Regulatory considerations in the new gig economy
The freelancer vs employee dichotomy has been around for a long time.
The difference now is that more people have a freelancing mindset and are willing to challenge the traditional full-time employee approach. A flexible schedule, work diversity and, most particularly, a sense of independence, have become priorities for many who do not settle for a nine-to-six lifetime job. The result is that a growing number of freelancers are joining the workplace, resulting in the new, so-called “gig” economy.
Some business commentators are questioning whether legislators should properly address this rising form of work. But are new rules truly necessary? Or would they instead curtail the liberty which is inherent to the freelancing model?
The rationale of labour regulations is, generally, to protect employees against abuses from their employers. These could be extended to freelancers if they are considered to bear the same risk.
However, let’s imagine that the relevant freelancer was a company instead of an individual.
In such a case, we would not be as concerned about potential abuses by its clients. If the client breached the terms of the services agreement in place, the (freelancer) company would be entitled to terminate the agreement and claim damages as appropriate – just like in any other private business relationship. Can we extrapolate this example to a “natural person” freelancer?
In my opinion, we could – and, in fact, there are many freelancers operating through sole shareholder companies – as long as:
- There is a solid and validly-formed contract between the “natural person” freelancer and the client; and
- The former has real, legal mechanisms to be able to enforce its rights under the contract. A good example of this is Singapore’s Tripartite Standards, which provide a set of official guidelines to market players when engaging “self-employed persons”. This is often combined with the Tripartite Alliance for Dispute Management, which provides advisory and mediation services, and the Small Claims Tribunal, which is designed to be low-cost and expeditious.
How about pensions and insurances? In my opinion, these are already publicly and/or privately available in most countries and the key question is whether freelancers can reasonably afford them. In this regard, private institutions and governments should offer attractive products which cater to this rising working population and, its significant market potential. I believe laws of supply and demand should suffice in order to guarantee viable solutions moving forward.
Now let’s look at the issue from the employer or client’s perspective. Can a company be incentivised to engage an individual as a freelancer rather than as a traditional employee? Certainly, the generally-lower statutory costs and benefits, combined with the termination flexibility, could make the arrangement more attractive. Should legislators therefore prevent or limit employers from engaging individuals as freelancers instead of employees?
In my opinion, they shouldn’t.
Employers ought to have the freedom to decide which engagement model best suits their particular needs. We should dispel the misconception that engaging freelancers will always be companies’ preferred choice. Is precisely because of the transitory nature of such engagements that companies could find it challenging to manage some important aspects of an ordinary working relationship. Tasks such as conveying company culture, properly transferring business intricacies, implementing individual development plans, providing internal networking opportunities, and managing the risk of information leakage all become more difficult when freelancers are engaged.
What if a company engages an individual as a freelancer but both parties actually behave as in a traditional employer-employee relationship? It is generally challenging to differentiate freelancing and employee relationships and most court judgements allude to an array of determining factors that make it difficult to navigate.
I propose we eradicate this rambling exercise and go back to general contract principles where the parties’ intent (to conclude a freelancing relationship) prevails. However, for this to work, individuals should be aware of exactly what they are signing up for. If this stands, I believe companies will still need to offer attractive enough terms in order to have access to and retain the best freelancers in the market – just as they would do with regular employees.
So, in conclusion, I would urge legislators to ensure that any new regulations do not prevent two (natural or legal) persons from autonomously deciding whether to be contractually linked by means of an employment or freelancing relationship. I would further hope that the relevant legal system also does provide these individuals with a clear set of guidelines to help them understand their rights and obligations, as well as to anticipate future uncertainties.
There should also be an efficient and affordable dispute resolution mechanism in place, allowing all parties to effectively enforce their contractual terms.
About the Author
Carlos Estrada is Head of Legal and Compliance for Adecco Group Asia-Pacific and will be a key panelist at HRM Asia's Asia Employment Law Congress on June 19 and 20, 2018.
This article reflects his own personal views only and not necessarily those of his employer.