Companies operating in the gig economy have been subject to industrial action and legal challenges. Workers say they are being denied basic rights; platforms reply this is the price of flexibility. But there is a viable middle-ground which can be beneficial for all, including investors.
Read this article to understand:
- Why engaging to reform gig economy companies’ business models should matter to investors
- How platform companies’ business models pass the burden of risks and many costs onto workers, and how investors can look beyond the smoke and mirrors
- The choices investors need to make between short-term profits and long-term sustainability, and what they can do to support models that benefit all parties
Gig companies capitalise on vulnerable people, and they are a perfect incubator for anxiety. You are constantly scared of losing your work, and you can’t get time off to deal with any mental health issues. And the lack of due process for terminations, the lack of rights and all these things take their toll on workers’ mental health
Although the term ‘gig’ was coined in 1915 by jazz musicians, today’s gig workers encompass independent contractors, consultants, freelancers, temp agency workers, on-call workers, and contract company workers.1 These types of jobs have existed for many years, but the last category – contract company workers – has formed the basis of business models for some firms, many connecting workers and customers through an online platform or application, from food delivery to ride-hailing apps, leading to the advent of the expression ‘gig economy’ in 2009.2
While platform work still represents a small proportion of overall economic activity, it is growing fast. According to a 2019 report by Mastercard, global gig-economy transactions are forecast to grow by 17 per cent a year to around $455 billion by 2023.3 The model is also becoming more pervasive across sectors, from supermarket deliveries to professional and household services.4
According to recent research, digital platforms are on the rise because they allow both businesses seeking employees and individuals seeking work to connect more easily, reducing friction in the labour market. They also help businesses reduce costs by allowing them to respond ﬂexibly to ﬂuctuations in demand, without ﬁxed labour costs. The business model also benefits companies by exempting them from offering workers full employee benefits and protections since the workers are recruited as independent contractors.
Meanwhile, consumers beneﬁt from the increased availability of goods, especially in diﬃcult economic times. This means platforms increase consumption opportunities, stimulating prosperity.5 The fact Uber accepted one billion rides in its first five years of existence is testament to customers’ enthusiasm.6
The gig economy can also benefit workers by making work more adaptable to their needs and lifestyles. Many cite flexibility, autonomy, and work-life balance as central benefits, particularly for those who work gigs to make money on the side or while looking for more stable long-term employment.7
“The boom in app-based work is also due to the nature of people’s lives now,” says Alex Marshall, president of workers’ union Independent Workers of Great Britain (IWGB). “This idea of being able to work flexibly around picking up the kids, instead of two people in the household having to go out and work full time, works for a lot of people. That was one of the draws for me. But flexibility does not have to come at the cost of workers’ basic rights. Companies are always very quick to separate the two and suggest they are mutually exclusive, but we know this is not true – as has been proven with Uber.”
At the same time, the gig economy has some significant downsides due to the erosion of traditional economic relationships between workers, businesses, and customers. The promise of earning a decent living flexibly has not been borne out for many workers.
In 2021, non-profit publication Rest of World and research company Premise surveyed almost 5,000 gig workers across 15 countries to understand how platform work is experienced around the world. They concluded that while it has idiosyncratic features dependent on geography and local culture, gig workers face similar challenges everywhere: insecurity, anxiety, low wages, and high costs.8
Following a boom in platform work over the last few years that spelled worsening conditions for many, workers have been organising and coordinating globally to push back against precarity, opacity in the way companies and app-based networks operate, and a lack of basic rights like a minimum wage or sick pay.9
Meanwhile, many platform companies present the issue as an existential one, hoping to convince policymakers and investors that giving workers more rights would put them out of business, although unions contest this. For instance, a researcher at the Fairwork Foundation quoted by Rest of World said platform companies make enough money to provide minimum guarantees for workers.10
This poses serious questions for investors. Do they want to support companies that exploit their workers and strip back longstanding labour rights? Should they trust in platform companies’ current business models? Will those companies remain viable if they offer workers better rights? Can a solution be found that benefits all parties?
