Skip to content
  • For investors in Singapore Change
  • Contact Us
    • Subscriptions
      • Select Preferences
      • Log in
search bar
Janus Henderson Investors
  • About us
        • About Janus Henderson Investors

        • Our people

        • Environmental, Social and Governance (ESG)

        • Diversity, Equity and Inclusion

        • Who we are
        • Our investment capabilities
        • Connecting with our clients
        • Awards
        • We provide access to some of the industry’s most talented and innovative thinkers.

          Meet our teams
        • Find out how environmental, social and governance (ESG) considerations are embedded within our organization and investment principles.

          Learn more
        • See how diversity, equity & inclusion are valued and supported at Janus Henderson.


          Learn more
        • About us
        • Our people
        • Diversity, Equity and Inclusion
  • Products
        • Filter by asset class

        • Equities
        • Fixed income
        • Multi-Asset
        • View all products
        • Learn more

        • What we offer
        • Prices & Performance
        • How to invest
        • Notices
        • Funds in focus
        • Own Real Estate in a Different Way

        • Renovate your portfolio. Enhance your income with global perspectives and a diversified real estate approach.

          Learn more
  • Insights
        • Invested in Connecting

        • Explore our insights

        • Equity Perspectives

        • We connect our clients with insights and knowledge that empower them to make better investment and business decisions.

        • Subscribe to Insights
        • Global Perspectives
          Recurring global market views and research.

        • Equity Perspectives
          Quarterly insight from our equity teams.

        • Fixed Income Perspectives
          Quarterly insight from our fixed income teams.

        • View all insights
        • Investment Viewpoints
          Updates and outlooks from our investment teams.

        • Quick Views
          Short-form, timely insights and reactions to market events.
        • Quarterly insight from our equity teams to help clients navigate the markets and opportunities ahead.

        • Learn more
  • Documents
  • Invest
{{banner.link_text}}
For investors in Singapore
October 2020
Global Perspectives Elections Environmental Social Governance (ESG) Technology

‘A third way’ to sustain the gig economy

  • Richard Clode, CFA
    Richard Clode, CFA
    Portfolio Manager
  • Graeme Clark
    Graeme Clark
    Portfolio Manager
  • Alison Porter
    Alison Porter
    Portfolio Manager

Alison Porter, Graeme Clark and Richard Clode from the Global Technology Leaders Team discuss the gig economy’s broad-ranging impact and why ESG engagement is imperative when investing in disruptive technologies.

  Key takeaways

  • Classification of employees in the gig economy is a contentious issue intertwining technology disruption, organised labour, politics and the economic impact of COVID-19.
  • A compromise or ‘third way’ advocated by the gig economy could break the historical linkage between full-time employment and benefits.
  • Active management can help shape a sustainable future where the interests of companies,workers, regulators and shareholders could be protected.

As Californians go to vote on 3 November to elect the 46th President of the United States, they will notice on their ballot papers, Proposition 22: App-based drivers as contractors and labor policies initiative (2020). If voted through, the state statute would consider app-based drivers to be independent contractors and not employees or agents. This would exempt app-based transportation and delivery companies such as Uber and DoorDash from providing employee benefits to certain drivers. This rather specific vote has significant ramifications for the gig economy. It brings into the open a longstanding debate on the inflexibility of US benefits provision, and socially, an ethical and moral debate as to what rights we expect workers to have and how those rights should be protected. This contentious issue intertwines technology disruption, organised labour, politics and the economic impact of COVID-19.

How did we arrive at Proposition 22?

Ubiquity of smartphones and the emergence of a ‘swipe right’ generation has caused a profound shift in how goods and services are consumed, and a resultant disruption in employment patterns. In 2019, seven million Americans used digital platforms to work, notably in ride hailing and food delivery1.The rampant growth of the gig economy not only generated significant tensions with regulators and incumbents who felt that these disruptors were not playing by the rules, but also highlighted that change may be warranted, given that provisions of benefits in the US have for time immemorial been tied to full-time employment with provision by the employer. The gig economy was built on millions of workers legally defined as independent contractors rather than full-time employees, and therefore not entitled to any work or health benefits. Regulators and disrupted incumbents claim this is a legal charade to enable these new entrants to avoid paying these benefits, giving them an unfair competitive advantage. The gig economy companies retorted that this was a fair and legal reflection of their business models as app-based platforms; their workers preferred the flexibility and independence of this framework with the majority using this app-based work as supplemental income2. The battle lines had been drawn.

In recent years we have witnessed various legal skirmishes as disgruntled gig economy workers, incumbent organised labour and lobby groups, as well as sympathetic local government legal offices, tested the legal defences of the gig economy platforms. With limited success it is unsurprising that the more aggressive US states chose to try and change the legislation instead. The headline act was California Assembly Bill 5 (AB5) that came into effect on 1 January 2020. This built on a 2018 Californian Supreme Court ruling that imposed a higher standard for classifying workers as independent contractors via a three-pronged test (ABC test). A key hurdle of that higher standard was that the independent contractor had to perform work tasks “that are outside the usual course of the company’s business activities”. It therefore became a lot harder for a ride-hailing platform to define a driver providing ride hailing services as an independent contractor. AB5 enshrined this higher standard into Californian law.

