Why the Self-Employed Present Challenges for Labour-Policy Design in a Changing World of Work
Text: The Policy Lab Digital, Work & Society at the Federal Ministry of Labor and Social Affairs
In an increasingly digitalised labour market, the lines between working as an employee and as a self-employed person are often blurred. For this reason, the design of labour and social policy provisions in relation to solo selfemployment is increasingly becoming a focus of labour policy debate, especially where the platform economy is concerned.
The distinction between employees and the selfemployed has become established in the labour policies of industrialised countries either as a basic decision or as the central point of access to workers’ protection rights. In addition, a number of legal systems have extended certain rights to certain groups of self-employed which are normally afforded to employees. The distinction between dependent employment and self-employment is not always clear and is usually the result of an interplay between legislation and case law. Under German law, the characteristic of the individual’s status within the (work) organisation – including whether they are required to take instructions from a third party, the employer – is of key importance when determining their classification either as an employee or as self-employed. This is of central importance because the status of employee or worker is, as a rule, linked to the application of regulations for the protection of employees as well as the provisions of social security law at national and EU level.
For some time now, there has been evidence of an ever-increasing grey area between the two classifications in practice. Most work activities can be carried out on both a self-employed and an employed basis.1 Often these are activities ‘which were originally carried out in the context of an employment relationship and are now outsourced or procured elsewhere as a result of new technological possibilities’.2 And when it comes to crowdworking, elements of market-based and organisational management do not merely mix but can potentially interact with each other in such a way that it gives rises to something new.3 In the literature, there are thus increasing indications that the group of selfemployed active in the platform economy should not be equated with the traditional self-employed groups such as doctors, lawyers or engineers.4
In addition to digitalisation as the basis for the business model, a special feature of the platform economy is its many different manifestations. This raises the question of the labour and social security law classification of individuals who either work on or are placed via platforms.
„Mostly, platforms do not want to act as employers. On the contrary, they usually expressly reject being classified as an employer, as in their opinion employer status is not compatible with their chosen business model or would even lead to its collapse due to a lack of economic profitability. “
Mostly, platforms do not want to act as employers. On the contrary, they usually expressly reject being classified as an employer, as in their opinion employer status is not compatible with their chosen business model or would even lead to its collapse due to a lack of economic profitability. At the same time, platforms that broker work or services or which themselves use (solo) self-employed persons via subcontracting generally set out the contractual conditions for the service providers unilaterally in the form of general terms and conditions. They thus influence the way the contract is performed; the degree of influence being fluid and varying depending on the platform concerned. Also, the nature and scope of the interaction between the service providers is often prescribed. In this respect, the activities of many platforms go beyond the mere brokerage activities of providers who, in their own estimation, offer a purely intermediary service – for example, by making stipulations as to pricing and also as to other details such as task placement, processing and quality assurance.
Apart from a few cases with a clear tendency to go beyond the norm and in which bogus selfemployment is at least probable, most platform work is likely to involve self-employed people – often in the form of solo self-employment, meaning the individual works alone and has no employees. Certainly, in cases where platforms do not limit themselves to a pure intermediary activity, the question arises as to whether, given the particularities of the platform economy, the platforms’ activities in fact lead at least in part to platform workers needing comparable protection to that of employees and whether the legislator should take appropriate action.
Although platform workers are not directly bound by instructions as would be the case in an employment relationship, in many cases they are subject to external influence in a similar way to employees, with the work and placement processes often being managed with the support of technological applications. As a result, responsibilities and hierarchies become blurred, and classic direct instruction is replaced by an indirect app-based management process. The work reality and work processes of a platform worker thus often differ only slightly from those of dependent employees working on platforms with a comparable range of services. The legal literature thus stresses that, in practice, the different type of employee status does not go hand in hand with a clear difference in the need for protection.5
Markets and platforms
This lack of autonomy is reinforced by the special features of the platform economy business model. Platforms create markets and market access by digitally pooling supply and demand in certain areas of activity and by ensuring, through scaling and network effects, that much of the work performed in the platform economy can be offered to platform workers in sufficient volume. But at the same time, they stipulate the conditions for participation in the relevant market. They organise access and take over the sale and use of the work results.6 In extreme cases, this can lead to a situation where other than on platforms, platform workers have no independent access to the respective goods and services market: although in theory it would be possible for them to engage in work outside platforms or via platforms that play a less dominant role in the market, in practice this option is not (or ceases to be) viable, due to the lack of sufficient demand.