Why this matters for investors
The Rest of World research says gig companies can outcompete and potentially replace incumbents because they are not confined by the social and regulatory obligations that slow traditional companies’ growth.11
“The advent of app-based work has led to a boom,” says Marshall. “It is no longer just couriers and private hire drivers. We're seeing cleaners, beauticians, nannies and so many different types of work now being driven by gig.”
Rachel Hargreaves, senior project officer at non-profit organisation and responsible investment advocate ShareAction, says there is also more gig work in the economy than investors may realise, notably through subsidiaries.
“For example, e-courier is a subsidiary of Royal Mail but never appears in any of its reporting,” she says. “Most of the supermarkets have contracts with last-mile delivery companies, and a lot of other companies use gig platforms. Investors need to think about where this type of work may take place in all of their investee companies, not just in gig companies.”
The scourge of inequality
As the platform model spreads, however, so too will its social and economic impact. Poor pay and job insecurity lead to rising income inequality which, according to a 2018 report by the Principles for Responsible Investment, “has the potential to negatively impact institutional investors’ portfolios as a whole; increase financial and social-system-level instability; damage output and reduce economic growth, and contribute to the rise of populism, extremism, isolationism and protectionism”.
As the platform model spreads, so too will its social and economic impact
The report adds this can negatively impact long-term investment performance and destabilise the financial and social systems in which investors operate.12
Quoting sociologist Colin Crouch, professor emeritus at the University of Warwick, the Rest of World research also explains insecure work means people are more likely to need social support. Broader society is therefore bearing the costs of platform companies’ practices, through unemployment benefits or other forms of social welfare, public health services or public-funded transport.13
Key investment risks
Investors also face more direct risks. Tom Powdrill, head of stewardship at corporate governance expert Pensions and Investment Research Consultants (PIRC), sees two sets of reasons investors should care about gig economy developments; one that supports workers’ rights and one that is more ambivalent but presents a key financial risk.
“For an asset manager, it's going to depend on the nature of the mandate from the client,” he says. “Some asset owners want to promote decent work in its own right. Hence, even if it's legal for certain employment relationships to continue to exist, they might be exploitative, and investors might want to either engage with those companies or ultimately not hold their stock if that employment relationship doesn't change.
“But secondly, these issues are absolutely financially material; you can see it just by watching the share price of companies when there are developments in relation to the employment relationship,” he adds. “For example, when news of an EU directive on gig workers came out late last year, the shares of gig companies took a dive. That is because the market understands any substantive change in the employment relationship changes the business model.”
Most of the largest listed gig companies, if not all, are still making losses
And while some gig companies are starting to offer their workers better terms, if the market or employment law doesn't support them soon, they will be undercut by less scrupulous competitors. This is particularly true as the biggest firms mature and turn their focus to profits – most of the largest listed gig companies, if not all, are still making losses.14
Yet a ShareAction report published in 2020 found businesses that don’t offer secure work are exposed to reputational and regulatory risks, as well as the risk of industrial action, which can impact investors.15
These can materialise even where an investor is not directly exposed to companies’ gig-work model. In a recent internal review of gig companies’ ESG risks for real assets, Aviva Investors found renting space to these firms carries reputational risk, and the risk of regulatory change increasing labour costs could impact companies’ ability to pay rent.
ShareAction’s Hargreaves says regulation and litigation are key risks for investors, with case law developing and an increase in companies losing cases due to the misclassification or underpayment of workers. Last October, The Gig Economy Project reported that courts determined Helpling in the Netherlands and Deliveroo in France were both employers, while Glovo lost its 50th court case over employment status in Spain.16
Meanwhile, reputational and industrial action risks are rising. “Reputational risk has increased since COVID-19 because societal expectations have changed and there is more awareness around how we treat workers,” says Hargreaves. “If these issues are not addressed, customers will decide to go elsewhere.