Armed with this new legislation, we have since seen an escalation of hostility between the California Attorney General and the gig economy platforms. The attorney general has been pushing aggressively to force these companies to comply with AB5 and reclassify their workers as employees. In retaliation, the gig economy platforms said they would put the issue to a ballot vote and have generously funded that lobbying effort with a reported US$190m3. This culminated in a tempestuous August where ride-hailing companies were served with an injunction forcing them to reclassify employees. This led the companies to threaten to shut down services in California – only for that decision to be stayed. In a recent blog post, the chief executive officer (CEO) of a leading ride-hailing company said that they would only be able to offer 260,000 roles to the 1.2 million US drivers currently on their platform4. And so, we move on inexorably to the 3 November ballot vote on Proposition 22.

Delivery man driving a car and using a navigation on his phone to get around the city, gig economy

A ‘third way’

Current employment legal framework in California does not allow for any middle ground or compromise. The only choice is to be an employee with access to benefits but no flexibility, or an independent contractor with flexibility but no benefits. While Prop 22’s headline appears to only exempt the gig economy from benefits responsibility and maintain the status quo, in fact the proposition is a compromise, aiming to retain flexibility and independent contractor status in return for guarantees on minimum earnings and maximum working hours, health benefits and accident disability and death insurance. This is the ‘third way’ being advocated by the gig economy to break the historical linkage between full-time employment and benefits. In normal times it would be foolhardy to try to upend such an entrenched relationship, but due to the unparalleled economic impact of COVID-19, we have seen the passing of the federal CARES Act, which was historic in its unprecedented provision of unemployment benefit to independent contractors and the self-employed. The tragic decimation of employment and lack of visibility on the economic recovery also places greater emphasis on those companies that can provide jobs, flexibility and support livelihoods.

In a world where it is too easy to focus on what cannot be agreed upon, it is worth highlighting areas where compromise can be reached. Employment patterns have clearly changed permanently; working for one employer for an entire career is now the exception rather than the rule. In a world of accelerating disruption, flexibility of employment will become ever more important. Yet the current US social safety net remains built on an increasingly antiquated foundation. However, the new employment world should also retain the hard-fought benefits of the old. Independence and flexibility should not come at the expense of a lack of minimum wage protection, paid holiday and sick leave, protection against discrimination and hazard as well as retirement, accident and death benefits. If there is agreement on those two basic tenets, then it is possible to move forward from an archaic social security construct to create a framework fit for today’s world.

What can active investors do?

Whatever the outcome of Prop 22, as well as the wider US election, with the majority of Democrats endorsing AB5 the legal employment status of gig economy workers and their entitled benefits are likely to remain a live debate for many years to come.

As stewards of client capital and as active investors we have a front row seat in these debates. This is not a separate ESG (environmental, social and governance) issue nor one that we can evangelically exclude. The gig economy is a fundamental and wide-ranging economic issue that affects incumbents and disruptors alike across multiple industries. Being able to proactively engage with senior management and assess the risks to business models and from draconian regulation is a core part of fundamental risk analysis impacting the future profit streams and valuations of these companies. As such we think it is important that portfolio managers directly engage with companies on these issues, provide solutions rather than just criticism, and help them stay on the right path. These efforts can help shape a sustainable future where the interests of companies, workers, regulators and shareholders can be protected.

The complexity of ESG debates typically requires sector-specific expertise, which we feel is often lacking in much third-party analysis, undermining credibility with companies as well as the chances of impactful action. We believe thorough ESG analysis can deliver a more holistic risk assessment of companies, the sustainability of their earnings and ultimately their future performance. Therefore, fundamental ESG integration should be a core part in seeking out the best investment opportunities.

 

Footnotes

1 Estimate based on: 160m (Bureau of Labor Statistics, 2020) The employment situation x 30% primary or secondary job (Oyer, 2016) The independent workforce in America: The economics of an increasingly flexible labor market x 15% (McKinsey, 2016) Independent work: Choice, Necessity and the Gig Economy.

2 Source: cadriversurvey.com. The California App-Based Driver survey was an online survey conducted by global independent research firm Edelman Intelligence. The survey interviewed 718 Californian app-based rideshare and food delivery drivers who have driven with any rideshare or food delivery app within the past year. Data was collected between 19 May and 1 June 2020.

3 Source: Poltico.com, Prop 22 employee classification ballot, 9 October 2020.

4 Source: Uber newsroom, 5 October 2020.

 

Glossary

Gig economy: a labour market characterised by the prevalence of short-term contracts or freelance work, rather than permanent jobs.

CARES Act: the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress with overwhelming, bipartisan support and signed into law by President Trump on 27 March 2020.  This over US$2 trillion economic relief package delivers on the Trump Administration’s commitment to protecting the American people from the public health and economic impacts of COVID-19.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
 
 
The information in this article does not qualify as an investment recommendation.
 
