Why a European AB5 is still some way off

California’s recent regulation to address perceived imbalances in the gig economy (known as AB5) has set tongues wagging about the future of companies like Uber and Lyft. Given Europe’s reputation for being tough on tech giants, is a similar intervention on this side of the Atlantic now inevitable?

California may be the home of the world’s biggest tech giants, but the Golden State’s government has shown recently that it is willing to ruffle some feathers, having introduced tough new rules which affect almost all companies operating in the “gig economy.” On this side of the Atlantic, European regulators, and particularly the European Commission, are getting a reputation for their equally tough stance on modern tech titans. Given this reality, and Europe’s traditionally more stringent labour laws, it might seem as though a European equivalent of “AB5” is an inevitability. However, there are a number of reasons why this might not be the case.

What is AB5?

California Assembly Bill 5, or AB5 for short, is a piece of legislation introduced in California’s State House of Representatives in December 2018, and effective from the start of this year. It codifies a decision of the California Supreme Court, which created a three-part test to determine whether an employee is in fact an independent contractor. The three parts are:

1. The worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
2. The worker performs work that is outside the usual course of the hiring entity's business;
3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

All three parts must be satisfied for a worker to qualify as self-employed and, crucially, it is the hiring entity which has to prove that they are satisfied. If companies can’t prove that their workers meet the three criteria, they are obliged to treat them as employees, and thereby grant them all the associated benefits of employment, including sick leave, maternity cover, and a minimum wage. It is no surprise therefore that several prominent platforms, including ride hailing companies Uber and Lyft, and delivery firm Postmates, have sought to push back against it. Analysis by Barclays has suggested that reclassifying Californian drivers as employees could cost Uber alone $500 million per year.

In response, platforms have launched a multi-pronged attack on the legislation. Uber and Postmates have filed a legal appeal against the bill, whilst Uber, Lyft, and DoorDash have pledged $90 million to a campaign for a ballot initiative asking Californian voters to approve an exemption for ride hailing firms from AB5. In return for the maintenance of independent contractor status, the companies have pledged to pay drivers 20% more than the minimum wage, plus 30 cents per mile to cover wear and tear on vehicles. Uber has even announced some changes to its business model in California, giving drivers more freedom to set their own rates, and removing penalties for rejecting rides, in a bid to ensure that its drivers qualify as contractors under AB5.

The state of play in Europe

The debates present in the AB5 story will not be unfamiliar to interested European observers. In the UK for instance, the nature of Uber’s relationship with its drivers is likely to be settled, at least in a judicial sense, by the Supreme Court at some point in the not too distant future (no date has yet been set). Previous courts have dented Uber’s aspirations by ruling that Uber drivers are workers, rather than self-employed contractors, but another defeat for the American firm is far from certain.

Meanwhile, in France, the Government is currently consulting on the rights of platform workers. This comes in the context of Deliveroo being sued for €30,000 for “defrauding the labour code” with respect to one of its couriers, and Senators from the Socialist Party trying (and failing) to amend the law to define platform workers as “salaried entrepreneurs” or “members of cooperative organisations.”

Even more recently, the Court of Cassation ruled definitively that Uber drivers are employees and not self-employed contractors, on the basis that they can’t build their own customer base or set their own prices. This rationale tallies neatly with stipulation one of the California Supreme Court’s ruling, that workers must be “free from control” in order to be classified as self-employed.

Unsurprisingly, the cause has also been taken up by the European Commission. Last year the EU banned exclusivity clauses for gig economy workers, amongst other things, while the new Commission under President Ursula von der Leyen has pledged to review the conditions of online platform workers during its current mandate.

Why a European AB5 won't happen soon

Despite all this, the seemingly favourable court rulings (for gig workers), and a perception that Europe is tougher both on employment rights and on tech firms more generally, there are a number of issues that European policymakers have to contend with, which make an AB5-style law tricky to implement in the short term.

Whilst there is clearly a desire within the European Commission to make a significant intervention in the gig economy space, it is far from obvious what form this could take. For a start, the Commission will have to be mindful of the shared competences with Member States, and that whilst it has powers to set minimum standards with respect to workers’ rights, its jurisdiction over the definition of employment is much less clear.

In some cases, the existing framework means that an AB5 equivalent would not be wholly appropriate. For example in Germany, platform intermediaries like Uber actually operate via local businesses, who in turn are responsible for hiring the drivers. The employment relationship therefore exists between those local operators and the driver, with the platforms sitting a level above. This is not to say that the gig economy is not controversial in Germany, indeed, arguments about market liberalisation and competition with taxis are raging there, just as they have been in Spain.

In other jurisdictions, the existing legal framework does not lend itself to a simple, AB5-style policy. In the UK, for example, employment law contains a tri-partite employment classification, rather than simple binary one. Courts in Britain have ruled that Uber drivers are workers, not employees, a status which entails more protection that self-employment but less than full employee status. This means that a simple reclassification of the majority of self-employed people as employees is not a viable option for British policymakers, unless they are willing to manage the fallout of removing the entire legal class of “workers” altogether.

Little wonder then that, to date, the UK Government is pursuing evolution and not revolution, opting to maintain the tri-partite distinction as advised by the Taylor Review. Similarly, in France, while the recent ruling by the Court of Cassation represents a blow to ride hailing companies, the French Government is unlikely to alter its policy of considered consultation in light of the decision. 

Not least, the gig economy is actually one of the European tech sector’s few success stories. Europe has a number of its own prominent ride hailing services, including Kapten (France), Bolt (Estonia) and Cabify (Spain). There are also a number of successful e-scooter startups, such as TIER (Germany) and Voi (Sweden), which hire contractors to charge and distribute their scooters, whilst food delivery giant Deliveroo is British. European governments therefore have to grapple with the thorny issue of whether they want to be seen to go after some of their own tech players.

As a result, some European countries have so far sought to encourage market-led change before getting involved in the tricky process of overhauling decades of employment regulation and case law. For instance, in France, gig economy platforms have been permitted to grant certain social and economic protections to workers and have not been asked to reclassify those workers as employees.

Whilst the desire to reform the gig economy does exist, there are many barriers to the kind of clean and straightforward approach exemplified by AB5. For the time being at least, America is likely to lead Europe in this field.