copy the linklink copied!4. Labour market regulation 4.0: Protecting workers in a changing world of work

4.1.1. Tackling false self-employment: Ensuring that individuals are correctly classified

False self-employment (also sometimes referred to as disguised, sham, bogus or pseudo self-employment) refers to cases where individuals are classified as self-employed but, to all intents and purposes, work as employees (see Figure 4.1 above). The deliberate misclassification by employers of workers in an attempt to avoid employment regulation, fiscal obligations, workers’ representation, as well as to shift risks onto workers and/or gain a competitive advantage, should be cracked down on. Similarly, workers’ misclassification of themselves as self-employed to avoid taxes should be addressed. As discussed above, misclassification harms individuals, but also may put firms that follow the rules at a disadvantage and risks creating a hole in public finances.

To successfully fight false self-employment, firms and workers first need to be clear about the rules and regulations. Most countries have in place tests and criteria for assessing employment relationships (Box 4.1) and government action should ensure that firms and workers are aware of, and understand these rules (as well as the spirit in which they were written). For example, in the United States, the Department of Labor published guidance in 2015 to help with the classification of employees and independent contractors.2 Australia has launched an “Independent Contractors Decision Tool” which helps firms, based on a series of questions they need to answer, identify whether their workers should be classified as a contractor or as an employee.

Governments should also consider making it easier/less costly for workers to challenge their employment status, for example by: placing the burden of proof on the employer (rather than on the employee)3, reducing court fees4, simplifying procedures5, reducing the risks to workers, and/or protecting workers against potential retaliation. Some platforms have tried to get workers to sign arbitration agreements under which they waive the right to sue them in court. In the United States, the National Labor Relations Board had initially argued that such waivers violated labour law (Waas et al., 2017[7]) – however, a recent decision of the Supreme Court ruled against this position, at least as regards class actions.6

It is important to allow labour authorities and/or unions to take cases to court. For an individual, filing a complaint with a court is typically expensive and the outcome is uncertain. In addition, workers may worry about retaliation from their employer and losing their job. In some countries, the labour authority has some power to enforce compliance with labour laws – although this is usually limited and does not include the possibility of ordering a civil remedy or taking a claim to court without the consent of the aggrieved worker(s). In Australia, Chile, Poland, Spain and the United States, however, the labour authority can seek for a civil remedy on behalf of the aggrieved workers even in the absence of consent, particularly in cases where an important public interest is concerned (OECD, 2014[8]). In Sweden, trade unions can take employers to court on behalf of the worker (Williams and Lapeyre, 2017[9]).

Strengthening the penalties for firms not complying with legislation could also help address false self-employment. Where consequences of abuse are minimal, firms may have little incentive to correctly classify workers. Policy options include: requalification of the employment relationship; imposing retroactive payment of taxes and social security contributions; imposing greater penalties if firms continue to breach the law in repeated comparable cases; and extending the application of tribunal judgments beyond the plaintiffs and to the entire workforce in a similar situation.9 In cases where responsibility can easily be passed on because there are multiple customers or contractors (e.g. in multi-party employment relationships), governments can hold the entire chain jointly and severally liable (“chain liability”) if labour regulations are broken. This was done in the Netherlands in 2016, when the Act Combating Bogus Self-Employed came into force.10

Actions to facilitate legal challenges and increase penalties should be combined with efforts to strengthen the labour inspectorate’s capacity to monitor and detect breaches, e.g. increased responsibilities and resources (including the number of inspectors), innovative methods to inspect those working from home/on platforms (e.g. new technological tools), and training. Some countries (e.g. Ireland, Spain and Greece) are also targeting inspection efforts on particular sectors or geographical areas known to have a greater prevalence of false self-employment (OECD, 2019[2]). The extra costs involved should be balanced against the potential revenue gains from clawing back taxes and social security contributions lost as a result of misclassification.

Because social security and tax authorities have strong incentives to ensure the right classification of workers, it might also make sense to ensure that they coordinate their efforts with other enforcement authorities. In the United States, for example, the Internal Revenue Service has made employment tax compliance, including repressing misclassification of workers as independent contractors, an enforcement priority and coordinates its actions with those of the Department of Labor (Internal Revenue Service, 2005[10]; Keneally, Saleski and Engell, 2015[11]). Similarly, in Sweden, the tax agency played a pivotal role in inducing many platforms to accept employer status (Söderqvist, 2018[12]).

In parallel to strengthening the penalties for misclassification, governments should seek to reduce any incentives for firms and workers to misclassify employment relationships as self-employment.11 In some countries, tax and/or employment regulation have created incentives for employers and/or individuals to shift away from standard employee relationships to self-employment, or other non-standard forms of employment. For example, in Italy, the legislation introduced in 1997 and 2003 to legalise temporary work agencies and collaboration agreements may have led to an increase in self-employed workers who are in fact in an employer-employee-like relationship, but are classified as own-account workers (OECD, 2015[13]). In Australia, employers have an incentive to use casual workers who fall back on tax-financed benefits rather than on employer-sponsored benefits (OECD, 2018[14]). Further examples for the Netherlands and the United Kingdom are discussed in Box 4.2. Some of these incentives were not deliberate, but many countries have in the past introduced specific advantages/benefits in order to encourage self-employment/entrepreneurship.

