Platform Regulation

The digital platform business model is being employed to provide innovative and efficient services in a wide range of business services, often disrupting traditional service providers.  The model is often marked by a digital services company offering the technology platform remotely, connecting users, oftentimes buyers or seller of a good or service, who may be within a single jurisdiction over may located in different states or countries. The platform model has not just been used by innovators to disrupt traditional business enterprises and ways of engaging in work and commerce, it has also disrupted a range of tax, regulatory, liability and legal models.  Governments, legislatures, courts and regulators globally are actively engaged in applying new regulatory mandates and responsibilities to digital platforms.  Some of the most common mandates involve applying traditional Employee Benefits & Protections to those who engage in platform-enabled work, Tax Collection, requiring the enforcement of Local Business Regulations, responsibility for User Misbehavior, and the requirement to provide users, especially small businesses, with Fair Terms of Service.

The appropriate classification of platform users, in particular in the context of “gig” work and commerce platforms, is a major issue facing digital platform businesses globally. Whether the platform facilitates transportation, deliveries, labor, digitally delivered products or services, or the rental of any form of housing or property, the designation of the platform users as something other than an independent third party can be a contentious and important matter.

Some believe that when digital platform users sell services to other platform users that the service provider is often acting as an employee of the platform, which in most jurisdictions carries a wide range of tax, regulatory and worker benefits mandates. Given the wide range of national, state and local employment mandates, issues are emerging across the United States, Europe and globally, from national governments to cities and localities, and all size jurisdictions in between.

AB 5 and Beyond

The state of California, home to the largest digital platforms businesses in the world, enacted AB 5 in mid-2019, high-profile and contentious employee classification legislation requiring companies to treat workers as employees if they control how workers perform tasks or if the work is a routine part of a company’s business. After the pitched battle over enactment, litigation quickly has followed. The San Diego City Attorney filed a complaint against Instacart last September and California Superior Court Judge Timothy Taylor ruled in February that the company was likely misclassifying some shoppers. Independent truckers earned a stay in federal and state courts based on federal preemption due to federal law regulating interstate shipping, but a federal suit filed by Uber and Postmates did not achieve an injunction.

The biggest test of the law and its advocates, who are most focused on the practices of the largest gig labor driving and delivery platforms, is the lawsuit filed by California’s Attorney General and city attorneys from Los Angeles, San Francisco and San Diego against Uber and Lyft claiming that the companies have intentionally misclassified drivers as independent contractors rather than as employees. Uber, Lyft and other large gig work platforms are fighting the suit and have engaged in legal and political maneuverings to protect their business model and the ability of their users to remain independent contractors, which many workers support. The legal fight over the “ABC Test” incorporated in AB 5 could revolve around the issue of worker independence for contractors, a concept that appeared in California Superior Court Judge Taylor’s February ruling focused on Instacart, where he noted the importance of workers being “true free agents.” This issue appears in line with changes Uber, in particular, has made to its policies in California to reinforce the independence of its driving users.

Beyond California – Rise of the Freelancers

Concerns over the negative impacts of AB 5 on more traditional freelancers such as writers and musicians, who often greatly value their independence, gained attention after California’s AB 5 went into effect. A landmark 2016 study of both traditional and platform-enabled independent workers revealed that almost three-quarters do it voluntarily, often as second jobs, and greatly value it, often more than traditional work. Prior to the COVID pandemic economic slowdown, Gallup polling data indicated that almost no independent or gig workers reported that they could not find a traditional job. Freelance writers have emerged as particularly eloquent advocates against such laws.

New Jersey appeared to step forward in the second half of 2019 to claim the mantle as the most aggressive East Coast jurisdiction aiming to regulate gig worker platforms. In November, the NJ Department of Labor and Workforce Development determined that Uber drivers should have been classified as employees and fined the company $649 million for unpaid unemployment and disability insurance. While it appeared that New Jersey’s legislature would follow up with an AB 5-style law, stories of the negative impact of the California law on freelancers, such as writers, photographers and other skilled professionals, emerged in New Jersey and AB-style legislation failed at the end of its 2019 legislative session due to opposition from a range of freelancers and traditional entrepreneurs. Across the Hudson River a similar dynamic developed, where freelancers quickly mobilized following the announcement of Governor Cuomo that worker classification legislation was a 2020 priority. Finally, on the litigation front, the U.S. Federal Court of Appeals for the Third Circuit has ruled that the worker classification issue for Uber drivers should be considered at trial, overturning a previous District Court summary judgement ruling in Uber’s favor.

International Happenings

Litigation regarding the proper classification of platform-enabled independent workers is well underway in many jurisdictions. France’s top court has ruled that an Uber driver who left the service in 2017 and sued the company for a range of employment-based benefits should be considered an employee. The Cour de Cassation upheld a decision by the Paris Court of Appeals that the driver did not qualify as a self-employed contractor, but instead was acting as an Uber employee, because he could not build his own clientele or set his own prices, making him a subordinate of the company. The ruling does not immediately apply to all Uber drivers in France, let alone other “gig” work platforms, but the decision could have significant ramifications for other similarly situated platform service businesses.

