The evolution – and revolution – of the platform economy has been one where individuals find work when and where they need it. For the companies themselves, creating new, digital-first markets while keeping costs (relatively) low can streamline efforts to scale worldwide. But there’s always the risk that new business models will meet the regulatory buzz saw.
In a ruling across the pond that is sure to have ripple effects across the globe, the United Kingdom’s Supreme Court ruled on Friday (Feb. 19) that Uber drivers in Britain should be classified as “workers” and are not self-employed. The distinction is an important one, because it has all sorts of implications for platform companies and for the operating models, which may suddenly be laden with a slew of new costs. Those costs in turn reduce cash flow, which in turn hampers the opportunity to take advantage of new growth opportunities.
As noted by the Associated Press, the ruling in the U.K. means that Uber drivers may now receive benefits such as paid holidays and minimum wage. Uber has 65,000 drivers in the U.K. Besides the legal back-and-forth that stretches back over roughly five years in Britain, which has focused on how the workers are classified, there are some finer points to consider. As reported by the newswire, the drivers, under the employee classification, would “be considered to be ‘on the job’ when they are logged into the Uber app … and ready and willing to accept rides.” Uber had contended that workers were only working when they were actually en route with paying passengers.
Delving into the U.K.’s decision, we read that “claimants were ‘workers’ who, although not employed under contracts of employment, worked for Uber London under ‘workers’ contracts’ … the claimants were working for Uber London during any period when a claimant (a) had the Uber app switched on, (b) was within the territory in which he was authorized to work and (c) was able and willing to accept assignments.”
Starting The Clock
This would have the impact of “starting the clock” earlier for operating expenses, before revenue (and cash) is generated. Bit by bit, individual by individual, the ripple effect would add up and ding Uber (or any platform firm) for a bit of its day-in, day-out cash flow. Uber has said the ruling would impact only a percentage of its workers in the U.K., not all of them.
But the buzz saw is a-spinnin,’ where legal decisions are codified in regulations. Here in the States, specifically California, Uber and other app-based ride-hailing services (and, by extension, other gig economy companies), got the nod by voters (through Proposition 22) to keep classifying workers as contractors rather than employees. As noted in the space back in November, the proposition would create a fund that would pay benefits, including healthcare and guaranteed minimum earnings. “In broad strokes, the funding would give drivers occupational accident insurance and can be allocated in stipends that can cover other, private health insurance depending on how many hours a week they work,” PYMNTS wrote.
The New York Supreme Court, Appellate Division, Third Judicial Department ruled late last year that Uber drivers can in fact be considered as employees. The end result may be that we’re headed toward a patchwork quilt of regulatory and legal considerations for companies that bring services/products and customers together in a fluid, on-demand environment, which could reduce the visibility of the business model.
Elsewhere, there are some more uniform efforts to help shape nascent markets, which gives tech innovators at least some concrete go-to-market and grow-the-market roadmap. CoinGeek reported that earlier this month, financial market regulators in France have urged the European Union to change how it regulates digital currencies and blockchain, with one body in place to oversee the industry. This month, too, in the U.K., a report by the Financial Conduct Authority (FCA), the Woolard Review, said that buy now, pay later (BNPL) credit agreements will be regulated by the FCA, where those firms have thus far been exempt from regulations.
There are rumblings on Capitol Hill that change may be coming to retail stock trading, which has been revolutionized (for better or worse) with the development of online platforms. As discussed at a congressional hearing this week that was detailed by CNBC, the practice that is known as “payment for order flow” has enabled commission-free trading. That’s been a key lure for “Main Street investors” to flock to sites such as Robinhood. Gamifying the purchase of stocks produces order flow, which is the fuel for Robinhood’s business model.
There’s a bit of an “inside baseball” debate over “best executions” and Robinhood’s agreements with Citadel Securities to route orders (and where Robinhood gets payments to route those orders). At its most basic level, a zero-commission model that is at least arguably subsidized by a “payment for order flow” component will have to adapt if that component is curtailed or eliminated.
The buzzsaw comes when entire business models must change, and when expense and revenue structures are changed overnight by mandate – yet the actual, real-world practice of “tweaking” those models takes time. No easy fixes lie ahead.
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