- In wake of A UK supreme court decision on Uber, parallels between Uber and Fiverr in particular are astounding.
- In a rule-based world order, the UK case is primed to spread to the US and Europe and bound to impact several companies in the gig economy.
- Investors should be prepared for a pendulum effect on the overall gig economy with stocks like Fiverr next in line.
Between 2008 and 2021 the global gig economy exploded, leading to an irrational exuberance among investors. In the US alone, ADP research suggests that the share of gig workers in companies increased by 15% in a decade.
Uber displaced local transport and food delivery companies who followed the law, Fiverr bypassed quality-assured agencies to connect freelance workers directly with buyers and of course AirBNB told Europeans who were struggling under the then recession, to do all the things a Hotel cannot do at little or no charge which saw struggling families open their homes to strangers.
Having scaled up these operations rapidly, these corporations attracted investor attention to a new trend at the time, one that is about to face significant legal challenges at an OECD level. Investors may have been blinded by the prospects as they now face the legal realities unfolding as we speak. The question now, is whether the pendulum is swinging in the opposite direction for the gig economy?
The Law: Parallels between Uber and Fiverr
The UK supreme court confirmed that in the case of Uber, the relationship that of an employer and employee – and not self-employed or an “independent contractor” as gig platforms try to pitch themselves to governments. The rationale is simple: if the individual is subject to significant control over what, when and how to work, it is considered employment.
In the case of Fiverr, the “when” element is particularly extreme given that workers are put on a clock, which is open to exploitation by buyers who let the worker make progress on a sizeable portion of the work, and then play for time in order to later decline a job that was not delivered on time, thereby leaving the worker completely out of pocket. The company claims that it offers some protection to workers who fall victim to such abuse. Unlike Uber, Fiverr does not cover workers against chargebacks either, which can easily leave a worker out of pocket with as much as $5000, although it does provide protection against abuse of the chargeback system. The “what” and “how” factors are also very controlled in the sense that a rigid system is imposed on the worker with penalties for responding late on weekends and overnight, ultimately creating the ideal modern slavery concept where customer services is extended to a 24/7 situation in order to retain a ranking. Rankings also go down when chargeback situations are complained about by workers.
Overall, Fiverr exerts substantially more control over workers than Uber, even when they are not actively working when the customer service and response obligations are considered. It can be argued that Airbnb is doing the same when the various elements of compliance, which all impact the what, when and how factors of control. There were also alarming voices from India, such as a petition on change.org that urged the Fiverr CEO, Micha Kaufman to stop the exploitation of Indian children.
Potential responses represent a real conundrum for investors:
It is clear that these corporations will not be able to spin up a different version of reality to legislators. Fiverr relies heavily on Pakistan and India to lift the weight on less sophisticated tasks, but non-compliance with the law in the UK affects architects, copywriters, accountants, bid writers, 3D animators, movie production companies and so forth. So retracting to a core base of services in countries with a weaker legal system could significantly errode it’s list of services. After all, Fiverr PRO, was a service largely built on expensive workers from countries that are high on the human development index, enabling the company to sell services that cost thousands and not a few pennies.
Similarly, should Uber dial back it’s list of countries to those who are more lax than the UK and AirBNB start to find cities that are less strict than New York and Barcelona, all of these potential responses would be anti-growth measures that could drag these gig related stocks towards a slump.
A new awakening: Conscious legal systems, conscious investors:
A new trend has started, where a big tech abuse of valuable intellectual groups is coming to an end. With British film director Ken Loach calls the gig economy “extreme exploitation” noting that this has nothing to do with entrepreneurship, and it is all about being controlled within an inch of one’s life.
In Australia, legislators stood up for the rights of small publishers which affected the way in which Google and Facebook will now deal with them. Already the ripple effects can be felt in the US where Sens. John Kennedy, R-La., and Amy Klobuchar, D-Minn took action to reintroduce the 2019 Journalism Competition and Preservation Act to help fund the publishing and news industry. Microsoft was the only corporation standing with those who were affected. Today, the whole world is awakening to stand with the publishing industry.
Just like Australia was the first pebble in moving a big rock for the publishing industry, so will the UK be the pebble in moving the rock in the gig economy: It coincides with major efforts in the US, Germany, Israel and Canada to demonstrate much needed leadership.
The Future: What is next for gig related stocks?
As Uber lost the gig workers right challenge in the UK, the next step is to determine suitable back pay for the thousands of workers who were involved. A logical conclusion is that Uber was just the tip of the iceberg. The stocks that could face the most headwind and potential slumps from this new awakening with governments are Airbnb (NASDAQ:ABNB), Etsy (NASDAQ:ETSY), Uber (NYSE:UBER), Fiverr (NYSE:FVRR).
How share prices will respond to a global awakening which is a win for workers and a conundrum for corporations bypassing employment rights may seem obvious to the prudent investor who is not bearish without reason. A number of small businesses can also be affected as the world order seeks to find a just response to the situation. Finding a balance in this delicate area calls for good governance and for a recent trend of OECD involvement to accelerate.