Similar litigation is underway in many jurisdictions. It is increasingly clear that the level of control that a platform places on a worker-user is a key consideration. Like in Paris, Uber has been appealing a similar case in London that began in 2016. The level of control imposed on users by platforms, was a key distinction raised by the European Court of Justice in recent regulatory decisions related to Uber, and later, AirBNB (which was adjudged to give users more independence). Receiving less attention than the decision in Paris, European Parliament legislation on gig work platforms enacted last year calls for a wide range of worker protections and benefits to be imposed on a company or platform once a person works 3-hours per week and further gig work regulation is expected to be included in the EU Digital Services Act to be crafted started in the fall of 2020. Finally, EU Commissioner and VP for Digital Policy Margrethe Vestager has opined that gig workers should have the right to organize for better wages and conditions.

Digital platforms often facilitate commercial activity that has occurred for many years in the traditional economy. In many cases, these platforms enable very small businesses, individual entrepreneurs and even casual part-timers to engage in commerce in new and beneficial ways. Sometimes the commerce is entirely local, but when products or services can be delivered from far away, new national and even global commerce opportunities are available to small businesses and entrepreneurs. In many jurisdictions, governments apply a wide range of taxes and fees on businesses and consumers involved in certain transactions – think hotel taxes, rental car taxes, taxi fees, sales and value-added taxes, and employment taxes, just to name a few. Ongoing legislative and regulatory fights regarding the appropriateness of applying traditional business taxes to the users of platforms, and also whether platforms should be responsible for the collection and payment of any and all taxes that would apply to traditional businesses, essentially becoming a type of tax-collector for the government, are occurring at the national, state and local level globally.
Digital platforms often facilitate commercial activity that has occurred for many years in the traditional economy. In many cases, platforms expand the number of people that can engage in commercial activity, opening up opportunities to very small businesses, individual entrepreneurs and even part-timers. And when a service can be provided over the Internet, individuals and businesses of all sizes can engage in commerce with people who are far away, even on a global scale. Many services face various regulations and mandates from a range of governments, local to national. Questions related to whether traditional business regulations should apply to platform users, especially when the platform user is an individual or very small enterprise, are ongoing in the platform economy. In addition, whether the digital platform itself should be responsible for the regulatory compliance of some or all of its local users, even when the platform itself is not a local business, raises an important and wide-ranging set of policy questions.
Frauds of every shape and kind. Counterfeiting and other forms of intellectual property piracy. Propagating and promoting hate and violence. Tax avoidance. Internet industry pioneer Pierre Omidyar, founder of eBay, one of the earliest and most successful commerce-enabling digital platforms, said that a core belief behind the success of digital platforms is that “People are basically good.” However, it is obvious that people are not good all the time. Of course, people doing bad things, sometimes very bad things, is not an Internet phenomenon. People doing bad thing preceded the Internet by many thousands of years, and basically every bad behavior occurring today on digital platforms also occurs in other non-digital environments as well. That said, the responsibility that digital platforms and other Internet services businesses have for the actions and behaviors of users is a complicated and contentious issues being raised by governments around the world.
Some conservative political leaders have raised the charge that the largest U.S. digital communications platforms, in particular Facebook, Google, Twitter and Pinterest, engage in ideologically-motivated content moderation practices, meaning they restrict or otherwise police user communications more aggressively to stifle conservative political speech as compared to more liberal or progressive speech. Each of the platforms have regularly and repeatedly rejected the charge. President Trump, Senator Josh Hawley (R-MO) and Senator Ted Cruz (R-TX) have been particularly vocal on this topic.

S. 1941, legislation sponsored by Sen. Josh Hawley (R-MO), proposed to limit the applicability of Section 230 of the Communications Decency Act, a liability statute establishing responsibilities for both platform providers and platform users for speech and other activities on digital platforms, if the communications platform could not prove that their moderation policies were neutral based on viewpoint.

Senator Hawley’s summary states the legislation “removes the immunity big tech companies receive under Section 230 unless they submit to an external audit that proves by clear and convincing evidence that their algorithms and content-removal practices are politically neutral. Sen. Hawley’s legislation does not apply to small and medium-sized tech companies.”

The Hawley content moderation debate links three big digital platform policy trends that are emerging globally –

(i) Concerns with the size and influence of the largest digital platforms, in this case a small handful of largest social media sites;

(ii) Whether the concerns with the largest digital firms should be addressed by traditional competition remedies aimed at those enterprises or should be addressed through regulatory or legislative action; and

(iii) whether regulatory or legislative action should be applied to digital or Internet enterprises generally, or be targeted at only the largest businesses, and if the later, how?

The Hawley Bill defines “big tech companies” as follows – A user or revenue threshold of more than 30 million active users in the U.S. and more than 300 million active users worldwide, or more than $500 million in global annual revenue.