The Power of Perspectives

The Canadian Bar Association

CBA/ABC National

Legal frameworks for the gig economy

September 11 2015 11 September 2015

Intact Financial and Uber have struck an agreement to develop insurance products designed for Uber drivers in Canada. This news comes on the heel of a recent report published by the Ontario Chamber of Commerce, which calls for quick and bold action by Canadian governments to ensure that they harness the full potential of the sharing economy.

Despite the many challenges the sharing economy presents to regulators, its growth should be viewed as an opportunity. The jurisdictions that are building regulatory and taxation frameworks that protect the public interest while supporting innovation will be more likely to incubate the new technologies that will drive economic growth in the future.

Channeled properly, the sharing economy can create value for consumers by bringing new competition to sectors whose regulatory protection (in some cases) have allowed them to become inefficient. The advent of the sharing economy can also be used to re-evaluate the often outdated and unnecessary regulatory requirements faced by established operators.

The report highlights a number of policy issues facing regulators, such as consumer safety and tax compliance, which are familiar to anyone that has followed the sharing economy debate during recent months. As Mark Thompson observes:

[a] large part of the cost savings and flexibility [the] companies [in question] leverage is due to the status of the workers who actually provide the services. A majority of the larger firms, including Uber, classify their workers as independent contractors rather than employees. Estimates are that this strategy reduces labour costs by at least 20 per cent. While the workers are not bound to a fixed work schedule and may be able to control their income, the long-term social consequences of the shift from employment to contractor status are profound.

[…]

Classifying workers as independent contractors severs most of these links to the social safety net. Contractors are obligated to declare their incomes to the Canada Revenue Agency, but can deduct many expenses that would arise from employment, thus reducing government revenues from that source. There are strong disincentives to contribute to the Canada Pension Plan, beginning with the cost of the plan to individuals — upwards of 10 per cent of their income. Similarly, accident insurance from WorkSafeBC is not required for most individuals and is unusual for unincorporated contractors. When contractors are unable to find work, employment insurance is not available to them. Finally, the contracting firms provide little or no training to their workers. Since there are no expectations of a long-term relationship, management has no incentive to increase the productivity of its workers.

Yet, as Sunny Freeman emphasizes, support for the sharing economy is strong, particularly in major metropolitan areas – a point echoed by Jacob Serebin, who adds that the sharing economy “is expected to be generate revenues of over $15 billion this year, according to professional services firm PwC which collaborated on the [OCC] report, and grow to $335 billon by 2025.”

The Chamber of Commerce made size recommendations. In its view, the Government of Ontario ought to:

Establish a cross-jurisdictional taskforce with representation from government, 1 thought leaders, and industry (including existing operators and new market entrants) with a mandate to analyze the opportunities and impacts of the sharing economy and make comprehensive recommendations.

Use the advent of the sharing economy as an opportunity to develop a new, “empty the box” approach to regulation, building on the taskforce’s research, analysis, and recommendations. This approach to regulatory reform keeps intact only those provisions that are necessary and relevant today.

Engage industry to fill any gaps in insurance coverage.

Consider the impacts of the growth of the sharing economy as it undertakes reviews of workplace legislation.

Work with the federal government to develop a ‘how-to’ guide on tax compliance in the sharing economy.

Finally, “as a key actor,” the Canada Revenue Agency ought to:

Analyze income reporting levels in the sharing economy and develop a clear understanding of the motivating factors behind providers’ decisions to report or not report income, and establish and clarify appropriate rules moving forward (e.g. minimum income thresholds).

Photo licensed under Creative Commons by cogdogblog

 

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