A possible change in the boundaries of the labour law system – A set of rights for the new tertium genus of independent proletarians

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Saggio pubblicato nella rivista Work Organization, Labour and Globalization, maggio 2018 – È un estratto della relazione svolta al congresso dell’Associazione Giuslavoristi Italiani a Torino il 15 dicembre 2017, Le conseguenze dell’innovazione tecnologica sul mercato e sul diritto del lavoro  .
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Abstract – The essay highlights one aspect of technological evolution which impacts on the labour market and, consequently, on our labour law systems: the advent of so-called labour platforms, entailing disintermediation in matching supply and demand. It examines the prospect development of the instruments aimed at ensuring platform workers minimum adequate occupational, financial, and welfare security.

Summary – 1. How new technologies, and specially the gig economy, impact on the standard structure of employment relations: the effects of reducing transaction costs. – 2. A possible change in the boundaries of the labour law system. – 3. Providing security to workers who render services directly to customers via digital platforms. – 4. A set of rights for this new tertium genus of independent proletarians. – References

 

1. How new technologies, and specifically gig economy, impact on the standard structure of employment relations: the effects of reducing transaction costs

One of the most visible effects on labour of the advent of new technologies – specially information technology and telematics – is the reduction, in some cases almost to zero, of the costs to be borne for overcoming the difficulty of finding target people and communicating at a distance. A typical tool of reduction in intermediation costs is the so-called labour platform: a virtual place accessible through the network, where each provider can be contacted at any time by someone interested in the available service, can be hired and also paid, on the basis of an individual negotiation or on the basis of a standard fee set by the platform manager (regarding this model of disintermediation, tried and tested on a global scale for the marketing of car rides by the company operating with the brand Uber, we now talk about uberization).

These platforms were created to allow direct communication between service providers and users: a disintermediation that, as we will explain better here below, causes immediate service improvement and cost reduction, to the advantage of the user of the service. But it may also allow a company operating in the concerned market segment (e. g., nursing or other type of assistance, as well as electrical, hydraulic, aerial or IT maintenance interventions at home) to find always the person available to render the service in the place and manner from time to time required. The same applies to cases in which a company directly uses some services as part of its own production process. Let’s think of a publisher who, through a platform, can have a network of experienced proof-readers: it is no longer needed to hire one or more of them as employees, and the performance of proofreading is guaranteed, just in time, only when production requires it. Likewise, through a platform, a postal company can always have a quite large network of carriers with their own car or motorbike or bicycle, ready to answer the call at any time and in the most convenient place.

In the field of the organization of passenger transport, or of collection and delivery services in urban areas, these platforms, nowadays, allow for a further reduction in transaction costs compared to what the radio connection with the central office had already started to allow in the 1980s with pony express jobs, where an indefinite number of “delivery boys/girls” could freely decide to make themselves available at any time and be contacted by radio to receive delivery missions. At that time, the question was asked for the first time about the substantial economic dependence of the people employed in that job, even if, under the contract, they were not obliged to answer the call by radio, and, therefore, their job was qualified under the law as free-lance; today the same question is raised again in a much greater number of cases and for a much wider range of services (just think, in addition to the services offered by the already mentioned Uber, to those rendered by companies like Amazon, Foodora or Deliveroo).

The phenomenon of the combination of several kinds of services performed by the same person by digital platform is also growing. These workers who are, so to speak, amphibians in platforms, are called slashers (from slash = the oblique stroke): for example, plumber/driver; or electrician/babysitter.

The number of people who work permanently through a labour platform is estimated as ranging from the 600,000 in the U. S. A. quoted by S. D. Harris and A. B. Krueger (2015) to the tens of millions worldwide quoted by R. Smith, S. Leberstein (2015): it is a still very modest portion compared to the labour force of countries with a modern production base. However, that number is rapidly increasing; it can thus be assumed that in the not too distant future, the erosion of the area of work that can be qualified as subordinate according to traditional criteria, and therefore protected by some coverage of insurance type is now raising a social problem of not secondary importance, requiring an adjustment of the protection system and in particular the definition of its scope. In the U.S.A. for these new employees the definitions have been proposed of dependent contractors or independent workers (the latter is the proposal of S. D. Harris and A. B. Krueger, 2015; see also, The Taylor Review of Modern Working Practices of July 2017), or of tempreneurs (World Employment Confederation, 2016, page 22): self-entrepreneurs who make themselves available for time work.