“If companies don't address their workforce issues, this can also lead to industrial action which affects operations. We have seen strikes at a number of gig companies in the last few years,” she adds.
IWGB’s Marshall agrees the precarious conditions and erosion of rights has left it to workers and unions to tackle the void of regulation. “What we're doing as a union is collectivising these issues and making people realise flexibility doesn't have to come at the cost of rights and decent pay,” he says. “We are growing in numbers and finding a way to organise all over the world.
“We are also finding a way to take effective action, whether that is boycotting big clients or targeting investors and decision-makers. In targeting investors, we engage with them and make them aware of the human cost of where their money is going,” he adds. “Politically, we've had a lot of support with MPs. Public support is huge as well, especially off the back of the pandemic.”
These issues all represent ESG risks in their own right. But investors who don’t consider the human cost of platform work also risk exposing inconsistencies in their ESG approach.
“Some platform companies are being allowed to get away with poor practices with barely a whimper from the investor community. This silence is not consistent with investors’ positions and commitments on other ESG issues,” says Vaidehee Sachdev, people pillar lead and senior impact analyst at Aviva Investors.
Some platform companies are being allowed to get away with poor practice with barely a whimper from the investor community
Powdrill adds that if a fossil-fuel company sought to rewrite environmental law, it would never be tolerated by the responsible investment community. “This is what is happening with employment law in Massachusetts, it happened in California, and it will happen elsewhere, yet most people are not challenging them,” he says. “If we are going to make the Sustainable Development Goals count, this is exactly the sort of thing we should be challenging.
“It's entirely right there is a public policy debate about gig employment and where the parameters are, but it's not right this should be forced through by companies spending a lot of lobbying dollars trying to overturn longstanding employment legislation,” he adds.17
Diversity, equity and inclusion, a key engagement issue for investors, is a significant risk in platform work, according to the Rest of World research. By refusing to deliver adequate worker protections, platforms avoid progressive policies that aim to reduce systemic inequities, while opaque algorithms reliant on customer ratings tend to amplify inequality by race, class and gender.18
“There is a disproportionate representation of black and minority ethnic workers in gig work,” says Hargreaves. “Over the last two years, more investors have made statements about racial justice and equity, which is great to see, but it shouldn't just be about board-level representation. It should also be about tackling low-paid and insecure work that disproportionately affects those workers.”
Marshall views large investors in the gig economy as complicit in the poor treatment of workers, and says it is one of the motivations he finds to keep taking effective action that can cause financial risk. Yet IWGB doesn’t want investors to pull out, but rather to start supporting workers in their demands.
“We are not trying to topple these gig companies. That would mean thousands of people out of work,” he says. “In the absence of any government action, we want big investors to use their position and make sure gig companies treat workers better.”
What is happening in the gig economy?
Of course, the gig economy has some definite plus sides for workers, providing more flexibility and a sense of autonomy.
“But it's being completely corrupted to mean workers get no rights and no minimum standards,” says Marshall. “That's what we are very clear about: we are not anti-gig economy, we're not anti-flexible work. We are fighting for flexible work but for it to come with rights.”
Governments have shown little interest in regulating these companies – the platform economy helps flatter unemployment figures
Meanwhile, Sachdev says governments recognise the gig economy is positive for economic growth, and for meeting consumer demand for convenience. “Many of these companies have helped mop up a lot of the workers who were unable to access secure and well-paid work in the traditional labour market. You can see why governments have shown little interest in regulating these companies – the platform economy helps flatter unemployment figures. But in the long term, it avoids the deep issues associated with stagnating wages and in-work poverty,” she says.
Joseph Durbidge, research secretary at IWGB, believes this has contributed to the meteoric rise of gig companies. “With the advent of mobile technology, you could distribute work through a platform and circumvent the existing legal framework that would force a company to characterise someone as an employee,” he says. “It's always been a bit of a regulatory play by the companies as much as it was a technology one, and that's a huge driver as to why gig work has become about.”
