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EU Platform Work Directive and the importance of worker classification

After two years of negotiations, European Union lawmakers have tentatively agreed on a bill to improve the working conditions of platform workers, commonly known as gig workers.

If approved, the Platform Work Directive (PWD) would require digital labour platforms to reclassify their workers as employees rather than independent contractors. The reclassification would grant platform workers labour protections, collective bargaining rights, job security, and access to social security and employee benefits.

This article summarises the proposed directive and examines the bill’s potential effects on digital labour platforms.

Background

Projections indicate that the number of individuals engaged in digital platform work in the European labour market will increase from 28 million in 2021 to around 43 million in 2025. In response to the rise in gig workers, EU lawmakers proposed the PWD in December 2021. The PWD’s primary objective is to provide a comprehensive regulatory framework that protects the rights and working conditions of gig workers. The bill also strives to:

  • Balance the flexibility of the gig economy with the well-being and rights of gig workers
  • Create standardised labour regulations, including what constitutes an employee and an independent contractor, for platform work across the EU

Elisabetta Gualmini, a member of the European Parliament (EP) who led the initiative, hailed the proposed bill as a "historic" measure that could correct the misclassification of gig workers as self-employed by digital labour platforms like Uber, Deliveroo and Helpling.

"There cannot be false self-employed workers hanging around among riders, among the categories of work that are among the most exploited, among the least paid and among the most precarious,” Gualmini told Euronews, noting that millions of gig workers have been deprived of their basic workers' rights due to incorrect classifications. “If you are a real self-employed person or you are an employee, you deserve those social protections."

The PWD would also require digital labour platforms to inform gig workers when algorithms monitor or supervise them. This is because the lack of transparency in algorithmic decision-making can leave gig workers uncertain about how decisions are made and how their personal data is utilised. Moreover, the bill would require digital labour platforms to provide human oversight on the algorithms used to assign jobs to gig workers to guarantee that fair working conditions are met.

“Our agreement ensures a mechanism to correct bogus self-employment, based on the actual working conditions and transparency of algorithms,” Gualmini said, adding that the bill would restrict platforms from processing personal data, including private conversations and information related to political opinions, race, health status and migration.

“It guarantees that trade unions and worker representatives will be able to collectively bargain on platform working conditions. It shifts the burden of proof of the type of contractual relationship from the gig workers to the platforms.”

Determining employment status

If platform employers engage in at least two of the five behaviours listed as indicators in the bill, they must classify workers as employees. These indicators include:

  1. Placing upper limits on the amount of money workers can receive
  2. Supervising performance, including by electronic means
  3. Controlling the distribution or allocation of tasks
  4. Controlling working conditions and placing restrictions on choosing working hours
  5. Placing restrictions on workers’ freedom to organise their work and placing rules on worker appearance or conduct

Valdis Dombrovskis, the European commissioner for trade, discussed the bill’s criteria and stressed the importance of worker classification.

“Of the 28 million platform workers [in Europe currently], there may be up to 5.5 million whose contractors describe them as self-employed, but in reality, they are regularly checked and supervised — this effectively makes them employed workers,” Dombrovskis said. “They should have the labour and social rights that correspond to this status, such as working time and health protection, minimum wage, unemployment, sickness and old age benefits.”

Next steps for employers

The tentative agreement will need to be approved by both the Council and the EP. Following approval, the 27 EU member states will have two years to implement the directive's provisions into their national laws.

In the meantime, organisations hiring workers in the EU must be mindful of the implications of the PWD, especially, of course, organisations that hire through a platform. Here are some items multinationals operating in the EU should consider:

  • Employee benefits and tax remittances: Organisations now hiring workers as independent contractors through apps in the EU may, in the future, need to provide benefits and pay employee income and social taxes to local authorities. 
  • Permanent establishment risks: If adopted, the PWD’s rules will likely create permanent establishment — or corporate tax-presence — risks in the EU for some digital labour platforms. Essentially, to pay workers as employees rather than independent contractors as necessitated by the bill, some multinational organisations may need to establish a new legal entity or entities in one or more EU member states. Depending on your local strategy, there may be other options, such as using an employer of record (EOR) as a temporary or medium-term option. It should be noted that each country has its own tax rules and enforcement practices, and permanent-establishment determination is a notoriously complex area, so seeking third-party assistance will likely be essential for organisations seeking to minimise risk in this area.
  • Data privacy policies and practices: The bill underscores the importance of safeguarding employees' personal data. Assuming they are already compliant with the GDPR, digital labour platforms may need to update their data privacy policies and practices to comply with the PWD. 
  • Worker locations and activities: To understand risks related to worker classification, permanent establishment, data privacy and more, multinational organisations should securely track and continuously update where they hire workers, the number of workers engaged, activities performed, the number of hours worked and other information.

The EP has proposed that digital labour platforms failing to comply with the PWD be subject to financial penalties. However, under the provisional agreement, the decision to impose fines lies with each EU member state.

While the PWD has implications mostly for digital platform providers, it should also serve as a reminder to all multinational organisations about the importance of correctly classifying workers under local laws. Countries in and outside the EU are intent on enforcing worker-classification rules, not only to protect workers but to ensure that companies pay their perceived fair share of taxes. To give one prominent example, Nike may face fines of over $530 million for misclassifying thousands of workers as independent contractors instead of employees in the US, UK, Netherlands and Belgium.

Any multinational organisation that pays independent contractors across borders should understand their risks, obligations and options and regularly review their activities in light of changing local laws and regulations.

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