Some countries have tried to address these incentives in an attempt to make independent worker status more neutral compared with employee status. For example, a tax reform was introduced in the Czech Republic in 2004 to halt the spread of “false” self-employment, although it was overturned in 2007. While it remains difficult to isolate the effect of policy reforms from other factors, the incidence of own-account work increased less in the Czech Republic than in the Slovak Republic during this period (OECD, 2008[18]). In Austria, concerns that independent contractors (freie Dienstnehmer) would be used by employers to evade taxes and regulations led the government to gradually integrate them into the social protection system and, since 2008, they pay the same social security contributions as standard employees (OECD, 2018[14]). In Italy, the pension contribution rates for employers and workers in the case of dependent self-employment (collaboratori) have been gradually increased since 2012, with the aim of reducing incentives for misclassification (OECD, 2019[2]). In Latvia, the micro-enterprise tax has been increased from 9% to 15%, and the maximum turnover has been reduced in 2018, to try and crack down on bogus self-employment (Golubeva, 2018[19]).

Policy makers could also consider measures to encourage hiring on standard contracts by making them more attractive relative to non-standard employment relationships. Making standard employment more attractive could be achieved by easing the obligations or enhancing the flexibility associated with standard contracts for employers – while still ensuring an adequate level of protection for workers. For example, as part of its 2015 labour market reform, Italy provided a temporary amnesty from fines to employers who convert existing self-employed contracts into standard, open-ended employment contracts (Williams and Lapeyre, 2017[9]).12 In the Netherlands, the government aims to encourage small and medium-sized businesses to hire on open-ended contracts by reducing sick pay obligations (OECD, 2019[2]).

4.1.2. Workers in the grey zone between self- and dependent employment

In most cases where individuals are falsely self-employed, courts will be able to determine this relatively easily using the criteria and tests described in Box 4.1. However, there are also cases where the issue is less clear, and where a genuine ambiguity may remain (see Figure 4.1 above). Some workers share characteristics of the self-employed (for example, they can choose when and where to work; they use their own equipment); but they also share characteristics of employees (e.g. they cannot set their own rates of pay, they may have to wear a uniform, they cannot be replaced in executing their tasks by someone else).

This issue of the “grey zone” between employee and self-employed status has gained prominence in recent times as a result of the rise of the platform economy and the numerous court cases which have ensued from it.13 In one such case, the judge recognised the ambiguity and stated that “The jury […] will be handed a square peg and asked to choose between two round holes.”14 However, the issue of the “grey zone” is by no means a new challenge. As far back as 1944, Justice Wiley Blount Rutledge of the US Supreme Court stated that “Few problems in the law have given a greater variety of application and conflict than the cases arising in the borderland between what is clearly an employer-employee relationship and what is clearly one of independent entrepreneurial dealing”.15 Some researchers even trace the issue back to Roman law (Rubinstein, 2012[20]). In all likelihood, this grey zone will always exist – although its boundaries and scope may vary over time as new business models emerge, technology advances, court practices change and policy changes interact with all of these. Indeed, while there were hopes that many of the court cases against platforms would settle the issue once and for all, in practice the decisions of these cases have been inconsistent in both Europe and the United States (Cherry and De Stefano, 2018[21]).

From a policy perspective, this grey zone matters because workers who find themselves in it share some characteristics with dependent employees. Because of this, they will also share some of the vulnerabilities of employees. However, because these workers tend to be classified as self-employed, they will not benefit from most of the rights and protections given to employees. As a result, it can be argued that some of these rights and protections should be extended to workers in the grey zone. Indeed, workers in a situation of dependence and/or subordination are by definition in a position of unequal bargaining power,16 and one of the key objectives of labour law is to redress such inequality (and/or its consequences). The challenges for policy makers are to identify who are the workers in the grey zone and decide which labour laws and protections should be extended to them (and how).

In a first instance, the size of the grey zone should be managed and kept to a minimum. In some cases, regulations or guidelines for determining employment status may need to be clarified, revised and/or harmonised17. This would help reduce uncertainty for both workers and employers, and reduce litigation (Linder, 1999[22]). For example, in recent years, many countries have laid down criteria aimed at better circumscribing the status of a self-employed worker and distinguishing it from that of an employee – e.g. Belgium in 2006. In doing so, countries face a trade-off between simple rules and broad guidelines (Box 4.3). Simple rules provide clear and unambiguous decisions about employment status, but risk excluding certain workers who may also need labour protections. Broad guidelines leave considerable discretion to adjudicators (enforcement officers or judges) with the potential to extend protection to a much larger group of workers (but at the risk of introducing a greater element of uncertainty and arbitrariness).

An equally important task for policy makers is to clarify who, in triangular employment arrangements (such as those involving a user-firm, a subcontractor and a worker employed by the latter but providing services to the former within its premises) and those involving intermediaries (like many of those in the platform economy), is the employer and who, therefore, bears the responsibility for complying with labour market regulation. In such arrangements, there is a strong argument for clarifying obligations and, where necessary, spreading them across multiple legal entities – for example by holding the intermediaries and the clients jointly and severally liable, or by imposing liability on the intermediary and only subsidiary liability on the client (Box 4.4).

For those workers who are left in the grey zone (and therefore tend to be excluded from much of the scope of existing labour law), legislators should consider how (and which) labour rights and protections could be extended. Indeed, clarifying and stating as precisely as possible the scope of the law is unlikely to eliminate the grey zone entirely and hence the uncertainty for workers and employers. Many countries have identified specific groups of workers to which certain parts of the labour law are to be applied but with different approaches, each with their advantages and disadvantages. Some countries have identified very specific occupations; others have focused on the economically dependent self-employed; and still others have relied on vaguer (but broader) definitions. Each of these are discussed below.

