Important UK and US legal developments for online staffing and sharing economy platforms

Written on 23 Mar 2015

Last year we participated in the consultation phase of Debbie Wosskow’s independent review of the sharing economy commissioned by Matthew Hancock MP, on behalf of the UK Government.

The report entitled ‘Unlocking the sharing economy’ contained a series of recommendations relevant to online labour exchanges/work platforms. We gave our views on the regulatory issues facing the sector and have been hoping the report will loosen the regulatory burden affecting the online staffing and related sharing economy platforms.

The Government’s response to the independent review was published last week but what does the response mean for online labour exchanges/work platforms?

Helpful responses

  • ID verification: the Government seems keen to open up the central government online ID service so that it can be used by online platforms.
  • Disclosure and barring regarding criminal records: the Government seems keen to allow platforms access to digitised records.
  • HMRC guide for consumers should deal with tax implications of what they earn via a platform: the Government is going to draft online guidance and consult about developing interactive tools to help individuals work out their tax position.
  • Government labour exchanges should encourage work seekers to use online platforms to find assignments.
  • Whether skill sharing platforms pay a living wage (£9.15 in London and £7.85 in rest of the UK – about 50% higher in London than the current National Minimum Wage) will be a matter for the platform rather than legislation.

Not such good news

  • No exemption from recruitment regulation for online platforms. The Government has said it will not create an exemption for platforms, and it has confirmed that it is unlawful for platforms to charge worker seekers for work—finding services. The Government’s concern seems to be that it would be impossible to create an exemption without creating an uneven playing field for bricks and mortar recruitment companies.
  • The Government also seems to have concluded that online platforms do effectively carry out “search” using search engine methodologies, and as such they cannot argue they are merely passive media outside the ambit of recruitment regulation. UK recruitment regulation will therefore apply (in the view of the Government) and this regulation currently compels checks on certain types of worker, prohibits charges to work-seekers, requires certain health and safety checks and prohibits the platform from acting as a payment intermediary in certain situations. This regulatory regime is at odds with the commercial models of many online platforms including some of the best known networking sites and online staffing platforms.

What is not covered by the Government’s response?

  • Clarification/simplification of VAT status of supplies via a platform (European law, so hard to change)
  • HMRC guide for platforms about what income tax and NICs liabilities they may have (e.g. under the Intermediaries legislation etc. which is the UK equivalent of worker misclassification legislation).
  • Clarification /simplification of Payment Services Regulations status of supplies via a platform (European law, so hard to change)

What else is happening?

  • There is a parallel review by the UK government of UK recruitment regulation, which may relax some of the regulatory regime for all recruiters including online recruiters. The proposals have been drafted and are awaiting ministerial approval which has been due for some time. It appears this review will NOT now include an exemption for jobsites, job boards, online exchanges and platforms.
  • If the platforms operate as payment intermediaries, that brings into play the Payment Services Directive and related Regulations. The exemption that appeared to allow platforms to act as payment intermediaries may no longer apply in Germany or France and in due course the UK – this is an important area of development for online platforms.

Our view is that:

  1. The payment intermediaries legislation and legislation seeking to minimise false self-employment via intermediaries/platforms are unlikely to be relaxed significantly. This leaves work sharing platforms and online exchanges with some risk of being liable to income tax and social security (PAYE and NICs) relating to workers who work via their sites.
  2. Platforms which operate as payment intermediaries appear likely to be subject to the Payment Services Directive and related Regulations at some stage in the future in the UK and possibly already elsewhere in the EU.
  3. Platforms are going to need to look closely at how the UK regulators enforce recruitment regulation and possible operating models which fall outside the regulatory regime. It is not an area in which risks can easily be taken because breach of UK regulation is a criminal offence. To the extent that charging arrangements are illegal the income of the platform may be the proceeds of crime (which takes all who deal with the platform into an area of serious criminal liability).

What about the employment status of workers who work via online platforms?

In a separate development in the US, judges in two independent contractor classification suits last week (relating to Uber and Lyft) looked at the employment status of the drivers. The cases can have far-reaching repercussions for online platforms and hirers that use them and self-employed service providers.
Drivers for Uber and Lyft sued each company, alleging they were misclassified as independent contractors (i.e. without employment status). The judges in each case noted the facts tended to lean more heavily toward the workers being employees, but still sent the cases for juries to make the final determinations. Factors that the Courts generally have to look at in these cases include the extent to which the platforms “ensure” quality. If they take steps to give reassurance to hirers about the quality of service the hirers will receive does that have connotations of the platform actually having “employer” characteristics?

This follows other high-profile lawsuits in the online staffing arena. And while the plaintiffs in these cases are drivers suing the platforms that send them out, the principles could apply to any online platform involving an element of personal service relating to tasks. Hirers can also find themselves on the hook for tax and social security liabilities and penalties, and so the financial implications could be very substantial.

These cases highlight the importance of drafting rules and expectations for users of platforms carefully and in the UK, the related risk of PAYE and NICs tax liability for platforms under the Intermediaries Legislation must be addressed in the platform’s terms and conditions. HMRC would, we assume, prefer to only have to chase the platforms for income tax rather than each worker individually.

There is good news however – in another case, involving an online platform and a worker in New York, the platform (industry leader elance-oDesk) was dismissed from the lawsuit and deemed free of all liability in the case less than two months after the company was served with proceedings.