This new way of organising work can affect negatively the weaker half of the category of workers concerned as service providers. It should be noted, however, that at the beginning of the industrial revolution, despite the technological progress, the same weaker part was mostly excluded from the advantages deriving from it, that is, the reduction of the price of goods and services produced and the improvement of their quality. Today, on the contrary, the majority of the population can benefit from these advantages – whether it be transport services at a quarter of the price, or the possible delivery at home of a book that would be difficult to find otherwise, within three days of the on-line request, or of a pizza within half an hour of the telephone call. This should be taken into consideration in the evaluation of the social effects of the phenomenon.

As regards these organisational patterns, in which the work is rendered without time constraints and outside the company venues, we should also note a positive aspect, and not just the risk of the workers of losing protections and security: that is, the possibility they may have of regaining their freedom to organize their time between paid work and any other activity or non-activity for their family, social, and personal life. Such opportunity can be of great interest to all those who suffer from the state of time poverty to which workers chained to the rigid working hours of a traditional employment relationship are too frequently condemned; and it may be of special interest to women who bear the greatest burden of family care.

The disintermediation allowed by the labour platform, hence, makes it possible to transform the final provider, who until yesterday was an employee of the service provider, into a self-employed person. A first problem is that in this way he/she might be deprived of the insurance-type protection in case of sickness, maternity, invalidity, and old age; but also deprived of a “protection” little considered by scholars and observers and nevertheless very important, which in modern law systems is granted only to the subordinate employee: that is, the almost total exemption from a set of numerous and complex bureaucratic formalities, of which the employer is entirely responsible. In order to solve this problem, companies have been set up in Europe of the type of Smart, operating in nine different countries. They offer an employment relationship, even as subordinate employment, to workers who are actually self-employed and have their own customer portfolio or, at any rate, their own ability to come into direct contact with their clients, mostly through a digital platform. These companies provide them with social security coverage and with the execution of all administration formalities necessary to cash their compensations. However, these companies also perform the function of a mutual fund, since they are capable to provide continuity in income flows by making for late payment and paying off clients’ settlement defaults. In Belgium, for example, Smart has negotiated an agreement with Deliveroo, which provides for a minimum guaranteed compensation for cyclists (a kind of availability allowance) regardless of the number of deliveries made, a contribution for the use of bicycles and smartphones, and a possible contribution for the case of needed bicycle repair. Deliveroo itself pays these contributions to Smart, which in turn uses them for paying compensation and social security contributions, calculated as if they were relating to a job on call contract (this is not allowed in Italy, due to the tight limits imposed to this type of work contract). The same Belgian agreement provides – and this has been already fully implemented – that the same ID code used by Deliveroo for each cyclist is used for opening the worker’s position with Smart, thus simplifying all data and money transfer. In fact, the two platforms are capable to dialogue directly with each other, exchanging the necessary data for an organization that currently involves about two thousand people.

These organizations are commonly called “umbrella companies”. This is another interesting profile of the importance of transaction costs in the labour market, which we will soon come back to.

 

2. A possible change in the boundaries of the labour law system

For a better understanding of the ways in which the reduction of antagonisms and the risk-taking swap between the parties to the relationship, allowed by the platforms mentioned above, impact on labour law, we may consider the different ways in which the specific economic-social function of the dependent employment contract has been identified by two economists – F.H. Knight and R. Coase –  in the last century. The former observed that under a dependent employment relationship, the self-confident and enterprising party takes on the risk of the result of a productive activity of goods or services and sells security to the party who is more reluctant to risk, assuring her a continuous income in exchange for collaboration. Here the emphasis falls, evidently, on the insurance content of the employment contract, which becomes essential for its raison d’être. Conversely, the managing power of the employer on the employee is only a normal – but not essential – aspect within the contract, since the worker has a guaranteed income and does not particularly care on how and for what the work activity is performed, and there is no issue with leaving such decisions to the employer. R. Coase, on the contrary, identifies the essential function of the contract in the saving of transaction costs by the entrepreneur: by employing employees on a permanent basis, the employer acquires their availability to perform continuously a certain type of activity and to follow the employer’s directives. Otherwise, it would be necessary to enter into a new employment contract for each new requirement, that is, renegotiate at every step with the workers the ways for performing their services, to conform them to the changing needs that gradually arise, every day and time. Thus, “only one contract replaces a long series of contracts”. Here, the emphasis is placed on the employee’s subordination to the management power, while the insurance content is only a normal element of the contract, but not necessary: nothing would prevent, within this scheme, from combining the full subjugation of the service to the executive power of the entrepreneur with a remuneration linked in whole or in part to the actual productivity of the company organisation, or to its profitability, with consequent reduction or cancellation of the insurance content of the contract.