Some countries have identified very specific occupations to which certain labour rights and protections have been extended. For example, in France, the following occupations are presumed to have an employment relationship under certain conditions: performing artists (also in Spain), models, professional journalists, and sales representatives and travelling salespersons (Pedersini, 2002[35]; ILO, 2005[36]). In Mexico, there are similar legal provisions for sales representatives, insurance salespersons, travelling salespersons, sales promoters and similar categories.

In several countries, policy attention has focused on the “dependent” self-employed (Box 4.5). A specific income threshold is usually set. In Spain, the economically dependent self-employed (trabajador autónomo económicamente dependiente – TRADE) need to rely on a single client for at least 75% of their income. In Portugal, an individual is considered dependent self-employed when at least 50% of their yearly income comes from one single client (regime dos trabalhadores independentes e que prestam serviços maioritariamente a uma entidade contratante). In Germany, workers are “employee-like” persons (arbeitnehmerähnliche Person) if they: i) work on the basis of a contract for service or a contract for work and services for other persons; ii) do so personally and essentially without collaboration with employees; and iii) receive 50% of their income from a single client (33% for artists, writers and journalists). In Canada, there is no fixed threshold, but “dependent contractors” cover “those non-employment work relationships that exhibit a certain minimum economic dependency, which may be demonstrated by complete or near-complete exclusivity”.22 Similarly, in Sweden, there is no precise definition, but dependent contractors (jämställda/beroende uppdragstagare) include “any person who performs work for another and is not thereby employed by that other person but who occupies a position of essentially the same nature as that of an employee” (Rönnmar, 2004[37]).

While the definition of dependent self-employed in all these countries is similar, the purpose of the category varies significantly. In Portugal, it opens up access to social protection (unemployment insurance, parental benefits, sickness and invalidity protection, as well as old age and survivors pensions). In Germany, employee-like persons have freedom of association, the right to collective bargaining, and the right to minimum leave of four weeks (Däubler, 2016[38]). In both Canada and Sweden, dependent contractors also have a right to collective bargaining and need to be given reasonable notice of the termination of the contractor relationship. In Spain, the TRADE category has access to a wide range of rights and protections, including: minimum wage, annual leave, entitlements in case of wrongful termination, leave for family or health reasons, and the right to collective bargaining (Cherry and Aloisi, 2017[33]).

Other countries have relied on a vaguer definition of an intermediate (or “third worker”) category to which some of the rights and protections of employees have been extended, though not all. These third worker categories often combine elements of financial dependency with elements of control/subordination. For example, in the United Kingdom, the statutory category of “worker” was introduced to broaden the reach of employment regulations and to include individuals who had been excluded from employee status by a judiciary taking a very narrow interpretation of the term. The worker category is not precisely defined but is intended to cover any individual who works under a contract to provide a personal service, independently of whether he/she has a contract of employment. These workers are entitled to protection against discrimination under the Equality Act 2010 – implying also a right to equal treatment with standard employees in basic working conditions. In addition, they are covered by selected labour regulations including those on working time, holiday pay and the minimum wage. They may also be entitled to sick pay and parental pay, though they do not benefit from minimum notice periods, health and safety provisions, protection against unfair dismissal and redundancy pay. In addition, they are responsible for their own social security contributions and tax (like the self-employed). While the original intention of the worker category was to broaden the reach of protective employment regulations to a greater number of workers, the creation of this separate category of workers may have shifted the objective of litigation down from obtaining employee status to merely obtaining worker status – as has been evidenced in recent court cases involving ride-sharing services.23

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Box 4.5. The incidence of dependent self-employment

The “dependent” self-employed are usually defined as those own-account workers who rely for a large share of their income on a single client/employer. This can be a useful category to focus on in order to extend labour rights and protections to certain workers in the grey zone. But how important is this category of workers?

Measuring dependent self-employment is complicated given that: i) only a few countries have official definitions of dependent self-employment and, where these exist, they tend to differ; and ii) standard labour force and household surveys do not permit the identification of such workers.

Based on a special module of the European Union Labour Force Survey (EULFS), it is possible to get some estimates of the incidence of dependent self-employment, defined here as those own-account workers who generally have one dominant client. In many countries, dependent self-employment represents a non-negligible fraction of total self-employment (16%, on average) – Figure 4.2.24 Moreover, according to data from the European Working Conditions Survey, this share has risen between 2010 and 2015 across the countries covered by around 20%.

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Figure 4.2. The incidence of own-account workers who generally have one dominant client

As a percentage of the self-employed, 2017

Note: OECD: unweighted average of countries shown.

Source: OECD calculations based on the EU Labour Force Survey, Eurostat.

 StatLink https://doi.org/10.1787/888933966673

In Italy, the “semi-subordinate” worker category (lavoro parasubordinato) – covering co.co.co and co.co.pro contracts25 – was initially created to increase flexibility in the labour market and to reduce labour costs. These were self-employed workers characterised by: a certain continuity and length of the working arrangement; the individual nature of the service being provided; and some subordination to the client. These workers had access to employer-financed social protection (employers paid a reduced rate). In addition, the rules for termination of these contracts were less stringent than those of employees (OECD, 2014[8]). In the Italian case, the creation of the semi-subordinate worker category created clear incentives for employers to replace “standard” employees with workers in the less protected (and cheaper) intermediate category (Liebman, 2006[39]; Muehlberger, 2007[40]). In response to this situation, recent reforms in Italy have all but abolished these contracts (Cherry and Aloisi, 2017[33]). Both in terms of social protection and termination of contracts, the rules are gradually being aligned with those of employees on fixed-term contracts.