 
For promotional purposes.
 
 
Anything non-factual in nature is an opinion of the author(s), and opinions are meant as an illustration of broader themes, are not an indication of trading intent, and are subject to change at any time due to changes in market or economic conditions. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. No forecasts can be guaranteed and there is no guarantee that the information supplied is complete or timely, nor are there any warranties with regard to the results obtained from its us.

Related Insights

How do ESG factors impact valuations within the technology sector?
March 2022  
Global Perspectives Technology

How do ESG factors impact valuations within the technology sector?

Read More

Technology is enabling sustainability
January 2022  
Investment Viewpoints Environmental Social Governance (ESG) Technology

Technology is enabling sustainability

Read More

Global tech: driven by strength of secular themes in the real world and beyond
December 2021  
Investment Viewpoints Annual Outlook Environmental Social Governance (ESG) Technology

Global tech: driven by strength of secular themes in the real world and beyond

Read More

Featured products

  • Horizon Global Technology Leaders Fund

Subscribe for relevant insights delivered straight to your inbox

I want to subscribe
  • Singapore
  • Corporate site
  • Careers
  • Contact us
  • Legal
  • Cookie policy
  • Privacy policy
  • LinkedIn

Important Information

 

Issued in Singapore by Janus Henderson Investors (Singapore) Limited, which is regulated by the Monetary Authority of Singapore (MAS). We are a member of the Investment Management Association of Singapore and an approved fund management company under the Central Provident Fund Investment Scheme. Please note that your use of this site is governed by the Legal Information on the site. This advertisement has not been reviewed by the Monetary Authority of Singapore. By proceeding to access this site, you are deemed to have accepted those terms. We may record telephone calls made to our office for our mutual protection and to improve customer service.

 

Janus Henderson Investors (Singapore) Limited and its affiliates are referred to herein as Janus Henderson Investors. This website is intended for residents in Singapore only. Non-Singapore residents are responsible for observing all applicable laws and regulations of their relevant jurisdictions before accessing the information contained herein. While this website provides information on Janus Henderson Investors products, such information should not be regarded as an offer or a solicitation of any offer to buy or sell any of such investments. The information contained in this website is obtained and / or compiled from sources believed to be reliable and current. However, Janus Henderson Investors cannot and does not warrant, guarantee or represent, either expressly or impliedly, the accuracy, validity or completeness of such information. Janus Henderson Investors or any directors or employees or representatives of Janus Henderson Investors shall not be liable for (whether in tort or contract or otherwise) any damages arising from any person's reliance on this information and shall not be liable for any errors or omissions (including but not limited to errors or omissions made by third party sources) in this information. The information contained in this website should not be regarded as a substitute for the exercise of your own judgement. Any information and views provided herein is subject to change without further notice. None of the material, nor its content, nor any copy of it, maybe altered in any way, transmitted to, copied or distributed to any other party, without prior express written permission of Janus Henderson Investors.

 

Investment involves risks, including the possible loss of the principal amount invested. The value of the units and the income from the funds may fall as well as rise. Past performance of any manager and/or fund and any opinions, forecasts, assumptions, estimates made are not necessarily indicative of the future performance of the manager and/or fund. Investors should note that the information provided herein may not have set out all the risks and other significant aspects involved in investing in any Janus Henderson Investors products mentioned herein and should therefore refer to the relevant prospectus and product highlights sheet for details and are advised to obtain professional advice where appropriate before deciding whether to invest in units of the funds. The prospectuses and product highlights sheets of the funds are available and may be obtained from Janus Henderson Investors' office in Singapore and the participating distributors' offices or branches.

 

© 2022, Janus Henderson Group plc. Janus Henderson is a trademark of Janus Henderson Group plc.

Janus Henderson Investors (Singapore) Limited.

Company Registration No. 199700782N

 

C-1020-34528 10-30-21

Close Notification
You are now leaving janushenderson.com

You are now leaving our site and entering a website not operated by or affiliated with Janus Henderson Investors. While we aim to point you to useful external websites, we cannot be responsible for their content, opinions, advice or accuracy, even if you utilise the services on the linked site to invest in our products.

The protection of your personal information on other websites is not governed by Janus Henderson Investors privacy policy and Janus Henderson Investors cannot be responsible for the privacy policies utilised on such third party sites, nor for the implementation of such policies by those third parties.

You should review the Terms and Conditions of third party websites and contact the operators of such sites if you have any queries.

You are now leaving Janus Henderson's website and will be redirected to the website of the Securities and Exchange Commission (the "SEC"). Money market funds are required to provide the SEC with a monthly electronic filing of more detailed portfolio holdings information on Form N-MFP.

Janus Henderson is not responsible for the content, accuracy or timeliness and does not make any warranties, express or implied, with regard to the information obtained from other websites. This link should not be construed as either a recommendation or offer to by or sell any securities.

TOP

Region

Country

Language

What type of investor are you?