One of the effects of the fourth industrial revolution is the uberisation of the economy – a shift from the classical economy in which businesses internally control and organize assets and activities to perform their functions, to the platform model where digital tools make it possible to coordinate independent individuals and external resources towards the same activity.
The business model which gave the phenomenon its name is a taxi-like service that, traditionally, would be provided by competing corporations controlling fleets of cars and managing hosts of drivers internally, and that now can be offered directly by those drivers, who manage themselves and connect with customers independently, through a digital intermediary, while sharing the capital intensive asset (e.g. a car) or using it on demand, as-a-service, instead of buying or leasing it and incurring significant – often prohibitive – entry costs.
Hence, technology emancipates the driver and allows him or her to do essentially the same work, but more independently – with less security but with more autonomy. This may lead to “democratization” of entire industries. People who until recently were “subjects” – labourers and employees – can (if they choose to) turn easily into micro entrepreneurs – small but “sovereign” market players. I am not referring here to scams where self-employment is mere fiction aimed at evading taxation or other public levies, and where the dependency of the past remains unchanged despite formal amends, but to the widespread, largely digitally-enabled, phenomenon of true work emancipation. The result is a rise of “independent professionals” and the so-called “gig economy”.
Independent professionals (freelancers) are not a new group on the market. Writers, journalists, artists or elite athletes are the group’s traditional representatives. Digitalization, however, facilitates the connection between clients who need a service and workers willing to provide it. It also enables service providers to share the assets necessary to do the work with other service providers or use them as-a-service. Whereas previously those assets would have to be acquired through heavy investments of capital and, therefore, had to be provided by traditional corporate employers able to pool financial resources necessary to make such investments. Hence, as a result of digitalization, the ranks of traditional independent professionals are joined by people who would otherwise be employed in hierarchical organizations, but who now can “go freelance” thanks to the blessings of digital technologies (digitally enabled independent professionals).
The phenomenon does not merely apply to markets for labour intensive services, turning waiters, cleaners, caregivers, builders or drivers into independent self-employed professionals. Reportedly, knowledge-intensive industries and creative occupations are the fastest-growing segments of the freelance economy. According to Source Global Reach, 40% of clients in the consulting industry use an even split of consulting firms and independent consultants. The rise of bloggers, vloggers, social media journalists and other content creators in the media and entertainment industry is evident. This is particularly visible in sports – digitalization leads to the emergence and professionalization of new sport disciplines (if this is the right word to describe action sports such as BASE jumping, parkour or extreme off-piste skiing) and new forms of spectator participation in such disciplines.
Digitalization not only leads to the creation of new, digitally enabled, types of independent work, but promotes further emancipation of traditional independent professionals. Journalists no longer need to rely on traditional platforms provided by traditional media companies, such as newspapers or TV outlets. They can blog or twit. Professional athletes in traditional disciplines no longer need to rely on media relations and intermediation of their sports federations, clubs or agencies to access fans and monetize or otherwise benefit from those contacts. They can run promotional or social activist campaigns themselves on YouTube or Facebook, and, if necessary, use other independent professionals as on-demand consultants.
However, riding the uberisation wave also has its risks and challenges.
After emancipating from their employers, digitally enabled independent professionals can become dependent on and vulnerable to their very benefactors – providers of digital tools (in particular digital platforms) that enabled their emancipation in the first place. Atomized as they are, they can also become exposed to the crushing buying power of their larger clients. They may lack the benefits found in economies of scale and the institutional support provided by traditional organizations, which may still come useful should an independent professional need to protect him- or herself against abusive private or government practices, e.g. in strenuous litigation or in a lobbying campaign. This may be particularly important given that digitally enabled independent professionals often operate in unregulated realms or transcend traditional regulations. This will sooner or later cause a regulatory intrusion into their activities, which will not be easy to manage without engaging in exhausting court battles or regulatory disputes, as the examples of Uber and Airbnb have already managed to demonstrate.
The answer to this problem is consolidation. The laws of many countries (including the laws of Poland following their recent reform) allow independent professionals to establish and join trade unions. However, this traditional form of economic federation is often poorly suited to the needs of independent professionals, whose approach to work is individualistic rather than collectivist, and who value career security over job security and want to learn and grow quickly in a fast changing workplace that provides ample internal mobility and varied project-based work, allowing them to keep their skills and networks vibrant.