Since the first decades of 20th century, most European law systems have been oriented towards assuming as an essential element of the case to which labour law applies the full subordination of work performance to the executive power of the creditor – the Coasian soul, so to speak, of the contract of employment – placing instead the insurance content, its Knightian soul, among the mandatory due effects of the contract thus identified. The reasons for this choice by the legislator are well understood: the full subordination of the service to the executive power is a benefit for the entrepreneur; if she wants to benefit from it, the law imposes on the employer the insurance obligation towards the employee, combined with a minimum standard of remuneration. From the point of view of worker protection, the reverse scheme does not seem to make much sense.

However, the new applications of information technology and telematics mentioned at the beginning are now starting to change the factual framework in which, a century ago, that legislative choice matured. In the case of umbrella companies, for example, it is clear that the instrument of the durable employment contract, even in subordinate form, is mainly used to provide the person concerned with a set of insurance cover, without the “employer” having any direct interest in the work performance or in saving transaction costs. On the contrary, it is the same worker, and not the employer, who, by means of a subordinate employment contract with the umbrella company, pursues the reduction of the transaction costs for the collection of the compensation from the users of the service.

As regards the digital platforms for matching supply and demand, they alter the traditional framework by another crucial aspect: there are many productive organizations in which, the more the transaction costs necessary to find the necessary job and adapt it every day and time to the needs of the company are reduced, the more the entrepreneur’s interest in replacing a market relationship with a hierarchical relationship, i.e., to include the provider in the business organization, is reduced. The drastic reduction in transaction costs allowed by the platform therefore helps to put out of the game, so to speak, the scheme proposed by R. Coase to explain the employment contract.

In other words, digital platforms have now overturned the Coasian paradigm: while, according to that paradigm, a subordinate employment contract allows the entrepreneur to replace a series of innumerable contracts with a single contract, the platform, on the other hand, makes it possible to replace the single subordinate employment contract with a series of innumerable contracts, thus breaking the provider’s activity into a myriad of instantaneous or very short term contractual services. Unless an umbrella company is used to “reintroduce continuity in discontinuous services”.

It should be noted that, in all cases where the purpose of the employment contract is not a durable work activity, it is not conceivable to impose an insurance content as the binding content of the contract itself. If, therefore, the share of labour force using the “platforms” will begin to be measured with double-digit percentages, this phenomenon will call into question, much more than has been questioned up to now, the choice of subordination as a fundamental and almost exclusive case of reference for the protective system. The area of subordinate work will coincide less and less with the area in which the protection of the legal system is necessary, not only because subordination is compatible – this has been observed for some time now, especially in the management area – with positions of considerable contractual force of the service provider; but above all because, on the contrary, the area will be more and more large of workers who can be qualified as “self-employed”, but perform functions traditionally typical of the subordination area. New technologies facilitate their exit from the subordinate work area, but do not make their protection needs disappear. Out of these providers, the half which is professionally stronger will have few problems: indeed, open competition with others will allow them to highlight their higher productivity; but the weaker half will no longer be protected by the collective standard of treatment that has worked so far, somehow efficiently, in the field of subordinate work. Also because the mechanism which made possible the functioning of that collective standard presupposes that the recruitment of workers takes place to some extent “under the veil of ignorance” about the quality of their performance, so than gives rise to a durable contract and when, after a certain period of observation, the quality of the individual performance becomes known, the replacement of the less efficient worker is hampered by an adequate cost for dismissal. It is immediately evident that it is impossible to operate this mechanism when a work activity is carried out through the digital platform and broken up into a myriad of very short duration relationships. Even more so because the platform itself allows each user of the performance to know the previous users’ judgement on the quality of the performance itself.

