The rise of the so-called sharing economy has been made possible by ubiquitous smartphone connectivity and online payment systems. Until recently, peer-to-peer transactions were inefficient in most cases. The transaction costs of buying or renting a good or service from an unfamiliar private individual would have been prohibitive. The digital revolution has changed that, giving a competitive edge to platforms such as AirBnB or Uber which connect private individuals wanting to sell a good or service with customers wanting to buy that good or service. These matchmaking platforms allow the buyer to find, in real time, the precise supply and price of the desired good or service at her location and allow the seller to set a price in real time to match the demand, while both buyer and seller can check the other’s references, then conclude a contract and pay for the good or service, often at a significantly lower cost.
Sharing economy business models have been a huge success. To take just one example, in the summer of 2015 alone, AirBnB reported nearly 17 million guests staying with AirBnB hosts.
These business models also give rise to a wide variety of legal issues, and present challenges to regulators across the world. This is partly a matter of determining the extent to which sector-specific regulation should be applied to new sharing economy business models, e.g. whether Uber should be subject to existing regulations applicable to traditional taxi service providers. But regulators across the world are also pushing hard to develop general regulatory frameworks to capture these disruptive business models.
The European Commission is working towards issuing guidelines on how to apply existing EU legislation – such as the Services Directive, the E-Commerce Directive, the Unfair Commercial Practices Directive and the Consumer Rights Directive – to the sharing economy by mid-2016. The guidelines are expected to be issued in June, in conjunction with a communication on the Digital Single Market.
Individual national regulators within the EU are also giving greater attention to the phenomenon, in the attempt to regulate new global players such as Uber, Taskrabbit and AirBnB.
In Belgium, the Minister of the Digital Agenda recently proposed new rules aimed at greater tax transparency in the sharing economy. The new rules would tax services carried out through collaborative platforms at a rate of 10% to 15%, collected at source. Given that most workers resorting to online platforms do so for the purposes of supplementing their main income, in order to benefit from the proposed favourable tax regime, the earnings from such “secondary” occupations would be capped at a level between 6,000 and 10,000 euros per year. Beyond this threshold, the relevant income would be considered as income from professional activities and taxed accordingly.
On 2 March, a first draft bill on the sharing economy (Sharing Economy Act or SEA) was presented to the Italian Parliament, aiming to regulate and promote digital platforms for the sharing of goods and services. The proposal is now open to consultation and can be commented online by all stakeholders until 16 May.
The bill consists of 12 articles, touching on tax, competition and employment law issues amongst others. Under the bill, the Italian Competition Authority (AGCM) will be in charge of regulating and monitoring the platforms, which would in turn need to submit their policy for annual review and approval by the authorities. This will allow sharing economy companies to be fully operative and registered in an electronic national register of digital platforms, open and accessible by all.
One of the key provisions of the bill aims to reduce tax evasion in the sharing economy by requiring a 10% tax rate on annual incomes of up to 10,000 Euros by freelancers, while greater incomes would be aggregated with professional revenues from other sources and subject to the normal rates applicable to those other incomes. Moreover, the platform operators would directly act as withholding agents for taxes due by the freelancers.
However, the proposal is being heavily criticised for – among other things - failing to address the employment status, social security or workers’ rights (including freedom of association of freelancers) issues. In the set of definitions included in the introduction of the bill, the complex matter of the legal status of freelance workers is just very briefly alluded to, excluding the possibility that an employment relationship exists between platform operator and user.
While many companies in the sector generally agree with such proposals, unionists and some lawyers argue these initiatives risk encouraging workforce casualization.
Several class action lawsuits have been filed in the UK and the US, charging that sharing economy platforms have misclassified workers as independent contractors,. Meanwhile, a recent California bill (1099 Self-Organizing Act) aims to allow “gig economy” workers to unionize and collectively bargain with their app-based employers. The goal is to open the door for workers to be reclassified as employees, thus gaining a whole set of rights. This new regulation is likely to be challenged in the courts by digital platform providers. In one case, the US Chamber of Commerce recently challenged a similar ordinance passed by the city of Seattle, claiming it violated federal antitrust and labour laws.
The disruption of the traditional employer/employee relationship by digital platforms that enable efficient peer-to-peer transactions is a phenomenon that will continue to accompany us for some time, and there is a long way to go before the economic implications of these developments can be effectively assessed and tackled. But with increasing regulatory efforts around the world to address the new opportunities and challenges created by the sharing economy, also from a labour and employment perspective, it is clear that governments are committed to finding a legislative response to the digital transformation of the economy.