These two examples from Italy and the United Kingdom illustrate the dangers inherent in creating an intermediate category of worker where the boundaries of this category are vaguely defined or where it is created to introduce more flexibility in the labour market. The spirit of reforms to employment and social protection regulation should be to extend rights and broaden the reach of these regulations to vulnerable workers who were previously excluded, and not to create opportunities to take rights and protections away from workers who previously had them.

These potential pitfalls of creating a third worker category should be borne in mind in the context of the platform economy, which has changed the shape and size of the “grey zone” between employee and self-employed status, and which has spurred some to suggest a third worker category to cover those workers. In particular, creating a third worker category with vague boundaries would create a significant potential for downgrading. In the United States, Harris and Krueger (2015[41]) have argued for an “independent worker” category which would qualify for many, though not all, of the benefits and protections that employees receive, including the freedom to organise and collectively bargain, civil rights protections, tax withholdings, and employer contributions for payroll taxes. However, they would not qualify for hours-based benefits, including overtime or minimum wage requirements, nor for unemployment insurance benefits. In France, the government has introduced the idea of voluntary charters, which platforms would draw up and which would set out the rights and protections of platform workers. The French idea is an interesting one because it allows the government to buy time in terms of deciding on a certain policy action, while at the same time ensuring more rights and protections for these workers. The risk, however, is that these rights and protections will be set unilaterally by platforms (without consulting workers) at a low level of protection. Moreover, the lack of common protection standards across charters may reduce mobility and therefore heighten the monopsony power of platforms and exert downward pressure on pay (see Section 4.3 below). And a further concern is that, if they are not time-bound, they will end up forming a permanent third worker category (or, rather, multiple third worker categories) with diminished rights. Ideally, therefore, the charters should be seen as a temporary experiment from which governments can learn. In the longer-term, more sustainable solutions should be envisaged and the risk of creating a permanent third “platform” worker category should be avoided. New regulations should be flexible and broad enough to encompass various types of employment, regardless of the means through which work is obtained.

Alternative solutions could also be imagined to extend labour regulations to a greater number of workers in the grey zone. One approach would be to clarify as much as possible the definitions of “employee” and “self-employed”, and to treat everyone in the “grey zone” as an “employee” as far as labour law is concerned (until and unless it can be proved that these workers are properly self-employed).26 27 This was a route followed by the California Supreme Court in a recent case.28 Also, in Sweden, a Supreme Court decision dating back to 199629 concluded that, because the circumstances were ambiguous and it was difficult to make a clear judgement, the ruling went in favour of the plaintiff and an employment relationship was assumed (Åberg, 2016[42]). This could be the default position, while allowing specific parts of the law to create exceptions for those rights and protections which are more difficult (if not impossible) to extend to self-employed workers. For example, while it may be relatively straightforward to extend health and safety regulations as well as anti-discrimination laws to all own-account workers, it becomes much more difficult to do so for minimum wage legislation and working time regulations. These issues are discussed further in Section 4.2 below.

4.2.1. Fair pay

For employees in standard employment arrangements, a legally binding minimum wage and collectively negotiated wage floors can help to prevent exploitation and address in-work poverty. Many studies of minimum wage impacts find that small increases in the minimum wage from a moderate level have no negative employment effects. This is contrary to standard theory but consistent with monopsony power and could suggest that there is some scope to set a minimum wage that exceeds the wage that would otherwise prevail in the labour market without harming employment levels (Card and Krueger, 2015[43]) – see also Annex 4.A.

Yet workers in the grey zone between dependent and self-employment (and, sometimes, other non-standard workers) are usually excluded from such arrangements. For example, neither minimum wages nor collectively negotiated wage floors tend to cover self-employed workers, who are considered “businesses” and are often paid per task that they complete (as opposed to the time-based compensation which most employees receive). While it may not be appropriate/necessary to introduce a minimum wage for many self-employed workers (e.g. entrepreneurs, highly paid freelancers or the “liberal professions”), there are many low-paid workers who will find themselves in the grey zone and/or who will face situations of monopsony power and bargaining asymmetry (see Sections 4.1.2 and 4.3). In those cases, it might be worth considering how mechanisms to achieve fair pay could be extended.

One way to extend minimum wage legislation to cover such workers would be to identify a group of workers in the grey zone (e.g. the dependent self-employed or certain occupations) and require employers to pay the equivalent of the minimum wage to individuals working on a piece rate basis. Piece rate legislation already exists in many countries as part of their minimum wage legislation and generally requires that employers pay individuals the equivalent of the minimum wage, regardless of the basis on which they are rewarded (i.e. by unit of time, or by unit of output).30 Employers are therefore expected to estimate the average productivity of piece rate workers and ensure that the average individual working at the average speed would earn the equivalent of the minimum wage. In most cases, such legislation is restricted to employees, and so the challenge lies in extending this to other vulnerable workers, including those in the grey zone between dependent and self-employment.

Proposals to introduce minimum rates for some groups of self-employed workers are being discussed in a number of countries. In the United Kingdom, it has been proposed by both the Taylor Review (BEIS, 2017[44]) and the Resolution Foundation (D’Arcy, 2017[45]). In the Netherlands, a legislative proposal has been put forward for the introduction of a minimum wage for the self-employed without employees and a revision of legislation to allow them to set minimum rates collectively (PvdA, 2017[46]). In Germany, a motion on the income of freelancers and solo self-employed, which also includes the demand for minimum fees, has been introduced in the federal parliament (Deutscher Bundestag, 2016[47]). In Poland, minimum wage legislation has recently (1 January 2017) been extended to work carried out under services agreements (umowy zlecenia, umowy o świadczenie usług). In particular, this covers individuals hired under services contracts and self-employed service providers who are not employers themselves or who do not contract work out to other parties. However, persons working under so-called specific task agreements (umowy o dzieło) are not covered, nor are providers of personal care services and service providers who determine the place and time of their services themselves and work on commission (OECD, 2019[2]).

