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ESG Sector Review: How the Gig Economy is Changing the Labour Market
In this article, we review the gig economy, the evolution of labour regulations for the gig economy and how companies are implementing good labour welfare practices for their gig workers.
In a gig economy, workers take up part-time or freelance positions which are often activities outside of a standard, full-time employment contract. Work within a gig economy is often transacted in a digital market; advertised, paid, and rated through technological means. The International Labour Organisation (ILO) classifies the gig economy into two broad categories: online web-based platforms (e.g. tasks like data processing, transcription, and programming that can be remotely performed anywhere), and location-based platforms (e.g. tasks like ride-hailing and food delivery that are mediated through digital platforms to match real-time supply and demand of services)1.
Gig workers tend to be younger, less educated and from ethnic minority backgrounds2. Gig workers prefer gig work due to the flexibility and autonomy it offers. However, gig workers are not always classified as employees but instead classified as independent contractors or self-employed, depending on the industry and nature of the gig work. Therefore, gig work lacks the security, benefits and protections that come with employment.
In particular, labour welfare issues associated with the gig economy were particularly exacerbated by the rise in gig platforms (an increase to over 777 in 2020 from 142 in 20103) and the COVID-19 pandemic which catalysed the demand for food delivery services. For example, the debate around the employment status of gig workers poses potentially legal and regulatory risks: there have been more than 10 court decisions and 15 administrative decisions to date on this topic4. Due to the hazardous nature of the work, the safety of delivery riders for food delivery companies is another topic that has gained attention; research found that nearly 47% of food delivery riders had been injured at work or knew someone who had been injured at work, due to a combination of factors including “unrealistic time and performance pressures, combined with high-risk work environments, and lack of training and appropriate protective equipment”5.
Regulations on the Gig Economy
In the US, at the state level, California signed Assembly Bill 5 (AB5) into law, which extends the employee classification status to gig works. Several companies, including Uber, Lyft and DoorDash financed a ballot initiative of more than US$200 million, known as Proposition 22, to exempt app-based ride-hailing and food delivery riders from AB56. Proposition 22 received 59% favourable votes in November 2020 but was subsequently judged unconstitutional by a Californian judge in August 20217.
In the EU, the EU Commission published a proposed Directive on improving working conditions in platform work in December 2021. The proposed Directive aims to correctly determine the employment status of people working through gig platforms and to enhance the transparency of the use of algorithms on gig platforms for distributing services and remuneration8.
The proposed Directive is going through the legislative process and may still be amended. If it is adopted, EU countries will have two years to transpose it into national laws, which means that it would enter into force in 2024 at the earliest. The EU Commission estimates that “up to five and a half million people working through digital labour platforms could be at risk of employment status misclassification”9.
In China, top government authorities made landmark announcements about the food delivery industry, including the Guiding Opinion on Implementing Internet Food Platforms Responsibilities and Protecting Food Delivery Riders Rights (关于落实网络餐饮平台责任切实维护外卖送餐员权益的指导意见), and the Guiding Opinion on Protecting New Employment Workers' Protection and Rights (关于维护新就业形态劳动者劳动保障权益的指导意见) in August 2021. The Guiding Opinions acknowledged for the first time the existence of workers outside the social insurance construct.
The Guiding Opinions focused on two issues: worker protection and social insurance. With regards to worker protection, food delivery companies are required to disclose their worker protection practices, e.g. explain the work performance evaluation system for riders, unionisation of riders, and assume responsibility for work-related accidents and labour disputes. With regards to social insurance, food delivery riders are to be classified into dedicated riders and crowded sourced riders and the respective classifications would determine their employment status and eligibility for social insurance.
Eligibility to social insurance
Workers who are managed by delivery partner companies contracted by digital labour platforms can be further classified as:
Delivery partner companies and labour agencies are required to enrol food delivery riders into China’s social insurance scheme and offer benefits including holidays and occupational safety measures
Workers who are willingly working for digital labour platforms on a freelance basis. Crowdsourced riders do not have formal employment contracts.
The Guiding Opinions did not specifically mention whether social insurance is required for crowdsourced riders.
How internet platforms are implementing good labour welfare practices
Regardless of whether it is mandated by law or whether a gig platform has a contractual employment relationship with gig workers, companies should implement good labour welfare practices not only as a responsible business but also to maintain driver retention to support the growth of the company.
Meituan recently released the 2021 Social Responsibility Report of Meituan Delivery Personnel Rights Protection10, which laid out steps Meituan has taken to help its delivery riders. For example, 15 cities in China are piloting a new incentive mechanism where delivery riders who receive bad reviews (e.g. due to not delivering food or packages on time) will be punished with a lower score on the platform instead of a penalty. By evaluating the service quality of delivery riders based on scores accumulated on the platform throughout a whole month, this new mechanism aims to reduce any incidental impact on delivery riders’ income. In Shaoxing, one of the 15 pilot cities, nearly 80% of riders are satisfied with the new incentive mechanism rules and think that the distribution experience has been improved.
Grab also offers benefits to its gig workforce through various initiatives:
- Financial support during COVID-19: Grab launched a “Partner Relief Fund” to help its partners, including the gig workforce, who got severely impacted by the pandemic. Through matching donations at 1:1 for every dollar raised by its regular employees, the fund raised US$600k for its drivers.
- Financial empowerment: Grab formed Grab Financial Group which provides "financial services and solutions to address the needs of drivers and merchant-partners and consumers, including digital payments, lending, insurance, and wealth management". Grab's driver-partners, including food delivery agents, are covered by Grab’s Group Personal Accident insurance policy that is provided free of cost.
- Training and upskilling: Grab offers training under the “GrabAcademic” initiative to its drivers to improve overall literacy capabilities.
The employment model of the gig economy is fundamentally different to that of traditional employment. With the rise in internet platforms, the demand for associated services from gig workers, particularly food delivery, has and will continue to increase. As gig workers become a new form of employment globally, labour welfare issues of gig workers are brought to attention by regulators and investors alike.
Whilst we see an evolution of labour regulations in different jurisdictions, some moving to reclassify gig workers as employees and some developing a hybrid model, companies operating globally will have to navigate the specificities of each country’s labour laws. We also see and expect companies to proactively implement good labour welfare practices for gig workers not only as a responsible business but also to maintain worker retention to support the growth of the company.
April 21, 2022
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