Since these are the destructuring effects of the labour platforms on the traditional protective system, it is not absurd to hypothesize that, when this form of work organization will begin to involve significant portions of the production base in the services sector, the legislator can solve the problem by moving from the Coasian notion of the standard case of reference of labour law to a notion closer to the Kightian approach: that is, it can establish that a protective system applies where there is an evident need for security of the provider, regardless of the full subordination of the performance to the managing power of the employer. At that point, the instrument providing protection can only be different depending on whether the new organization of work can do without subordinate employment, by breaking the activity into a myriad of direct relationships with individual users made possible by a digital platform, or whether instead the constraint of subordination is overcome by means of forms of technological/telematic remote connection between the provider and the rest of the company organization, but still within a contractual relationship of appreciable duration.

As for the second case (the one in which work outside the company’s perimeter will continue to be subject to a durable relationship with a principal), this objection can be expected to be raised: “in the relationship between a party, the creditor, who is inclined or indifferent to risk, and a party who is typically risk-averse and therefore interested in the insurance content of the employment relationship, it is not necessary to impose that insurance content by means of a mandatory rule, since the very different way in which they look at the risk will lead the parties to negotiate the optimal distribution between them, with the corresponding reward for the employer, which takes the risk, in terms of lower hourly cost of work”. The answer to the objection lies in the models proposed by modern labour economics, which show that the asymmetry of information about the extent of risk associated with the personal characteristics of the individual provider does not allow a free market to determine the optimal allocation of risk (see among the first on this point: P. Aghion and B. Hermalin, 1990).

 

3. Providing security to workers who render services directly to customers via digital platforms

The debate that began at the end of the 70’s in Italy (G. Santoro Passarelli, 1979) about the need to expand employment law’s scope of application had focused above all on the possibility of including in it the work carried out in a condition of substantial dependence on the principal, even though in the absence of a full subordination: the “parasubordinate work”. Since then, the attention of the labour law specialists on the area of collaborations characterized by continuity and coordination, but without the proper characteristics of subordination, had focused on the possible attribution of a legal significance to the concept of “economic dependence”. And there has always been a broad consensus on the point that what should be considered as an essential element of this concept is an appreciable length of time of the relationship between principal and provider, without which any construction of “dependence” of the latter to the former seemed inconceivable. Now the technological developments that were mentioned at the beginning lead us to focus on the need to protect people who, through digital platforms, come into direct contact with the final users of their services; but they do not have a long-term relationship with a single principal in a dominant position: their work is distributed over a myriad of relationships with individual clients.

Here the raison d’être of a protective action is clearly no longer an “economic dependence”: these workers draw their income from the relationship with a plurality of clients, operating directly in a market that is competitive on both supply and demand sides. Their weakness is not due to a distortion of the market, or any dysfunction of it, but is the direct consequence of the low professional content of their work. At the same time, the market in which they operate puts them in a permanent comparison with those who offer the same services, and therefore exposes them to the “competition stress” that all forms of collective self-protection typically tend to limit, in the field of traditional subordinate work (F. Cascio, R. Montealegre, 2016, 357). And the fact that their work activity is broken down into a myriad of very short-term, if not instantaneous, relationships makes it structurally impossible to place within one single relationship some mandatory protections, such as the limitation of the temporal extension of the service through a day, week or year, the right to daily, weekly, and annual rest, or paid sickness leave. The translator, proof-reader, electrician, aerial operator, bellboy, nurse, when they become “entrepreneurs of themselves” offering their work directly to users through the platform, continue to do the same work that until yesterday they did for a single entrepreneur able to valorise it in the market, but lose the insurance cover that only the relationship with that one entrepreneur can offer them in a direct way.

The disintermediation allowed by digital platforms, therefore, brings a net and indisputable benefit for the users/consumers, granting them precise information on the quality of the service and lowering its cost; the effect of disintermediation for the worker, on the other hand, has two faces. It frees workers belonging to one of the many sectors of personal or business services from the need to become part of an entrepreneurial organization capable of organizing and enhancing their performances. But, far from freeing them, it subjects each of them even more than before to the comparison with other workers who perform the same activity, to the knowledge of the quality of the work performed up to that moment, therefore to an assessment potentially more and more analytical and penetrating by potential users. The disintermediation through digital platform rewards them, in this way, more precisely for their merits; but also chains them to their defects, whatever they may be, making them easily known and making them pay the full cost of any defect almost immediately.