While extending minimum wage legislation to some sub-groups of the self-employed may seem both desirable and (in theory) feasible, there are significant practical difficulties in doing so. These include: deciding what types of self-employed workers should be covered; defining who the employer is (which is particularly difficult in triangular working arrangements, see Box 4.4 above)31; measuring the average productivity of workers32 (especially for non-standard tasks); determining what counts as work33^,34; and how to deal with work carried out across national borders (see Section 4.4 below). However, it is not impossible to overcome these difficulties. Since January 2018, for example, New York City has imposed a minimum wage for Uber and Lyft drivers.

Some voluntary initiatives have already been taken by a number of platforms to put a minimum floor under wages. For example, Favor, an on-demand delivery service in the United States, guarantees its drivers a minimum hourly wage. While its “runners” are paid by task, Favor will make up the difference if they do not meet the pay guarantee (Kessler, 2016[48]). Upwork has a global minimum wage of USD 3 per hour for tasks that pay by the hour. In the United Kingdom, Prolific also has a minimum wage per hour. In Australia, the online job-posting platform AirTasker has reached an agreement with unions to recommend minimum rates of pay to its users (Patty, 2017[49]) – although the platform does not guarantee this minimum pay (Kaine, 2017[50]). Some other websites, like the Czech Topdesigner.cz and the Spanish adtriboo.com, have set a minimum or even a fixed price for certain tasks, based on the average number of hours that workers spend on them (European Parliament, 2016).

However, because of the practical difficulties involved in extending minimum wage legislation to self-employed workers, alternative (or complementary) solutions could be sought for strengthening the pay of these workers. One of the most promising avenues might be to extend collective bargaining rights to certain groups of self-employed workers who find themselves in the grey zone between dependent and self-employment and, therefore, in situations of unequal power relationships. Canada, Germany and Sweden are examples of countries which have done this. One key challenge, however, is to ensure that labour market and competition policy are aligned on this issue – this is discussed more extensively in Chapter 5.

4.2.2. Regulating working time

Traditional concerns around working time have centred on the issues of excessive working hours. This is why labour legislation usually contains rules limiting working hours and requiring periods for rest and recuperation, including weekly rest and paid annual leave. It is difficult to see how some of these regulations might be extended to own-account workers who, in theory, choose their own working hours – even though, in practice, many (including those in the platform economy) often have limited ability to choose their own hours of work (Lehdonvirta, 2018[51]). Poor bargaining power combined with fierce competition between workers means that they may need to remain on-call if they do not want to lose out when new jobs/tasks are advertised. Moreover, in the case of certain micro-task platforms, workers spend as much time searching for tasks as they do in performing them (Kingsley, Gray and Suri, 2015[52]). Some platforms have introduced their own working hour limits (e.g. CloudFactory sets upper and lower limits on the amount of work each worker can complete in a week) and workers have adopted their own informal practices such as daily routines and quota setting to manage their time (Lehdonvirta, 2018[51]). Data collected through platforms can help in monitoring working time. However there are many complications with extending working time protections to such workers, including the fact that many of them have several clients/employers at any particular point in time, and therefore monitoring overall working time (and allocating responsibility) may be very difficult if not impossible. Again, certain exceptions could be envisaged for the economically dependent self-employed (e.g. minimum leave for employee-like persons in Germany) – but this may exclude many platform workers since they typically work for several clients at the same time (unless employer responsibilities are partially attributed to platforms – see Box 4.4).35 An alternative would be to focus on certain occupations.

For some workers, there are concerns about the unpredictability of working hours and/or the unwillingness of employers to guarantee a set number of working hours in the contract as they seek a maximum amount of flexibility to respond to fluctuating demand. This is an issue that goes beyond workers in the grey zone and relates to variable- and zero-hours contracts. Many countries have made reforms in this area in recent years (Box 4.6).

4.2.3. Occupational safety and health

Some of the issues relating to working time also apply to occupational safety and health (OSH). Many new forms of work tend to transfer responsibilities for OSH from the employer to individual workers, who often lack the training or resources to take appropriate measures to ensure that their working conditions and the working environment are safe. Sometimes, strong competition between workers may result in corners being cut and unnecessary risks being taken. At the same time, labour inspectorates are often not adequately prepared to deal with these new forms of employment, which are often harder to reach, where it is not always clear that the existing legislation applies, and where the support from unions is often lower (Walters, 2017[54]). This makes it easier for such workers to avoid existing regulations like, for example, the need to obtain medical certificates in certain professions. Again, this is to some extent an issue of unbalanced bargaining power between employers and workers – although individuals themselves may also be short-sighted and/or want to avoid costs and regulations. In addition, there are the same difficulties in identifying the liable party due to the triangular nature of some relationships and the short nature of some of these tasks.

New forms of work also bring new or increased risks. For example, many platform activities are in the transport sector, where the risk of accidents is elevated. Recent evidence suggests that the arrival of ridesharing is associated with an increase of 2%-3% in the number of motor vehicle fatalities and fatal accidents as a result of increased congestion and road utilisation (Barrios, Hochberg and Yi, 2018[55]). There are also risks associated with online work – both physical and psychosocial, such as visual fatigue; musculoskeletal problems; work-related stress; chronic job and income insecurity; and isolation.

