Proposed EU directive could classify most workers and contractors as employees

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Will some recruitment platforms cease to be commercially viable, and will traditional outsourcing and consultancy arrangements in the EU be affected?

Many would agree that low-paid workers regularly operating through digital work apps and platforms and working under some control should have basic employment rights (to the extent that they are not under existing laws) . However, the EU’s latest plans to tackle this problem go far beyond tackling obvious “employment” situations of low-paid platform workers. Potentially, a wide range of staffing and consultancy arrangements will also be affected, which will hurt the profitability and convenience of existing casual labor and platform worker arrangements.

Perhaps the main problem with the proposed directive is that it contains a very strict employment status test, capturing many entrepreneurs who would otherwise be considered self-employed. Another potential problem is that the definition of “digital labor platform” is so broad (to avoid loopholes) that it can catch many contractors working through traditional staffing firms. And the proposed directive may mean that recruitment platforms and companies that operate outside the EU (based in the US or the UK, for example) and organize the work of individuals in the EU will have to establish and pay taxes (including VAT) in each EU country the workers are based – significantly increasing their operating costs and tax liabilities.

The digital gig economy

It is currently estimated that around 28 million people work via digital work platforms in the EU. This figure is expected to rise to 43 million by 2025. According to the European Commission, nine out of 10 of these platforms currently classify the people who work there as self-employed. Much like in the UK (e.g. taxi app cases) and the US, the rise of digital work platforms (often referred to as the “gig” or “platform” economy ”) has led to a significant number of court cases in recent years around the world. EU regarding the classification of the employment relationship between the worker and the digital work platform.

On 9 December 2021, the Commission launched a legislative proposal to reform the conditions of workers in digital work platforms in the EU. The Commission says the aim of its proposals is to improve working conditions for platform workers, support the sustainable growth of digital work platforms in the EU and provide legal certainty. The proposals include a draft directive, which focuses on the employment status of platform workers and proposes new rights for people managed by algorithmic technology. EU lawmakers also want to improve the visibility and “traceability” of work on platforms by requiring platforms to report work to authorities at national level – to support enforcement of legal requirements and ensure that security contributions social are paid where the work actually takes place.

What is a “digital work platform”?

The definition proposed by the Commission of a “digital work platform” is extremely broad, including any natural or legal person providing a commercial service which is provided”at least in part” remotely by electronic means and at the request of a recipient of a service – and involves, as a necessary and essential component, the organization of work carried out by individuals, regardless of where this work is There are only limited exceptions to This definition encompasses any business whose core business is “work done by individuals”.

Since even traditional staffing companies and consultancies are now using electronic means to automate parts of the matching, resourcing and payment processes, this could affect many staffing companies who otherwise would not typically not considered actors or platforms in the gig economy. For example, it could be an organization that provides professional consulting services using freelance consultants and matches the consultant to a particular project using algorithms, or a small business providing a personal service that provides also an aspect of online services (as a form of “electronic means“).

Presumption of employment

The proposed presumption of employment at the heart of the new status test. The draft directive provides a list of five criteria that demonstrate “control” over any individual. If the digital work platform meets only two of the following five criteria, there is a presumption of use:

  • effectively determining or setting ceilings for the level of compensation;
  • require the person performing a platform job to comply with specific rules that are binding on appearance, conduct towards the recipient of the service, or performance of the job;
  • supervising the execution of the work or checking the quality of the results of the work, including by electronic means;
  • effectively restrict a person’s freedom, including through sanctions, to organize their work; in particular, the freedom to choose working hours or periods of absence, to accept or refuse tasks, to use subcontractors or substitutes; Where
  • effectively restricting the possibility of building up a clientele or carrying out work for a third party.

While platforms (and other entities caught in the digital labor platform definition) would be able to rebut the presumption of employment, this would constitute, for many people involved in the use of casual labor , a significant change in the power dynamics between individuals, users and intermediaries (including platforms). The “platform” would have to prove that the relationship was not actually an “employment relationship”, as defined in the relevant national law, in order to rebut the presumption. The clear criteria proposed by the Commission aim to provide platforms with greater legal certainty, reduce litigation costs and facilitate the planning of activities.

Will there be ways to circumvent this directive?

What changes will platforms, recruitment companies, consulting firms and other intermediaries have to make to circumvent the directive? In addition to shifting the burden of proof of workers’ employment status to the platforms, the proposal states that any legal challenges brought by the platforms in an attempt to rebut the presumption”has no suspensive effect on the request– this means that they must treat workers as employees during any period they try to overturn that status. It is likely that the mechanism for individuals to challenge their status would remain the same as it is now, such as challenges legal proceedings or disputes before national labor authorities.However, the impact of the new legislation is likely to encourage more applications for employment status, as it presents an easier route to success for individuals: they do not will only have to raise the issue, then all the work will fall to the platform to prove that they are not the employer.

The Commission has denied trying to end the gig economy model. He argued that platforms that don’t want to have to reclassify dozens of workers will be able to adapt their systems and adjust their models to reduce the level of scrutiny they apply, so that workers can be considered truly self-employed.

Valdis Dombrovskis, Executive Vice President of the Commission, said:Platforms can respond to this by adjusting their relationships with their contractors if they prefer to retain independent status – but that means less systemic control over those independent contractors… Or if they think their particular circumstances merit, they can always challenge that presumption, but at least it lays down clear criteria which would be uniform criteria across the EU.

Statement of working conditions

In other words, we are likely to see a growth in truly outcomes-based SOW formulas. But this won’t be a simple tick-box exercise: the shift to a results-based statement of work (and away from timesheet-based systems) will be a major transformation for many organizations. . It’s a good thing that there has been an increase in the functionality of software designed to help organizations monitor the production of their workers. Any move to move to production-based procurement will likely require widespread adoption of this technology.

The proposed legislation would also impose an obligation of transparency on digital work platforms. Platforms would be required to provide workers with specific information about the control and decision-making systems used and the impact of these systems on workers’ working conditions, such as their access to work assignments, income, working time, occupational safety and health, etc.

What happens next?

The legal status of platform work is a complex issue and constantly poses challenges to traditional labor and employment law in the EU and beyond. At the moment, there is no specific timetable for this to become binding law. The directive will need the support of the European Parliament and member state governments, via the European Council, (probably with amendments) before it can become EU law. But the Commission noted widespread support from MEPs for legislation to protect gig workers.

The Commission has indicated that it wants this to become law by 2024, when the current legislative session ends. If passed, the practical impact could still take some time to be applied, as EU member states would have two years to incorporate the legislation into national law. Indeed, the proposed legislation is a directive and not a regulation (like the General Data Protection Regulation, which would be directly applicable in the law of the Member States) and, therefore, must be transposed into the national law of each State. member. But, in some countries, the implementation can be done quite quickly.

Comment from OC

The directive is not yet law. However, it seems to have broad support and should be adopted and implemented in every EU Member State. Non-EU countries can decide to follow suit. For example, any new government in the UK may decide to adopt a similar approach.

Will this lead, in due course, to a reversal of the burden of proof in relation to the tax status of independent contractors in areas such as IR35 in the UK and international social security schemes as well ? We suspect tax authorities like HMRC would like that to happen.

We recommend that everyone involved in the use of contingent labor familiarize themselves with the proposals and consider what steps they may need to take to address the risks.

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