Authored by Narayan Gupta and Mr. Anand S. Jha
At the onset of 2020, Invest India (a wing of the Ministry of Commerce), in one of its reports, estimated the gig economy to generate a gross volume of USD 455 bn approximately by year 2023. These estimates may no longer be valid, considering the impact of Covid-19. Following up on our series on the legal impact of Covid-19 on various businesses, available at Sarthak’s website, this piece takes a look at the Gig Economy.
Gig sector mainly runs on three models: (i) digital marketplace model; (ii) service listing model; and (iii) asset sharing model. In all the three models, the seller and the buyer are linked through an online platform as an intermediary. This post focuses on the digital marketplace and asset sharing model.
Digital Marketplace Model
Digital marketplace, or e-commerce, as it is commonly understood involves a buyer and a seller connecting on the marketplace for sale of goods or services. Examples include businesses such as Amazon, Flipkart, and Myntra. The principal source of revenue for the marketplace is commission on the sales and advertisements. Since Lockdown 1.0, the Government of India (“GOI”) has allowed e-commerce operators to continue functioning for supply of essential goods, including food, pharmaceuticals and medical equipment. However, most operators had to face varying degrees of on-ground challenges in transportation, ensuring timely delivery, travel of essential goods from one state to another, supply chain disruptions, amidst other challenges. Marketplaces for non-essential goods like Myntra, have faced near complete suspension of their businesses during the period of the lock-down.
These marketplaces run on a network of multiple standard-form online contracts of adhesion purported to govern interparty relationships. While the seller and the customer transact directly on the basis of the terms and conditions/description specified on the product display page, the intermediary platforms typically have sets of separate contracts (i) between the intermediary and the seller (“Seller Agreement”) and (ii) between the delivery partner and the intermediary (“Delivery Agreement”). Both the Seller Agreement and the Delivery Agreement may insulate the e-commerce operator from the consequences of ‘non-performance’ or ‘delay’ in fulfilment of their obligations. In addition, Seller Agreements mostly have a ‘force majeure’ clause to provide immunity to the e-commerce operator. For a detailed analysis of general force majeure clauses, you may refer to this earlier post.
Further, under the Seller Agreements, sellers may be obligated to ship the ordered products within a specific timeframe. Failure to ship such products may lead to cancellation of such orders and levy of ‘cancellation fee’ on sellers at the discretion of e-commerce operators. Sellers can potentially argue that such agreements are subject to applicable laws, including the prohibitory orders restricting delivery of goods. Therefore, they may not have to bear any ‘cancellation fee’ if they fail to ship the order within the indicated timeline. Similarly, under the Delivery Agreements, the e-commerce operators have a condition precedent stating that the delivery person has to be an independent contractor with the delivery partner. Delivery Agreement may also absolve the delivery partners from any liability arising out of delay in delivery due to unforeseeable events such as ‘pandemic’.
Digital marketplaces have also faced challenges in return and refund against orders. Most intermediaries assist the buyer in returning the ordered goods to the seller under defined circumstances, such as where the goods are damaged, and products have expired products. As soon as the seller accepts the return request, the product is collected, and the refund process is initiated. General terms of every return and refund policy have a designated window within which a return request can be raised.Due to the continuous lockdown, there may have been instances of delay in honoring such return or refund request, but there may not be an adverse legal consequence for the marketplaces if such requests are honored in a reasonable timeframe after lockdown ends.
Asset cum Service Sharing Model
Under this model, the intermediary lists a service on its platform with an additional option to assist the service provider in financing an asset in return of a commission and the service provider’s role is merely to render his service. Unlike the employer – employee model, the service providers are independent individuals or freelancers providing their service. Examples of this model include Ola, Uber, and Urbanclap. In some cases, the service provider, such as an Ola/ Uber driver may undertake contractual obligations to fulfill certain minimum requests. Amidst the pandemic and the lockdown, such contractual requirements may get frustrated due to impossibility to perform, under Section 56 of the Indian Contract Act, 1872.