Again, the question of employment status is critical here as OSH regulation often only applies to employees. Special provisions for the dependent self-employed or certain occupations could be envisaged, while information campaigns and training could help strengthen OSH among own-account workers more generally. On the social protection side, some countries are beginning to think about how insurance for accidents at work might be extended to some previously excluded workers. For example, France has recently expected certain platforms to provide such insurance to some of their workers: if workers earning more than EUR 5 100 per year voluntarily insure themselves against the risk of occupational accidents or illness, the platform must provide reimbursement. The voluntary charters which France is considering might also lead to improved OSH for certain platform workers.

4.2.4. Anti-discrimination

Because of its potential negative impact on inclusiveness and basic human rights, but also on productivity, measures to tackle discrimination in the labour market on the basis of race, gender, religion, political opinion, socio-economic background, etc. have been put in place in all OECD countries (OECD, 2008[18]).

The emergence of the platform economy has an ambiguous effect on the ability to protect workers from discrimination. To the extent that platforms promote anonymity, they might help address discrimination. However, where such anonymity is not guaranteed, discrimination may be worse because of the lack of regulation and enforcement – see Edelman, Luca and Svirsky (2017[56]) for evidence of racial discrimination on Airbnb; Galperin and Greppi (2017[57]) for geographical discrimination on Nubelo (one of the largest Spanish-language online labour platforms); and Galperin, Cruces and Greppi (2017[58]) for evidence of gender discrimination, also on Nubelo. Moreover, while algorithms may offer the promise of removing human judgment and bias from decisions, there is some evidence that, in fact, they may reinforce human prejudice and embed biases of their own – see, for example, Sweeney (2013[59]) for such evidence on ads by Google AdSense.

This emerging evidence suggests that governments should think carefully about how non-discrimination laws might be extended to online platforms and independent workers more generally. Calls for labour platforms to collect (and publish) data on outcomes for various groups could be one step in the right direction. Focusing on certain occupations or the dependent self-employed could be another way of extending anti-discrimination legislation – see Section 4.1.2. In most European countries, anti-discrimination laws already cover the self-employed; exceptions include Lithuania and the United Kingdom, where they are not fully covered (European Commission, 2017[60]).

4.2.5. Employment protection

When workers have employee status, employment protection legislation usually protects them against unjustified breach of contract obligations on the part of employers, including remedies for unfair dismissal and wage theft. With rare exceptions, these rights are not contractible, in the sense that the employee cannot give them up upon signing the employment contract – see e.g. OECD (2013[61]).

However, these labour law protections do not extend to most contracts for services and/or intermediation contracts (such as terms of conditions for using platform apps), where the scope for contractible provisions is much larger. Yet, in a number of cases, wage and working conditions are set unilaterally by the platform (or the intermediary) or the requester (i.e. individual or company who posts tasks), with no scope for individual workers to negotiate any of the items in the terms of conditions that must be accepted in order to begin or continue working.36 For example, on certain micro-task platforms, requesters can refuse completed tasks without providing a reason, in which case the worker receives no pay – see e.g. Kingsley, Gray and Suri (2015[52]). Even with direct transactions, without platform intermediation, not getting paid for completed tasks is a challenge for many providers of work services – see e.g. Berg et al. (2018[62]). Similarly, terms of conditions of digital intermediation services often establish that the platform can deactivate a worker’s account without providing a justification, sometimes even without previous warning – see e.g. Ross (2015[63]), Kingsley, Gray and Suri (2015[52]), Kaltner (2018[64]), and Marcano (2018[65]).

The absence of adequate, simplified mechanisms of dispute resolution reinforces the asymmetry in the control of the relationship.37 Filing complaints with courts is expensive and long, and usually not attractive for workers in the case of small claims. In the case of micro-task platforms, these barriers are largely prohibitive, since the value of each task corresponds to very small amounts of money.

Building in some kind of simplified dispute resolution system for platform workers would therefore be desirable. For example, platforms could be required to provide a dispute resolution process that places the burden on the client to demonstrate that the work has not been completed (to the required standard) and allows workers a reasonable time to re-do rejected tasks – see e.g. Silberman (2018[66]). Similarly, platforms could be required to communicate swiftly the reason for account deactivation to the worker. The statement of reasons should identify the objective grounds for the deactivation decision, based on the grounds set out in advance in the platform’s terms and conditions, and reasonably refer to the relevant specific circumstances that led to that decision. That statement could also be set to define the limits of the possible legal dispute, in the sense that no additional griefs could be raised by the platform in the case of a lawsuit.38 A proposal for a regulation in this sense is under discussion at the European Parliament (European Commission, 2018[67]) and, in a recent court case involving a ride-hailing service39, the settlement included an agreement that, in the future, workers would receive a hearing before an arbitrator prior to any dismissal (Kovács, 2017[68]).

Simplified dispute resolution systems must be designed in such a way to guarantee impartiality. Standard private out-of-court arbitration may not be a solution, however, because in situations where the arbitrator has frequent interactions with one party, there is potential for abuse and the advantage of neutrality may be lost due to a conflict of interest (US House of Representatives, 2009[69]).40 Such a situation tends to be more frequent in cases opposing individuals to large corporations, not least because the latter are more accustomed with the arbitration process.41 This suggests that an alternative dispute resolution system could be more effective if provided or supervised by an administrative agency. In New York City, for example, the Freelance Isn’t Free Act (FIFA) is intended to protect freelancers from non-payment. Among FIFA’s protections is the requirement that hiring parties provide a written contract to freelancers for any work exceeding USD 800 over a 120-day period. Freelancers can bring a complaint to an administrative agency, which is empowered to issue payment orders as well as civil penalties. Alternatively, simplified dispute resolution systems could rely on social partners. For example, in the temporary work industry, there are a number Ombuds and arbitration schemes managed by social partners that could represent interesting models in the case of tripartite relationships (World Employment Confederation, 2018[70]). In the platform industry, indeed, three German platforms and the German Crowdsourcing Association drafted, in 2015, a Crowdsourcing Code of Conduct and established, in 2017, in conjunction with five other platforms and IG Metall, an “Ombuds office” to enforce the Code of Conduct and resolve disputes between workers and signatory platforms – see Berg et al. (2018[62]) and Chapter 5.42

4.3.1. Enforcing regulation to address labour market monopsony

Excess monopsony power can be addressed by better regulations and more effective enforcement of these regulations. In fact, to date, enforcement agencies have paid somewhat less attention to labour market power and firms’ ability to pay workers less than their marginal productivity than to product market power.