This is reinforced by platform operators’ tendency towards market dominance, which is at least in part already inherent in the platform economy business model and is structural in nature:7 for platforms to fulfil their central economic function of bringing together supply and demand, the amount of data available on both suppliers and purchasers, for example from previous transactions, is of key importance. The greater the platform’s reach, the better the match. Above a certain size, competition may no longer be possible in a meaningful way, as new platforms entering the market may not be able to provide a qualitatively equivalent or competitive service due to their lack of access to the data required.8
„Although platform workers are not directly bound by instructions as would be the case in an employment relationship, in many cases they are subject to external influence in a similar way to employees.“
The triangular relationship inherent in the platform economy, irrespective of the specific business model, also has an amplifying effect. This relationship increases the uncertainty for platform workers as they run the risk that the client position is adopted – or at least shared – by a third party who is not party to the contract.
Finally, platforms generally have the power of disposal over data arising in connection with work performed – in particular customer-bases and evaluations of the platform worker’s services, which are essential in the event that a platform worker moves to another platform or leaves the platform economy business model. This results in a lock-in effect, which can lead to dependence on a specific platform.
Diverse platform types from a European perspective
Issues concerning labour and social protection for solo self-employed when performing platform work are now being widely discussed at international level.9 Self-employment is a relevant factor in the world of work in countries across the European Union (Figure 1). This includes the German labour market (Figure 2).
The importance of platform work in terms of its prevalence is still being researched. In 2017, the Joint Research Group (JRC) of the EU Commission conducted a Europe-wide survey on the prevalence of platform work. A total of 32,409 people from 14 EU Member States took part in the online survey which targeted internet users. Figure 3 presents different measures of the prevalence of platform work. About 10 per cent of respondents stated that they have offered platform work at some time or other. Across the various countries, the proportion varies between twelve and six per cent. When it comes to online work at least, taking up platform work is not subject to any major requirements. Further research is therefore needed to assess the extent to which such platform work makes up a significant part of the respondents’ employment. Measured by the number of hours and the income level, platform work only plays a more significant role for a relatively small number of platform workers. In total, less than six per cent of respondents spend at least one quarter of a 40-hour week on platform work and just under six per cent earn at least one quarter of their income from platform work. Finally, around two per cent of respondents say that platform work is their main source of income.
In addition to the comparable need for protection as a justification for specific regulatory provisions in relation to the platform economy, there are also societal aspects that must be taken into account. Platforms that work with self-employed service providers can exploit competitive advantages over platforms with comparable business models that use dependent employees as they have higher operating costs, not least due to the social security contributions they pay for their employees. This can be a decisive competitive advantage: the lower (labour) costs in operating the platform mean that they can offer a more favourable service to customers and thus gain a bigger market share than their competitors. Greater market shares in turn lead to a larger dataset, thus increasing the chance of developing better algorithms – a key criterion in the platform economy. Increased platforming could also reinforce the trend described above of outsourcing work that used to be carried out in employment relationships to the solo self-employed, thus having a negative impact on both the contribution base and the stability of social security systems.
„The mere fact that the platform economy has not (yet) become a mass phenomenon does not prevent the legislator from creating specific rules for this new way of matching labour market supply and demand.“
Even if platform workers are often officially seen as self-employed for the purpose of labour and social security law provisions, and are thus deemed to officially enjoy contractual freedom, this is often not matched by real (substantial) contractual freedom due to the issues described above. The opposite is actually the case in that the factors described earlier lead to a structural shift in the balance of power in favour of the platform operator, causing platform workers to appear similarly in need of protection in certain circumstances. This raises the question as to what, if any, consequences the legislator might draw or should draw from this analysis. The mere fact that the platform economy has not (yet) become a mass phenomenon does not prevent the legislator from creating specific rules for this new way of matching labour market supply and demand, thereby creating legal certainty for platform operators and taking appropriate account of the special features of this specific business model.