Let’s examine taxi scheduling and courier services. Drivers for taxi-scheduling apps are “small business owners” who choose when they come to work, but once they are working, are subject to strict algorithm-driven control. They are only given a few seconds to respond to a ride request routed by the app and are not told the customer’s final destination until they have picked them up.

If the drivers miss a certain number of requests, they are automatically logged out of their smartphones for a set amount of time, much like a penalty box where they are unable to see and respond to ride requests. They are subject to an instant feedback mechanism where the passenger rates the driver and his or her vehicle. These ratings are monitored, and taxi-scheduling apps can deactivate drivers should their ratings fall below a certain threshold.

In cases like these, the small business owners (the hundreds of thousands of drivers all over the world who drive for Uber, Lyft, Ola and others) never actually see a human being from the company for which they work. Their entire contact with the firm is limited to the app on their smartphones that links them to the taxi hailing business.

They are, in effect, working for a robot – a computer program. This program is ruthlessly efficient and is devoid of feelings. If the numbers don’t add up, you are out.

In the new-age marketplaces, none of this is considered an employee-to-employer relationship. The drivers, who are small business owners, simply contract with the computer program at the taxi-hailing firm. As Joseph Campbell said: “Computers are like Old Testament gods; lots of rules and no mercy.” And therein lies the rub. If a worker is not an employee, then how does one fault a marketplace organisation for predatory practices?

We might see trade unions soon at a variety of services enterprises, in an attempt to “humanise” the relentless algorithms of these computer programs.

Uber, for instance, is in talks with drivers in the US over a dispute on whether they are to be considered employees. And there are cases being brought by unions against firms such as Uber at employment tribunals in the UK. The UK’s Supreme Court has recently sided with Uber’s drivers who filed suit and declared that they are in fact employees. The Court has referred the matter to the employment tribunal to draft necessary policy (Uber BV and Others vs Aslam, Farrar and Others, case number 2202550/2015 and others).

Some time ago, during the US presidential election, Uber and other gig-economy firms had won a big legal victory in California. During a presidential election, other referendum choices are also on the ballot in each state. California carried a referendum in the 2020 election on a yes/no vote on a measure named Proposition 22. It was critically important to firms such as Uber, Lyft, DoorDash and GrubHub. These businesses that use “casual” workers had threatened to leave the state had the measure not been voted in. They wanted their drivers and food deliverers classified as contractors and not as employees.

They have become a part of our day-to-day life and been valued in the private equity world as well as public markets at tens of billions of dollars, but gig economy companies operate on precarious business models.

For example, ride-hailing or delivery companies such as Uber and Lyft often lose money on every delivery made and every ride given. In other words, their “unit-economics” are such that they are losing money as companies for each transaction they undertake. Uber’s loss before interest and tax was $625 million in 2020’s third quarter. Over the 2020 financial year, its net loss was $6.8 billion. A lot of this has been attributed to the pandemic. Such companies have signalled that they can turn profitable as soon as the administration of Covid-19 vaccines helps reopen economies across the world.

But running a profitable business needs a company to both attract new revenue as the pandemic recedes as well as keep its costs down. Employee classification would have given rise to a slew of labour rights that today’s gig workers, as “independent contractors”, do not enjoy. It would therefore have raised costs for gig economy firms, which, in the face of the pandemic-induced decline in revenues, would mean that their expectations of turning a corner to profitability would have received a jolt.

Workers for gig companies in California will not have the same rights as other employees to paid sick days, overtime pay, unemployment insurance or a workplace covered by occupational safety and health laws.

California’s Assembly had tried to head this off earlier with a law of its own called Assembly Bill 5 (AB5), which would have guaranteed these rights. According to the Los Angeles Times, one lawmaker, who wrote AB5 and opposed Proposition 22, said: “Instead of paying their drivers, gig corporations forged a deceptive $204-million campaign to change the rules for themselves and provide their workers with less than our state laws require.”

After spending over $200 million in California, Uber and other gig companies managed, through slick marketing, to convince the state’s otherwise left-leaning electorate that they were actually going to pay their drivers and delivery agents well. But according to the National Employment Law Project (NELP), the truth was that someone driving an average of 35 km every hour in a 40-hour workweek would make $287 less per week after Proposition 22 passed. This is in addition to a slew of healthcare and other reductions. The NELP said a “permanent underclass of workers has been created”.

Uber has faced its share of legal troubles outside the US. It conceded defeat in China and sold out to Didi Chuxing, its largest competitor there. It has also been facing flak in Europe and the UK. In France, Uber lost a decision at the country’s top court last year, meaning that its drivers had the right to be considered employees.

In other parts of Europe, such as Germany, Italy and Spain, Uber’s labour practices have raised the hackles of local taxi unions, which have so far been able to convince lawmakers to limit its availability.

But beguiling an electorate into making a convenient choice, itself a gargantuan effort, would seem to be easier than convincing justices of supreme courts. In a continuance of Uber BV and Others vs Aslam, Farrar and Others (case number 2202550/2015 and others), Uber suffered a major defeat in Britain, one of its most important markets, when that country’s Supreme Court said a group of drivers should be classified as workers entitled to a minimum wage and vacation time.

The British Supreme Court justices ruled unanimously that Uber behaved more like an employer by setting rates, assigning rides, requiring drivers to follow certain routes, and using a rating system to discipline them, though it claimed it was only a technology platform that connected drivers with passengers. For now, this decision is limited only to the twenty-five drivers who originally brought the case. The ruling will be relayed to an employment tribunal to determine how it will affect all Uber drivers in Britain.

Unsurprisingly, Uber is playing down the court’s decision, saying it will press the employment tribunal to limit the ruling’s scope. However, anyone with a basic sense of logic can see how this would cascade down to the 60,000-plus Uber drivers in Britain and reverberate well beyond that country’s borders. Its impact will also go beyond Uber to other gig economy firms that rely heavily on casual workers.

In India, we are somewhat isolated from such issues. Our disposition towards “informal economy” workers has had laissez-faire attitudes. It’s thus a surprise to see an attempt at ensuring that food delivery agents and ride-hailing drivers get some social security benefits under a revised labour code. How gig employers will resist this in India remains unknown.

A Siddharth Pai is a co-founder of Siana Capital and a venture capital fund manager for deep-science and deep-technology start-ups that ideally have social impact.

Techproof Me: The Art of Mastering Ever-Changing Technology

Excerpted with permission from Techproof Me: The Art of Mastering Ever-Changing Technology, A Siddharth Pai, Penguin Portfolio.