EU May Regulate How Gig Platforms Use Algorithms

The European Union announced on Dec. 9 a legislative package with proposals to improve the working conditions of people using digital labor platforms. While many platform workers are truly self-employed as defined by the new proposed rules, there are an estimated 5.5 million people working in the EU through digital labor platforms who they believe may be incorrectly classified as self-employed. This legislative package aims at reclassifying these workers and providing them with additional employment rights, such as paid holidays or a pension.

Most of the media attention has focused on the legal presumption established by the European Commission that “a person performing platform work through [a] platform shall be legally presumed to be an employment relationship.” This is likely to have a direct impact on the labor costs of ride-hailing companies such as Uber or Cabify, as well as delivery companies such as Deliveroo or Glovo.

See also: EU Gig Workers Could Be Reclassified as Employees

Yet, the proposed legislation also introduces new regulations for algorithmic management, which may have a compound negative effect on some of these companies.

The proposed directive would require digital labor platforms to ensure human monitoring of automated systems and to establish appropriate channels for discussing and requesting review of such decisions. These obligations don’t go so far as to prohibit the use of automated systems or artificial intelligence (AI) to hire, terminate or modify workers’ employment status, but could significantly limit how these platforms use automation to manage a global, remote workforce at scale.

The directive establishes that humans will have to review certain decisions if requested by workers and override them when appropriate. While the objective to provide additional protection to workers is sound, how it is executed could create an unnecessary burden on companies, particularly small to medium-sized businesses (SMBs). In addition, automated systems may provide valuable data not only to streamline processes, but also to better evaluate employees when used correctly, including the possibility of awarding promotions or rewarding top performers.

The proposed rules grant platform workers “the right to obtain an explanation from the digital labour platform for any decision taken or supported by an automated decision-making system that significantly affects the platform worker’s working conditions.” The platform will have to appoint enough personnel to provide a written statement of the reasons for any decision taken by an automated system. Additionally, the worker could request further explanations and have the decision reviewed within a week.

Unlike other EU proposals, like the Digital Markets Act, which limits the scope of the law to certain companies with billions of euros in annual revenues, this proposal doesn’t establish any minimum threshold to fall under its remit. This proposal risks having an effect similar to the EU data protection regulation, GDPR, which reinforced the market position of big companies, the only ones with the resources to comply with the law.

Furthermore, the combined effect of reclassifying workers as employees and the human supervision of the automated systems may have a chilling effect on innovation. This proposal doesn’t regulate most aspects of an employment contract, which falls under the supervision of national authorities. Therefore, under this proposal, it is likely that employers will have to design automated systems that comply with labor laws across member states, as well as the monitoring requirements established in EU law. This may represent an insurmountable hurdle for startups that may need to seek significant additional funding just to comply with regulatory requirements.

This directive is the second EU legislative proposal this year that regulates or imposes some limitations in the establishment and operation of automated systems based on algorithms and artificial intelligence. In April, the European Commission proposed a new regulation to harmonize the different rules across member states on AI.

The legislative proposal on digital labor platforms will now be submitted for discussion to the EU Parliament, where amendments may be introduced. Once the text is approved and published, member states will still have up to two years to implement it into national law. Thus, it is expected that the impact on the companies operating in the EU likely won’t materialize until 2023. This regulation won’t be applicable in the U.K. as it is no longer a member of the European Union, but the U.K. Supreme Court and the High Court issued several rulings earlier this year establishing that Uber drivers are considered workers, possibly clearing the path for new legislation in the same direction.