One of the ways companies justify what Marshall calls a “casual misclassification of workers” is by constantly reinforcing the message flexibility only favours workers, implying the benefit must come at the expense of stronger rights.
“This is the most contested term in this whole industry,” says Durbidge. “Flexibility is very important for gig workers, but companies also need it. They didn't give it to us. If you have an on-demand service you never turn people away from, you need a huge number of riders that can log in at any one time when it gets busy. When they say they would love to give riders more rights, but flexibility is standing in the way, that's very cynical because they need it too.”
The model passes on the costs and risks of scaling activities and expanding to new markets onto the workers themselves
In fact, the model passes on the costs and risks of scaling activities and expanding to new markets onto the workers themselves. Workers typically pay for their vehicles, fuel, insurance and mobile data, so scaling up comes at little cost for the companies. In addition, workers are only compensated when actively performing a task (e.g., making a delivery or driving a customer) so it is in companies’ interest to create an oversupply of drivers to meet demand peaks, while workers shoulder the risk of scarce work or badly paid gigs, risking a penalty if they refuse an unprofitable job.
When a company enters a new market, it draws in workers with generous fees and, until there is an oversupply of drivers, enough jobs are available to make earning a decent income possible. But the more workers sign on, the more difficult it becomes for each to make a living, and many have to work increasingly long hours, to meet the loan payments on their vehicle, for instance.19
“We tend not to realise just how pervasive platform work has become around the world,” says Sachdev. “China, for instance, has the largest platform workforce in the world, accounting for 15 per cent of the workforce. A significant proportion of workers in the major cities are migrant workers – in Beijing, only ten per cent of Didi’s workers are local citizens; in Shanghai it’s just three per cent. This is the ‘grey economy’ – workers that are not recognised by the state, have limited rights and are vulnerable to exploitation. In India last year, tens of thousands of Amazon drivers went on a nationwide strike about wages and working conditions.”
This is a common playbook that continues to unfold as gig companies expand in smaller towns and other countries.
No basic rights, safety or due process
Not only does this dynamic allow platform companies to shift risks onto workers, it also enables them to keep those workers at arm’s length, denying them support, safety, job security and the opportunity to discuss management decisions and working conditions.
“The couriers are shouldering all the risks of the company because the platforms have this ‘no strings’ way of employing them,” says Marshall. “That means if they have an accident, if their bike breaks, the couriers shoulder the costs. In the meantime, the companies are cutting down on how much they're paying them per job.”
The principal downsides are the absence of basic rights such as minimum wages, pensions, holiday pay, sick pay or parental leave pay – basic rights most people take for granted – but added to this is a shocking lack of support for safety. An IWGB survey carried out in 2021 found that nine out of ten gig workers have suffered abuse and violence at work. Two-thirds have been physically assaulted, and the worst-affected victims are black and minority ethnic (BAME) workers, of whom 60 per cent say incidents of verbal abuse and violence take place as often as once a month.20
Another part of keeping workers at arm’s length is that platforms can terminate their contracts at any time, without notice, and often without any explanation.
“There is a constant anxiety about your account because you can be terminated at any moment and there is no due process,” says Durbidge. “This is probably the biggest contributor to anxiety because every time you have a problem with a customer, for example if they didn’t answer the phone and you had to leave without giving them their order, you know they're going to complain. And it’s completely opaque, so you are just hoping the following week you don't get one of these automated emails they send through.”
Ways to share the benefits
While many workers stay on the platforms for the flexibility and autonomy they offer, the downsides create unnecessary pressures and precarity.
“We should be trying to maintain the benefits to all parties, but in a way that doesn't rely on employees being the ‘liquid factor’ that makes everything work for everyone else,” says Powdrill.