Fighting against labour market collusion is one of the areas where further action is needed – see Annex 4.A for more extensive discussion of existing regulations. In most jurisdictions, competition law forbids collusion among buyers of intermediate goods or services, including labour services – see e.g. Blair and Wang (2017[81]). Illicit collusion occurs, for example, when companies competing for the same type of workers agree on refraining from hiring those employed by the others (so-called “no-poaching agreements”) or, except in the framework of collective bargaining (see Chapter 5), when firms competing in the same labour market agree to apply a common compensation policy to employees or independent contractors (wage collusion).

General statistics on collusion are difficult to collect, since figures on those illicit behaviours that escape investigation are typically not available. Anecdotal evidence suggests, however, that the phenomenon is far from negligible – see e.g. Krotoski et al. (2018[82]). Statistics on non-poaching covenants exist for franchising agreements, where these covenants are not necessarily unlawful (see Annex 4.A). Krueger and Ashenfelter (2018[83]) estimate that more than 50% of major franchise companies in the United States use no-poaching clauses in their franchising agreements.

Providing explicit guidance about labour market collusion is crucial to guide and set priorities for enforcement agencies. For example, US antitrust authorities have issued guidelines that explicitly refer to collusion in the labour market, present clear examples of illicit behaviours, and underline the importance of fighting them for their effects in the labour market (US Department of Justice and Federal Trade Commission, 2016[84]). Whistleblower protection is also needed for effective enforcement, since collusion is often discovered based on information provided by insiders (Dyck, Morse and Zingales, 2010[85]; Yeoh, 2014[86]). Specific protection is particularly essential in the case of independent contractors who usually are not covered by dismissal legislation provisions concerning whistleblowing – see e.g. OECD (2014[8]). Last, but not least, enforcement agencies should also be able to provide adequate sanctions for collusive behaviours.

Potentially colluding companies, however, could avoid unlawful labour market collusion by simply merging, thereby raising their buyer power in the labour market – see e.g. Marinescu and Hovenkamp (forthcoming[87]). More generally, if merging firms would together form the dominant buyer in the labour market, the merged entity would likely use its buyer power to reduce quantities and prices in that market, similarly to what non-merging colluding companies would do. Yet, one difficulty in assessing the impact of mergers on buyer power in the labour market has to do with the shortage of specific tools to analyse labour competition and, in particular, the difficulty of identifying the relevant market. Another difficulty is the evaluation of merger effects when merging firms are not direct competitors in downstream product markets.43 This is an area in which more research is needed and more investment in developing adequate tools by governments and enforcement authorities would be welcome.

Another area of possible policy action concerns non-compete covenants, which are contract clauses preventing workers from working for a competitor after they separate from the employer. In most countries, non-compete agreements are lawful and justified by the need to protect trade secrets and specific investment in the employment relationship by the employer (such as certain types of training and investment in knowledge). Yet, recent evidence suggests that employers may use these clauses in order to limit effectively the outside options of their workers. A number of cases, for example, have concerned low-skilled workers involved in production of standardised products, such as sandwich making, and with little access to company tacit knowledge. Starr, Prescott and Bishara (2018[88]) estimate that almost 30 million US workers are currently covered by non-compete agreements, and that many of these agreements are imposed broadly on workers with less than a bachelor’s degree, often with low income or no access to trade secrets.

A particular type of non-compete covenant is represented by the restrictions imposed on certain platform workers to continue a direct relationship with their client off the platform without paying a disproportionately high fee (Berg et al., 2018[62]). This constraint is particularly binding in the case of unilateral changes to the terms of service provided by the platform. In fact, the specific relationship that is sometimes created between a given worker and a given client on certain platforms implies a high opportunity cost for workers if they cannot quit the platform without losing their clients, which often forces them to accept unfavourable changes in the terms of conditions.44

In order to fight against non-compete agreements in situations where they are most likely used only to reduce workers’ outside options, governments could consider establishing a rebuttable presumption of abusive use (or even banning them), in the case of certain type of positions, pay levels or skill requirements, for which a clear justification, such as the protection of trade secrets, seems implausible. Where non-compete clauses are enforceable, governments could also consider banning “blue-pencilling” by courts – i.e. situations where courts can redraft unreasonable covenants in order to make them enforceable. In fact, this practice creates incentives to draft unenforceable, extensive clauses only to discourage uninformed workers from seeking alternative job offers. Last, but not least, since workers who are victim of abuses rarely initiate private damage actions, enforcement agencies, including labour inspectorates, should take a leading role and have the possibility of imposing sanctions or taking the case to courts for imposing them (see Annex 4.A for more discussion of current practices and issues in OECD countries).

