Employers planning to go the gig economy way should think again
4 min read 23 Feb 2021, 09:19 PM ISTThe gig model would need a rethink if the rationale of a UK ruling on Uber drivers being employees is held valid in India too
PremiumA recent ruling by the apex judicial body in the United Kingdom against Uber is likely to change job-market rules in the fast-growing ‘gig’ economy and the attendant business models on which the gig economy is based. The ruling itself was based on a long-drawn case dating back to 2016, when 35 Uber drivers had gone to court against the company arguing that with Uber allocating their customers and dictating fares, they were not self-employed, but Uber-controlled.
The UK Supreme court considered whether the drivers who worked for Uber through its app ought to be treated as ‘workers’ or as ‘independent contractors’ performing services under contracts made with passengers through Uber as a booking agent. This would determine whether or not Uber was bound to pay such drivers UK’s minimum wages, apart from other worker rights like paid annual leave, and would thus affect its business model. The court also considered the duration for which these ‘part-time’ drivers would be treated as working for Uber—whether for the entire period for which the drivers were logged onto the Uber app and were ready and willing to accept trips, or only the period during which they were driving passengers to their destinations.
With no written agreement between Uber London and the drivers, the court chose to infer the nature of the relationship “from the parties’ conduct, considered in its relevant factual and legal context", rather than on the basis of ordinary principles of contract law and agency. Ruling in favour of the drivers, the court noted their position of subordination and dependency in relation to Uber, “such that they have little or no ability to improve their economic position through professional or entrepreneurial skill."
This ruling is likely to impact the future of work in the gig economy everywhere. The gig economy refers to “economic activity that involves the use of temporary or freelance workers to perform jobs typically in the service sector." It comprises not just temporary blue-collar workers in delivery and taxi-aggregator services, but also white-collar ‘independent contractors’ and consultants in different sectors—such as information technology, content creation, social media marketing and communications and creative fields—who are hired through digital platforms.
The phenomenon of out-of-job workers looking for employment between jobs is captured through a concept called ‘frictional unemployment’ in macroeconomics. During a slowdown, temporary employment becomes particularly important and can aid an economic recovery. The pandemic-led recession may, paradoxically, have bucked the trend towards a structured system of temporary employment through the working of a gig economy. A crucial difference between recessions in the past and the current one is in the nature of such temporary employment, with both job-seekers and job-providers actively seeking and accepting a gig framework-led business model.
Employing firms may prefer such a gig economy for multiple reasons, which are likely to have been sharply accentuated in the context of pandemic- induced uncertainty. These include the complexity and difficulty involved in hiring, training, engaging and retaining full-time human resources, the fluidity associated with gig models, the huge cost reductions possible with such a temporary work-force in terms of real estate, training and skilling, etc., as also the lower direct monetary burden associated with employing full-time labour. More importantly, a gig economy holds the promise of converting the human resources engaged by the contracting firm—both skilled and unskilled—into the latter’s assets, as distinct from costs.
From workers’ point of view, a gig economy offers the flexibility to decide what one wants to do (and more importantly not do), when, for whom, and from where. Along with this flexibility comes the added opportunities of taking up multiple jobs to boost income, avoiding the dreariness associated with full-time jobs, upskilling, and/or pursuing hobbies alongside.
Various recent surveys have captured trends in India’s gig economy. An Aon-Nasscom Survey in December 2020 found that the proportion of the gig workforce in various major sectors—including pharmaceuticals, fast moving consumer goods, banking, financial services and insurance, manufacturing, services, technology and business process outsourcing, and ed tech—is likely to go up from about 50% to 76%. Two-thirds of the companies surveyed planned to increase the number of gig workers they engaged over the next two to five years. Industry body Assocham projected this January that India’s gig economy would grow at a compound annual growth rate of 17% to reach $455 billion by 2023.
While attractive, organizations have found it challenging even in the past to engage and manage a gig workforce that they have under-invested in. Aligning a group of geographically-dispersed temporary workers with company culture has been another challenge. For firms seeking to explore these new business models and transition to them, the UK ruling and its ramifications will throw a spanner in the works. Even as the future of work in India gets reimagined, companies desirous of moving onto gig platforms involving a variety of blue-collar and white-collar functions will need to carefully work out the legal aspects of such a transition. Policymakers will need to look at the regulatory aspects of such a transition, and ensure that the interests of both parties are balanced. They must also take into consideration the macroeconomic implications of an economy that is always ‘temporarily’ at full employment.
Tulsi Jayakumar is professor of economics at SP Jain Institute of Management and Research, Mumbai. These are the author’s personal views.