In the UK, we have a worker status between independent contractor and employee
Hargreaves is seeing progress – for instance with recent European Commission proposals to enhance platform workers’ rights – but believes more can be done.21 “Often, a misconception is that you can't have both, but in the UK, we have a worker status between independent contractor and employee. A lot of people are advocating for that, as it would give the riders flexibility with more protection,” she says.22
Investors have a role to play in advocating for change but, before they can engage with platform companies meaningfully, they need look beyond the headlines.
“There are so many unnecessary elements of the gig economy that need to come out into the open: algorithm management, transparency, the lack of due process, and of course, the other, more understandable rights such as holiday pay and sick pay,” says Durbidge.
Dig for the data
What do investors need to look for, and how easy is it to find?
“Companies know any change in the nature of the relationship is a very big deal and, as such, most will usually feel compelled to disclose potential risks relating to it in their filings, because it's financially material to them,” says Powdrill. “I would expect any company that relies heavily on gig work to make disclosures about the potential risk to investors from it unwinding.”
However, while disclosures on the general risk to investors are often available, details of where and when that risk is likely to materialise are thin on the ground. With gig employment rights being fought around the world, different pieces of legislation, legal challenges and negotiations between employers and employees are ongoing in many countries.
Companies are not necessarily going to want to advertise where and when risk is likely to materialise
“That's the difficult bit for investors to get on top of, and companies are not necessarily going to want to advertise that information,” says Powdrill. “Finding it out requires resource and specialist knowledge.”
Hargreaves says some red flags investors should look for, in addition to the way companies classify workers, is the frequency of strike action, employee turnover, and if a company’s pay rate is based on tasks completed rather than hours worked, as this makes it difficult to judge whether workers are being paid fairly.
However, it is challenging for investors to access this data. “Within the sector, a high proportion of companies are still private-equity-owned, so even if investors hold bonds, there are fewer reporting requirements,” she says. “The other thing is, even for publicly listed companies, because workers or riders tend to be classified as independent contractors, they are not captured in the reporting.”
That said, several academic institutions are starting to publish research. Hargreaves mentions Fairwork, an organisation set up by the Oxford Internet Institute in collaboration with universities around the world to rank platform companies, and a university-led public database of gig worker protests due to be published later in 2022.23
“It's a good start, but I would encourage investors to take them with a pinch of salt,” she says. “A lot of people in the sector work on their own, on an app, which makes data collection quite difficult. It is good to have research but it's worth investors probing further.”
Smoke and mirrors
A tried and tested way to get more information is to engage with companies, but IWGB says investors need to push them hard.
Durbidge says investors need to look beyond headline income figures, as they don’t include the large expenses workers incur. He adds gig companies minimise their high staff turnover rates and focus on casual workers over those working full time to avoid questions on security and rights. However, what statistics on the proportion of casual workers do not show is that these companies’ services couldn’t run without full-time workers; while many workers clock in just a few hours a week, the majority of the work is done by the minority of full-time workers.24
Companies are duping people into investing using false claims about the workers and how much they are earning
Many investors and media outlets take such statistics at face value, giving a false impression of the sector. “Not only are the companies duping workers into accepting jobs that are paid far less than they should; they are also duping people into investing using false claims about the workers and how much they are earning,” says Marshall.
When food delivery company Just Eat announced it was giving UK riders more rights, Marshall says it did not consult the workers beforehand and actually used the move to outsource most of the work to Stuart Delivery, with which IWGB has a longstanding dispute over what it claims are poor practices.25
“Investors need to follow the money and work out where it's being siphoned off to. If it is ultimately funding a company like Stuart, that's not what they handed over their money for,” he says.
Durbidge adds the companies obfuscate the fact their loss-making comes from rapid expansion rather than operating costs, to justify not granting workers more rights. In large cities – where they are well established – a high number of orders, wealthy customers and high population and rider densities make the economics much more favourable than in the smaller towns platforms are now setting their sights on, with fewer riders and longer, more expensive, distances to cover.
