular platform, on the one hand, as well as align their operating cost to revenue, on the other.

What platform companies, almost without exception, really did was to use technology to streamline and industrialize the self-employed economy in a big way. The self-employed found an efficient and seamless way to discover and fulfil demand, and the platform companies could, in turn, have a share of the revenue generated from the platforms as commission. It was a symbiotic relationship of sorts where both the self-employed as well as the platform companies stood to gain from this arrangement.

If this were so straightforward and the arrangement benefited both parties, then why is there a bitter standoff across countries and continents?

Root of conflict

The root of this conflict can be understood by honestly answering three questions: a) What constitutes employment? b) Is the power asymmetry between the companies and gig workers preventing a sensible dialogue on the subject as a result of which workers’ benefits have continually eroded? c) Is there merit in both the views, and if yes, is there a way out of this confrontation and deadlock, or is this a slam dunk where one of the views is patently unfair?

Clearly, an arrangement in which drivers have no control, where the fee for a service is set by the platform, where worker performance is evaluated by the platform, and where every aspect of the contract between the drivers and riders, including post-service consequences, are dictated by the platform militates against the idea of drivers being classified as independent contractors.

This is not the first time that companies have hesitated taking workers on their rolls. As a workaround, large companies outside of the gig economy continue to outsource work, even work of a permanent nature, to smaller firms to avoid costs associated with employment. Lawmakers have addressed this loophole by defining the ‘principal employer’ in such cases and holding them accountable. Further, there are laws that do prevent outsourcing work of a permanent nature.

However, companies continue to find ways to avoid adhering to the spirit of these laws, and law enforcers have routinely turned a blind eye. There is no absolute right or absolute wrong in each of these cases. Loopholes are created and exploited either by unscrupulous organizations or as a response to patently unfair and impractical legislation that ignores ground realities.

Such loopholes and workarounds are best avoided by a dialogue process that avoids populism (on the part of lawmakers), is pragmatic (on the part of workers unions) and is based on humility (on the part of employers). This is essential for arriving at a fair outcome for everyone.

Somewhere, I believe that new-age platform companies have failed on this count. There was no transparency on how and when incentive structures would be wound down, and there was no discussion on cost structures that would be sustainable in the long term. In their urge to create and grab market share, they threw in carrots without full disclosure. And to prevent the market from flattening or even shrinking, they demonstrated a huge reluctance to get customers to pay the right fares. They also had bloated cost structures that could be sustained only by charging high commissions to the gig workers.

Further, technology has tilted the power and bargaining scales strongly in favour of the platform companies, and platform workers have little or no voice. In the early days of these platforms, gig workers, especially drivers, earned attractive incentives. Gradually, as drivers and riders flocked to these platforms, they cut down the incentives and it was clear that the workers were locked into a low-income trap.

When any party in an arrangement like this misuses its monopoly position to avoid listening to its stakeholders and demonstrates a high-handedness in dealing with them, it is bound to create bad blood. Platform companies have the power of money but their workers have the power of the ballot and by virtue of being the underdog also attract considerable support from the judiciary and humanitarian organizations.

Pragmatic approach

The situation can be rectified if everyone who is a part of this dispute—namely the platform companies, the gig workers, and the lawmakers—take a pragmatic approach. No one would be better off by killing this business model and it is in everyone’s interest to keep it alive and vibrant. Actually, some of this is already beginning to take shape.

Honouring the Supreme Court ruling in the UK, Uber has already come up with a set of benefits for their drivers which are quite encouraging. Uber announced that they would be paying drivers at least the national living wage, paid holiday time equivalent to about 12% of driver’s earnings along with a pension plan that includes contributions from both Uber and the drivers. However, Uber has chosen to cut corners in the way they would compute the equivalent living wage (based on the time between ‘acceptance of a trip’ and ‘drop off’) vis a vis the recommendation by the Supreme Court (based on the time between ‘login’ and ‘logout’). But this is at least a good beginning. Some measures have been taken by Uber and other platforms in the US as well, such as injury protection and health insurance.

Platforms in India have been plagued by even more fundamental issues like frequent and random changes to the commission structure, delays in payments, deliberate miscommunication of earnings potential to attract gig workers, and a lack of access to basic amenities. Platform companies are rapidly fixing many of these challenges, especially those related to health and life insurance.

However, there is no clear thinking around minimum or living wages. While there are labour laws that ensure payment of minimum wages for full-time employees, there is limited transparency regarding the fairness of compensation for gig workers because many of the gig workers often end up working on a platform for just a few hours a day or a few days in a month. Even under these circumstances, it is important to ensure fairness of compensation in line with the living/minimum wages principle outlined under the labour laws.

Platform companies need to publicly commit to ensuring that every gig worker—irrespective of the number of hours put in every month—will be paid an equivalent living/minimum wage after accounting for all expenses incurred by the worker to deliver the service, and subject themselves to an audit on this.

Further, most platforms are new-age companies that are tech-oriented and have an irrational fear of unions. Unions are not always a drag. They are often helpful in creating a healthy tension, which is necessary to balance worker and employer interests. Fortunately, unions in this space like IFAT (Indian Federation of App-based Transport workers) are taking pragmatic positions, and non-governmental organizations like Fairwork Foundation are drawing attention to good and bad practices and putting the required moral pressure on platforms.

The only way to avoid killing the proverbial goose that laid the golden eggs, which in this case is the platform innovation, is for all the stakeholders to sit together and discuss their concerns and constraints honestly and transparently and arrive at a meaningful approach that benefits everyone. If the gig workers and platform companies do not discuss their issues transparently, then we will potentially have lawmakers who are extremely busy and do not have as much of a stake in the success of the gig economy stepping in with measures that are half baked and difficult to implement.

(TN Hari is head HR at BigBasket and co-author of the book From Pony To Unicorn: Scaling a Start-Up Sustainably.)