Potential opportunities and risks
During the Covid-19 lockdown, many intermediaries have innovated and have tried to extend their role in providing ‘essential goods’. For instance, ride hailing apps have collaborated with businesses to provide delivery services for ‘essential goods’. This may help these entities retain part of their gig work-force, and may also open employment opportunities for gig workforce involved in delivery based services. Many other gig businesses too have evolved. As quoted in Financial Times, OYO may soon extend its business to managing quarantine facility and cloud kitchens to run food centers.
A large part of the gig workforce is contractual in nature, with limited or no employment benefits. Considering there is no minimum guaranteed consumer participation at the intermediaries’ end or the service providers’ end and there is no additional cost of continuing the relationship amidst this pandemic, concerns associated with termination or lay off of personnel may not arise for many such businesses. Such tussles are very common in employer-employee relationships as covered here. This relief is likely to be short-lived as the Government has indicated its intent to also protect the gig/ platform workforce under the social security legal framework normally applicable for employees and workmen. In fact, there have been reports during the pendency of the lockdown that local labour departments under some State governments are already issuing show cause notices on e-commerce companies citing inter alia the MHA order of March 29, 2020 and/or the provisions of the Industrial Disputes Act on complaints of non-payment of minimum guaranteed incentives to the ‘independent’ gig economy delivery boys. Even before the pandemic, gig economy workforce (like delivery boys) have been increasingly approaching trade unions for collective bargaining. All these moves will potentially blur the differences between service providers and employees in the gig economy and traditional brick & mortar economy, respectively.
In the midst of the Covid-19 pandemic, the gig economy has had to also grapple with several regulatory and tax changes, some of which predate the onset of the pandemic in India. Some of the key changes that the sector already faces are as follows:
- Finance Act, 2020introduced an equalization levy of two percent (2%) on supply of services through foreign based e-commerce platforms.
2. RBI had issued new guidelines(“Guidelines”) under the Payment and Settlement Systems Act, 2007 for payment gateways and payment aggregators. One of the key requirements introduced by the Guidelines is mandatory registration of payment aggregators (entities that receive money from the customer and transfer it to the merchants before the expiry of a fixed period) and creating a separate class of payment gateways (entities which provide the technological infrastructure to the e-commerce platforms to carry out their financial transaction). Prior to Guidelines coming to effect on April 01, 2020, most e-commerce platforms used to perform the function of the payment aggregators. However, now such e-commerce platforms will have to either collaborate with existing registered payment aggregators or get themselves registered with the regulatory authority as ‘payment aggregator’.
3. GOI exercising its powers under the Essential Commodities Act, 1955 had added hand sanitizers and masksto the list of ‘essential commodities’. The aim of this amendment was to control the surge in the price of these commodities through a price fixation order. This consumer centric move has impacted both the manufacturer of such commodities as well as the intermediaries who list such commodities on their platform. Few of the e-commerce operators, who have a fair pricing policy in place, may not have been impacted with the price fixation order.
With e-commerce platforms being allowed to deliver non-essential goods in green and orange zones, they have rejoined the sector. They may have to deal with the on-ground challenges of delivery, travel and supply of such goods, especially in cases where operators’ warehouses are located in metropolitan cities. In the long run, it would be interesting to observe if the existing intermediaries continue to run their extended verticals that they had started amidst Covid-19. For instance, will Uber continue to act as delivery partner of goods even when India comes back to the ‘new normal’? On the other hand, some of the smaller e-commerce companies might have to permanently pivot, fold up, or get acquired. Similarly, this pandemic has brought the local mom & pop stores back into competition with their online counterparts. The Government too appears to have stepped in to protect the interests of the neighborhood stores over the e-commerce players, by allowing such stores to operate, while restricting e-commerce platforms to operate only in the domain of essential services. A writ petition has been recently filed before the Delhi High Court by an association of chemists and pharmacists against the attempt of the Niti Aayog to create an online aggregator platform for various e-commerce services (https://www.aarogyasetumitr.in). Similar to the change in telemedicine guidelines, GOI may choose to redefine the legal framework surrounding gig economy. What shape such norms and legal disputes finally take will be interesting to watch.