Go to the source
“If you want to be responsible, you have to try and get to the nub of what working life in the gig economy is, and to do that you need to speak to workers,” he adds. “You can't take for granted what these companies are saying.”
You can't engage over workforce issues without talking to workers
Powdrill agrees. “You can't engage over workforce issues without talking to workers,” he says. “It sounds obvious, but many people don't do it, and engagement with companies tends to mean the investor talks to management or someone at board level. That gives you one view of the company, but it doesn't tell you a lot.
“And although it is an unusual position for people in the finance sector to adopt, we very strongly advocate for unions as well, as a model that enables employees to exercise their voice and negotiate within companies. It's something we feel is overlooked as a source of information, and something investors should advocate for,” he adds.
What investors can do
Speaking to workers is essential for investors to understand the realities and risks of gig work, but also to help put pressure on platform companies and engage with them on the right issues.
“Workers are the ones that understand the damage of algorithmic management, how they want it to be improved, what due process looks like, what fair pay looks like,” says Durbidge. “It can't just be relations between investors and the companies.”
Marshall adds he sees some worrying trends, such as rumours that newer companies that had been offering better rights for workers may be thinking of going back on these commitments to save money, or others subcontracting to unscrupulous partners.
In the face of legal challenges, most platforms will drag their feet and appeal for as long as possible
In the face of legal challenges, most platforms will also drag their feet, appeal for as long as possible and, when they lose, tweak their models to try and get away with exploiting workers for a bit longer. “But when they run out of road, a lot of them will have to pay out vast sums of money into backdated holiday, pensions, minimum wage, and breaches,” says Marshall. “Investors will be impacted then, but they're not mitigating that risk.”
Powdrill says this requires making an upfront choice, recognising that giving workers a better deal will impact company valuations, at least in the short term (on long-term impacts, see section 1). “Investors need to be clear, not only for themselves but with their clients, about what their orientation is to these issues,” he says. “Are they value-driven or values-driven? If you so choose, you have to be comfortable saying there is a case for good employee rights because you think it is a desirable end in itself.”
‘S’ comes after ‘E’
The social side of ESG engagement deserves more attention from investors. Hargreaves says given the amount of resource understandably going to environmental issues, one way to incorporate social considerations is to think about where these issues overlap.
“Some companies have been moving to electric vehicles, which is great from an environmental standpoint, but they have made changes to workers’ contracts at the same time because a new vehicle means a new contract and different fares. When engaging on something like that, investors should also consider the workforce implications,” she says.
Beyond this, Hargreaves recommends including social issues in investors’ engagement policies, as well as making strong asks of gig companies, whether on employment status, health and safety or collective bargaining, rather than just asking for disclosures. As discussed, talking to workers about these asks is essential, and joining coalitions and collaborative engagements like ShareAction’s Good Work Coalition can also be effective.26
Lobbying for better regulation and enforcement can be a powerful way of supporting workers’ rights
Lobbying for better regulation and enforcement can be a powerful way of supporting workers’ rights too, as is challenging platform companies that lobby to erode those rights.
“Even if positive moves are made there and legislation does come in, I'd urge investors to still engage with companies on these issues because law enforcement is quite low, at least in the UK,” says Hargreaves. “These businesses are also built on precarious models of working and changing those models won’t happen overnight, so investors would have to keep the pressure up.”
Over time, given the number of cases currently fought in courts around the world, definitions of gig workers’ status and minimum rights will be clarified legally.
“We have to let this play out, but we need to support employees trying to reassert their rights where they've been denied them,” says Powdrill. “But those cases take a long time, so in the short term, investors should ask gig companies to resolve these things quickly in the interest of employees.
“We have made some progress recently on investors taking account of workforce issues but, after the last two years of the pandemic, these issues deserve more attention,” he adds. “There are some good investors out there, but we need more people putting their shoulders to the wheel.”