When this is the case, protective action, to be effective and not to generate distortions, can no longer take the form of a mandatory regulation of the individual employment relationship of short or no duration, except for the establishment of a universal minimum hourly wage providing its amount is determined with careful prudence. But this measure can only be applied in cases where the work performance is measurable on the basis of its temporal extension.

From the point of view of the essential protection of this form of work, it is first and foremost necessary to eliminate – wherever there are any, as in Italy today – the legal obstacles that prevent the stipulation by the worker of a permanent employment contract with an umbrella company. In countries where, on the contrary, this contract is used on a regular basis, this is mostly entered into, as we have seen, in the form of the job on call, which allows for the size and frequency of remuneration in relation to the size and timing of work. In the case in which, instead, the person working through the digital platform does not make use of an umbrella company, the problem arises of how to guarantee social security cover for disability, old age and accidents at work. To solve this problem, in Italy a bill was recently presented (Senate, October 4^th 2017, n. 2934) which foresees the salary payment through a sort of virtual voucher issued by the digital platform managed by the public welfare agency (INPS) for the payment of salaries for occasional house-keeping work: the voucher, which incorporates the social security contribution, is exempted from income tax (but it is necessary to report the wages received in this way in the annual income tax return, when they are higher than a certain amount). This would allow monitoring of compliance with the universal minimum salary standard where applicable, and ensure full transparency of the relationship.

Moreover, the most important protective action – if implemented effectively, through the right incentives and with mechanisms of accurate control of results – is the provision of personalized services to those concerned, capable to identify the specific problems of each member of the “lower half of the category” – meaning that part of the category which, in terms of productivity and income, is below the average for that category, i.e. the weaker part, – therefore, to increase their skills and productivity of work, enabling them to gain a higher overall income from the work itself.

It is also possible to think of issuing rules that impose the necessary impartiality and transparency in the functioning of the digital platform, preventing it from being surreptitiously used for the benefit of one group and to the detriment of another.

What should not be allowed for, however, is the creation of barriers to entry and minimum professional fees other than the universal minimum wage standard that has just been mentioned. Those minimum fees would not be justified by some market failure, i.e. would not correct any distortion of monopsonistic nature or resulting from any asymmetry in information flows, which are corrected by the digital platform. They, hence, would have the sole effect of dividing the workers in the sector concerned between insiders and outsiders, protecting the interest of the former against that of the latter. In other words, we should be careful not to use a re-edition of measures typically aimed at correcting a monopsonistic market, which would now vanish the most positive effects of disintermediation by digital platforms. The first of these benefits is the “space created for outsiders and dropouts”, the possibility for “many little Davids […] with their small slingshots [to] defeat the great Goliath of their times” (A. Belloni, 2017, 5). Another benefit is the replacement of a certified expertise and reliability, exclusively obtainable through the enrolment into a counsel, roll or list, after passing an examination once for ever, with a day by day statement of expertise and reliability resulting from the reviews – recorded and spread on the web – of the final users of the service, being this review adjustable any time in the event that the performance was not satisfactory. In this new market, every worker, as need be, should be helped in a factual and effective way to overcome any defects, to fill any professional gaps, to switch to new functions where necessary or appropriate; but not to escape the new forms of evaluation and selection that are characteristic of the market structure itself, which would be impossible anyway.

 

4. A set of rights for this new tertium genus of independent proletarians

As we have already seen, with reference to the new types of workers of the gig economy in the U.S.A., S.D. Harris and A.B. Krueger (2015) propose that the law system acknowledge an intermediate type between that of the traditional employee and that of the self-employed worker, which they propose to indicate with the term independent workers: a type that, according to the two economists, should be exempted from antitrust discipline, since they should be entitled to coalition and collective autonomy at company level, where there is a plurality of suppliers of the same service to the same principal. This category should also, according to the two economists, be helped by law systems to obtain at least a basic social security protection. Differently from the protections provided by traditional labour law, aimed to adjust the typical distortions of a monopsonistic market, those provided in this case are essentially aimed to have some support granted by the system to objectively disadvantaged people. What S.D. Harris and A.B. Krueger propose, hence, has little to do with the elaboration of European labour law doctrine on the subject of parasubordination: the new category they refer to is not characterized by a position of substantial dependence from a principal who is in a dominant position. The weakness of independent workers and their consequent need for protection is essentially due to the abundance of competing labour supply and the difficulty of the weaker subjects to differentiate by quality their performance. And it is essentially on this ground that they must be supported, helped to get stronger.