Professional associations, or even less formal creations such as – communities of practice – seem to be better suited to the collaboration needs of independent professionals. They facilitate growth through exchange of experience and information among members. They allow members to join forces in acquiring resources or selling services, while maintaining flexibility. Yet, compared to trade unions, they may be short of specific legal tools needed to properly represent their members. For example, they may be unable to trigger collective bargaining procedures prescribed for trade unions by law and may even face antitrust consequences if they try to engage in negotiations on behalf of their members and face overly zealous and formalistic antitrust agencies unwary of the peculiarities of the gig economy. Freelancer groups may find themselves in a legal limbo given that they are not trade unions but can, at the same time, be denied the status of business associations by those unwilling to take notice of the rise of significance of the freelance entrepreneurial sector and importance of its benefits but rather prefer to see it merely as an intensification in sham contracting. As a result such groups may be unable to avail themselves of the prerogatives enjoyed by either trade unions or business associations.
The disruption of traditional business organization structures which accompanies the rise of independent professionals also poses legal challenges as it puts pressure on traditional legal concepts and institutions of liability suited for handling traditional industrial relationships.
Hierarchy comes with responsibility for those at the top and relative legal security for those at the bottom. An employer is liable towards third parties for the actions of his employees primarily because of the latter’s hierarchical dependency and the former’s power.
How should liability be distributed in a holacratic, task-based structure where power and decision-making are essentially distributed to all individuals? Should liability be joint, several, or joint and several, as it is in various kinds of partnerships? What should be the rules governing each member’s participation in liability. Should an independent professional be fully liable for the consequences of a professional error he or she has made when someone else enjoys a significant part of the economic benefits of his or her work? Or should the default rule be that risks follow benefits. These questions are not new. They have been asked and pondered upon in many cases involving traditional independent professionals (e.g. in cases involving professional liability of lawyers and law firms, doctors and hospitals, etc.). But the scale and diversity of new independent work and emerging new models of collaboration which come with it make answering these questions particularly challenging in the current circumstances. Much time will probably pass before case law properly addresses and settles all the relevant nuanced factors and peculiarities of various kinds of digitally enabled independent work.
Shaping contractual relations and resolving conflicts in holacracies
The rules concerning contractual relationships governing and making up holacratic platform structures also will not be easy to draft, interpret and enforce. On one hand, independent work is said to be characterized by short-term or even one-off arrangements rather than relational deals. At the same time, these one-off arrangements related to specific tasks or assignments are often components of larger, more complex ventures not so easy to recognise and understand through the traditional lens. This interrelation is bound to affect their interpretation and enforcement, and causes issues that are difficult to address properly using traditional legal concepts, especially in codified contract-law systems. The challenge of appropriate interpretation and legal treatment of complex agreements that combine elements of various codified types of contracts un-bundled and then re-bundled or the problem of appropriate interpretation and treatment of amalgamates of interrelated agreements which are formally separate but make a commercially sensible complex whole only when joined together, is not a new problem for civil jurisdictions. Its significance will increase in the new economy and it may likely turn out that systems of uncodified contract law, much more flexible, will serve the needs of the new economy much better.
The gig economy and its collaborative culture, and the resultant great need for dispute prevention and proper management rather than the traditional conduct and adjudication, is also a huge opportunity for the reinvigoration of all forms of ADR, including arbitration, which in the traditional economy have fallen prey to juridification. The ability to efficiently manage complex multi-party and multi-issue conflicts working constructively with complex matrixes of interests instead of focusing on positions, and the ability to thereby make sure that these conflicts do not evolve into protracted legal disputes will be in high demand in the gig economy.
With the exponential growth of digital marketplaces and network economies, the size and significance of independent work will continue to grow. This is by all means a positive phenomenon. The mass economic emancipation which it is likely to bring may result in increased political awareness and participation since, according to the classical liberal saying, economic freedom precedes political freedom. It can benefit the growth of civic societies. However, as is always the case with progress, it will cause disruption and tensions in terms of traditional legal concepts and institutions. It will require an unorthodox generalized-specialised approach, predominantly in areas such as competition law, regulatory, law of industrial relations and contract law. It will also cause increase in demand for advanced conflict management skills.
Stanisław Drozd, adwokat, Dispute Resolution & Arbitration practice, Wardyński & Partners