European labor laws showing teeth in crackdown on gig economy

Recent cases culminating in fines, repayments, and compliance costs have shone a spotlight on how some companies operate in the “gig economy,” as well as how difficult it might be for businesses to legitimately contract out work on a rolling basis.

Toward the end of January, Spain’s labor ministry fined app-based food delivery company Glovo 56.7 million euros (then-U.S. $61.7 million) for breaking the country’s labor laws aimed at protecting gig economy workers, according to multiple reports, including from Spanish newspaper El Confidencial.

Glovo was penalized for not giving its riders formal labor contracts as required under the so-called “Riders’ Law” that came into effect in 2021. The legislation—one of the first passed in Europe that explicitly regulates the status of delivery workers—says couriers must be recognized as employees rather than as self-employed freelancers.

The company was also faulted for hiring nearly 800 immigrants who did not have work permits.

The enforcement action marked the second time Glovo was fined for violating labor laws by the Spanish agency. Last September, the company, which is owned by German firm Delivery Hero, was ordered to pay €79 million (then-U.S. $78 million) for having recruited more than 10,000 workers as “false self-employed” and not as formal or permanent employees.

In a statement regarding its most recent penalty, Glovo said, “The report by Madrid’s Labor Inspection refers to the period prior to the entry into force of Spain’s so-called Riders’ Law and to an operating model that no longer exists in Spain.” The company added it “remain[s] fully committed” to complying with Spanish labor regulations and the new legislation.

Glovo has said it would appeal both penalties.

Glovo is not the only company to run afoul of labor laws designed to protect gig economy workers. Last week, a Spanish court ruled online retail giant Amazon violated employment law by forcing more than 2,000 delivery drivers to use its now-dormant Flex app that controlled work schedules and payments.

The court said Amazon could not treat the drivers as self-employed because the app effectively forced them to accept its terms and conditions without any opportunity to negotiate, according to a report from the Associated Press.

No fine or compensation has yet been set. Amazon said it would appeal the ruling.

“There is not a ‘one-size-fits-all’ when considering whether an individual is an employee, worker, or self-employed due to the intricacies of each company.”

James Potts, Director of Legal Services, Peninsula

Other European countries have acted against companies that have tried to contract work out rather than employ staff full-time. In 2021, the U.K. Supreme Court ruled against Uber in a landmark judgment that recognized the app’s drivers as employees, thus entitling them to greater legal protection than if they were freelance.

“The ruling fundamentally changed how the gig economy is perceived but not necessarily how the law is enforced at a business level,” said James Potts, director of legal services at employment law firm Peninsula.

Potts added, “The shift in engagement to allow for workers, and subsequently employment rights, in the U.K. has left many companies unclear on the legal requirements for engagement and employment respectively.”

He said companies are understandably keen to engage workers on a self-employed basis because it is cheaper and easier. However, he added in many cases that “navigating around the regulations to determine employment status is likely to be a legislative headache,” even when labor laws might appear to be “flexible.”

Employment law is not always black and white and sometimes merely acts as a starting point to establish what the employer and employee’s rights are.

For example, Potts said, while the U.K.’s Employment Rights Act 1996 sets out the legal definition of both an employee and a worker, “The common misconception is that the written word of the contract defines the relationship in totality. In actuality, how parties operate in practice is the starting point for assessing any employment relationship.”

The use of intermediaries, such as staffing agencies, “further distorts” the employer/employee relationship, he said.

“There is not a ‘one-size-fits-all’ when considering whether an individual is an employee, worker, or self-employed due to the intricacies of each company,” said Potts. “However, in light of the current legislation, it is a tall order to be truly self-employed, particularly with reference to the gig economy.”