There are some delays in the Italian debate in this area: this new tertium genus comprising “independent proletarians” has not yet been precisely focused on.

When, five years ago, Law n. 92/2012 (so called Fornero law) was adopted, Italian law makers decided to enlarge the applicability of general labour law to workers in a position of economic dependence from the principal, there was still a very limited, not to say none, awareness of the issues that labour platforms were going to raise in the field of employment policies (Uber was born only three years earlier, in 2009, and was still taking its first steps in the very limited sector of luxury car transport).

As a matter of fact – in consideration of the need to protect weak workers operating in the context of ongoing relations with their principals – that choice was made by Italian law makers through Law no. 92/2012, which substantially extended the area of application of labour law protection to all relationships characterised by continuity, single-market and low income, even in the absence of the element of subordination in the strict sense. Less than three years later, however, by article 2 of Legislative Decree no. 81/2015, the Italian law makers changed their way, repealing the rule set up in 2012 and extending the area of application of labour law protection to durable relationships that are to be performed inside the company venues and subject to time constraint, even if without subordination. By this new summma division, Uber car drivers, the deliverers of Foodora or Deliveroo and the other protagonists of the gig economy are almost all excluded from the area of application of traditional labour law.

We are now facing again, thus, and very importantly, the issue of this new tertium genus, in large part different, sometimes very different, from the figure of the traditional coordinated and continuous collaborator: it will be worth taking into consideration, hence, the mentioned proposal of S.D. Harris and A.B. Krueger. The same trend is observed in case law regarding work through digital platforms in the UK, where a decision of the Royal Court of Justice (Pimlico vs Smith, 10^th February 2017) and another of an Employment Tribunal (Uber vs Aslam, Farrar et al., 28^th October 2016, confirmed by the Employment Appeal Tribunal on 10^th November 2017) have recently qualified as workers under the Employment Rights Act 1996, but not as employees, a plumber working with the Pimlico chain and some Uber drivers. In the UK too, hence, this type of work organisation is starting to be classed as a tertium genus, separate both from traditional subordinate employment and from independent work.

This approach is probably also intended to exorcise the risk – which is, moreover, much more serious in continental Europe than it is beyond the English Channel or across the Atlantic – that by the inclusion into labour law the new forms of work that are under discussion may be stifled rather than protected.

 

References

409. Aghion e B Hermalin, Legal Restrictions on Private Contracts Can Enhance Efficiency, in Journal of Law, Economics and Organization, 1990, no. 2, pages 381-409.
410. Belloni, Uberization. Il potere globale della disintermediazione (“Uberization. The global power of disintermediation”), Milan, Egea, 2017.
411. Cascio, R. Montealegre, How technology is Changing Work and Organisations, in Annual Review of Organizational Psycology and Organizational Behaviour, 2016.
412. Coase, The Nature of the Firm, in Journal of Law, Economics, & Organization, 1988. A translation into Italian was published in R. Coase, Impresa, mercato e diritto (“Business, market and law”), collected by M. Grillo, Bologna, 1995.

S.D. Harris, A.B. Krueger, A Proposal for Modernizing Labor Laws for Twenty-First-Century Work: The Independent Worker, The Hamilton Project, Discussion Paper, December 2015.

F.H. Knight, Risk, Uncertainty and Profit, Chicago-London, 1971 (originally published in 1921). Its translation into Italian has been published: Rischio, incertezza e profitto, Florence, 1960.

1979. Santoro Passarelli, Il lavoro “parasubordinato”(“Parasubordinate work”), Milan, Angeli, 1979.
1980. Smith, S. Leberstein, Rights on demand: Ensuring workplace standards and worker security in the on-demand economy, National Employment Law Project, New York, 2015.

World Employment Confederation, The Future of Work – White paper from the employment & recruitment industry, September 2016.