Plugging the Holes in India's 'Independent Contractor' Economy

Inadequate vetting of Ola and Uber drivers is as much a function of institutional failure as it is the negligence of shared economy businesses.

Representative image. Credit: Reuters/Eduardo Munoz

Representative image. Credit: Reuters/Eduardo Munoz

The terror attack in Manhattan is the most recent in a long line of incidents that raise important questions about the state of corporate governance in the sharing economy. In Manhattan, the suspect, Sayfullo Saipov, was an Uber driver that had passed the company’s background checks despite having several infractions on his record.

In India, driver malfeasance has been widely reported, with the latest incident occurring in Hyderabad where a driver was accused of impropriety and allegedly driving under an alias on the platform.

These incidents specifically bring to light two key conflicts that arise within business models in the sharing economy.

The first is the natural tension that arises between a business’ need to scale digital service delivery and stakeholder responsibility. Despite its importance, thorough vetting requires time, effort and money – three commodities that new businesses are loath to spare. Moreover, it may also discourage the on-boarding of new contractors. Additionally, even though most app-based services outsource their vetting process, the emphasis is still on a quantitative churn out of service providers rather than a qualitative investigation into their history. The expense, time and effort that goes into conducting thorough background checks is amplified in countries like India where important informational architecture like a national database of criminal records is absent.

The second is the friction between large-scale service providers and their non-employee workers. Shared economy businesses insist that their workers are not employees. Rather, they are micro-entrepreneurs spearheading a new labour revolution where workers, for the most part, dictate the terms of their employment. There is, of course, a strong economic case for this employment model. The lack of responsibility for an employee’s taxes and benefits allows shared economy businesses to operate a much lower cost than incumbents. However, this is not where the problem lies. The independent contractor model is not restricted to the shared economy alone. This labour structure can be found across the gamut of industry such as textile manufacturing, sales and brokerage. The issue arises from the fact that this workforce structure relieves shared economy businesses of any liability for acts carried out by individuals operating on their platforms. In terms of vetting, then, there isn’t much of an imperative for these corporations to scrutinise an operator’s past.

Shared economy businesses insist that their current labour structure is integral to keeping them afloat. However, the lack of accountability that it engenders results in a diminished standard of care, thereby increasing the chances of worker transgression. This, in turn, serves as fodder for traditional incumbents, who prompt policymakers to question whether these models should be allowed to exist outside the regulatory framework that applies to the sector within which they operate. Thus, it seems that the distinctive workforce model that the sharing economy touts as vital to its existence may eventually be the reason for its downfall.

Though it may seem intuitive, ascribing greater liability to these businesses is not the solution. Inadequate vetting is as much a function of institutional failure as it is of the negligence of shared economy businesses. In terms of vetting, for instance, businesses are only required to follow what is prescribed by the law. In India, they require a police verification of the prospective operator. An overextended police force coupled with the absence of a nationwide digital database of fingerprints and criminal records generally ensure that an individual’s criminal antecedents will not be uncovered through the verification process. Additionally, the absence of a robust regulatory framework that defines the rigour with which background checks must be conducted makes it easy for recruiters to be lackadaisical.

A combinatorial approach is required to bolster the quality of background checks in India. Both regulators and industry must work in tandem to strengthen current processes and improve consumer welfare. In this regard, a model that could be followed is a fingerprinting initiative that was started in the city of San Antonio, Texas. On top of company-sanctioned background checks, the initiative allowed independent contractors to opt for a free fingerprint-based check by the city. The city covered the cost of fingerprinting through fees it charges to the companies for operating within its limits. Contractors then used a mechanism on the company’s platform to indicate to prospective customers that they had undergone both background checks. However, current institutional and informational deficits prohibit the implementation of a similar scheme in India for the immediate future.

A practicable route for the short term could be the creation of a covenant for the shared economy, with an enforceable code of conduct. Ideally, its provisions should be similar to the commitments enumerated under United Nations (UN) Global Compact but binding in nature like the UN Treaty on Transnational Corporations and Human Rights. The former was created to foster responsible commercial practices and values among the global business fraternity. The latter aims to check human rights violations and environmental degradation by transnational corporations. A binding agreement is necessary as critics of the UN Compact suggest that its voluntary nature renders it largely ineffectual.

The covenant for the shared economy in India could be developed through a multi-stakeholder consultative process; incorporating inputs from industry, government and civil society. Like the principles in the UN Compact, the provisions of the covenant should be structured in accordance with the policy concerns they aim to address such as consumer safety, labour welfare and management and environmental sustainability. However, in contradistinction to the UN Compact, these provisions should be both substantive and procedural in nature. Additionally, they must also be adaptive in order to accommodate the evolving nature of the shared economy.

As informational and institutional lacunae inhibit the absolute pre-emption of operator transgressions, the covenant must place special emphasis on preventive measures such as complaint and emergency response. Machinery must be created by the industry to ensure a quicker and more concrete response to consumer complaints, especially in circumstances where the customer may be in real jeopardy. Furthermore, a robust reporting mechanism must be developed to supplement the working of the covenant and ensure its implementation. Both government and industry stakeholders must collaborate to establish a set of standardised metrics for this system. This will go a long way in ensuring greater accountability and transparency in the working of the shared economy.

Ethics notwithstanding, businesses in the sharing economy do have a lot to offer. They fill key deficits in traditional markets such as hospitality, maintenance and transport. Their business models encourage practices like asset utilisation which could be vital to long-term ecological sustainability. And they provide a means of subsistence to millions of individuals in a world where jobs are rapidly becoming scarce. As such, authorities should strive to accommodate them, but only if these businesses establish an equilibrium between the broader public interest and corporate goals.

Meghna Bal is a Junior Fellow working in the Cyber Initiative at the Observer Research Foundation, New Delhi.

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