Finally, one of the reasons why workers often have low bargaining power and few outside options is that they have much less information than employers. Workers often have only a vague idea of their rights, in particular if they are employed with a non-standard contract. For example, when signing a contract (or accepting terms and conditions) workers may not fully understand the obligations they are committing to (or the rights they are waiving). Regulation could therefore make sure that all contracting parties are fully aware of their rights and responsibilities. For example, certain scholars have suggested that governments should invest in a dedicated service for independent contractors, and in particular platform workers, offering general advice and counsel about their employment rights (Balaram, Warden and Wallace-Stephens, 2017[89]).

Lack of pay transparency may also increase monopsony power. Shortage of information about alternative opportunities reduces workers’ ability to change jobs or leverage outside opportunities to negotiate for higher pay (and better working conditions) (Harris, 2018[90]). Digital technologies have the potential to improve this type of information asymmetry, as workers can access a large number of job offers and compare them, thereby reducing search costs (see below). Yet, in many platforms, workers have few tools to search for available alternatives and have to spend much time searching for them (Kingsley, Gray and Suri, 2015[52]; Berg et al., 2018[62]). To improve pay transparency in the platform economy, employers and platforms could be required to publish information about the average pay per task, as well as on the average time taken to complete a task (which would help workers make more informed decisions about which tasks to accept).

One specific problem related to digital intermediation concerns the information which platforms collect on workers. For example, most platforms have a rating system for workers, which evaluates their performance history and which is supposed to improve service quality for the requester. However, the ratings algorithms often lack transparency (Rosenblat and Stark, 2016[91]). This informational asymmetry allows requesters or platforms to exclude certain workers from certain tasks, based on their ratings, while workers are unable to identify and refuse tasks proposed by bad requesters, who typically do not pay regularly or are inclined to provide negative assessments (Kingsley, Gray and Suri, 2015[52]). To address these issues, governments could consider regulating the ratings system by imposing rating symmetry (so called “five-for-five” policies) and algorithm transparency to platforms.

4.3.2. Other interventions to reduce frictions

Labour market monopsony tends to emerge in situations where there are few, large firms, and where frictions in the labour market, preventing workers from easily switching jobs in response to changes in wages or working conditions, are considerable – see e.g. Manning (2011[92]). All types of non-regulatory interventions to reduce frictions in the labour market are likely to contribute to lessen monopsony power in that market. A comprehensive strategy of simultaneously tackling all barriers to potential job mobility in the labour market should be developed (OECD, 2018[93]).

Interventions favouring geographical mobility play a crucial role. Existing evidence suggests that labour markets tend to be more concentrated in rural areas and/or areas where economic activity is more dispersed (Azar et al., 2018[74]; Rinz, 2018[94]). For example, housing policies could promote geographical mobility of workers to help people move to the regions where the best jobs are available. Similarly, occupational licensing should be used judiciously and standards should be harmonised across regions (and countries, where applicable) as much as possible, insofar as in some countries licensing has acted as a barrier to mobility, without clear benefits in terms of better service quality, consumer health or safety – see OECD (2018[93]) for further discussion. The same arguments apply to national (and international) recognition of competences and acquired skills – see Chapter 6.

Technological developments are improving the efficiency of the matching process. In many OECD countries, unemployment coexists with firms complaining about not being able to find suitably skilled workers to fill vacancies. Digital platforms can help employers find workers for tasks that their existing employees cannot perform, thereby enlarging the labour market by expanding opportunities in it – see Chapter 2. Similarly, digital intermediaries, such as commercial job boards, can provide access to a large number of vacancies and worker profiles, significantly reducing search costs for both workers and employers. The possibility of working from a distance made possible by digital technologies also allows workers in rural areas accessing jobs and tasks that before were precluded to them. However, in platform-mediated interactions, there is a potential for adverse selection and asymmetric concealment of information, which may require the development of institutions to certify the information provided by users (Autor, 2009[95]). Moreover, in certain cases, there is a risk of a race to the bottom because of competition from world regions with much lower labour standards and pay level in real terms (see Section 4.4 below)

Digital technology is also transforming the way the Public Employment Service (PES) and other placement providers operate, making it easier to exploit information about vacancies and jobseekers, thereby improving the matching process and reducing market frictions. By automating a number of tasks, digitalisation also allows the PES to concentrate resources on activities requiring personal interactions and more discretionary task actions. There are limits to what digitalisation can achieve in this field, however. While benefit applications and vacancy registration are easy to digitalise, it may be more difficult to do so for other services, such as personalised counselling and training. In addition, safeguards must be introduced in new, heavily digitalised systems to avoid creating a digital divide by handicapping more disadvantaged jobseekers (OECD, 2015[96]).

Promoting job mobility also requires making social protection more portable and less linked to a specific job or employer (see Chapter 7). In that respect, relying on voluntary provision of social protection entitlements by employers or intermediaries such as platforms (see e.g. Section 4.2 above) might not be a wise idea in the long-run. In fact, the lack of portability of employer-provided social protection plans may reduce mobility and therefore heighten the monopsony power of employers and intermediaries, exerting downward pressure on pay.

Specific features of certain platforms can also create obstacles to job mobility. For example, payment or remuneration in a moneyless form like bitcoins and vouchers are relatively common on certain platforms (Kingsley, Gray and Suri, 2015[52]) and tie the worker to the platform. Similarly, personal work histories, such as personal ratings, are usually lost upon changing platform (Berg et al., 2018[62]). Given that platforms de facto favour workers with good ratings, the loss of individual ratings represents a strong barrier to worker mobility, and may limit competition for workers across platforms. Governments could therefore consider further interventions to enhance worker mobility across platforms such as regulating moneyless payments and facilitating the portability of personal ratings.