The Legal Implications of The Sharing Economy

Sharing or Gig Economy is one of the modern business models that is growing rapidly. In this model, the individuals are allowed to rent or share their assets for a fee. It can be cars, houses, and other tangible possessions. Although this form of business model offers increased business opportunities, it also comes with various unresolved safety and legal concerns. We can see big MNCs like Uber or Airbnb operating in this model. Their mode of operations falls in a grey area, yet perfectly legal, only because the law has yet to learn how these companies are working. So, it cannot be avoided that there are several legal implications that need to be considered in the Sharing economy. Here we discuss seven major legal implications for better understanding –

1. Regulatory Compliance

Regulatory compliance is usually one of the prime challenges that sharing economy platforms face. As companies operating in this model do their business across multiple jurisdictions, they always remain vulnerable to succumbing to a complex landscape of laws and regulations. There are several legal implications like –

• Labour
• Taxation
• Zoning regulations
• Licensing
• Safety

Companies operating within the legal framework of a country are bound to follow all of them. Yet their type of business operations proves to be a challenge to ensure compliance with all these laws.

2. Employment Classification

Various vendors and individuals provide the services on behalf of another company. Most of the time, these companies wrongly classify the details of the service providers. This is a case of withholding information and proves to be a major legal implication.

For example, companies like Lyft and Uber have faced lawsuits in the past because they were classifying their drivers. Both the ride-hailing apps presented their drivers as independent drivers instead of employees. Classifying employees and independent workers or freelancers can save the company billions of dollars. When they get classified as employees, the organizations have to take care of their minimum wages, compensations, and collective bargaining rights. Hence, these companies try to exploit the grey area by misclassifying them.

3. Liability and Insurance

Questions are often raised in the sharing economy about liability and insurance coverage. Since the modus operandi of the sharing economy is not very clear to the insurance companies, they have certain limitations about covering the risk of such companies. Conventional insurance policies barely cover all the activities conducted on the sharing economy platforms.

For example, when a person rents their properties through online platforms like OYO or Airbnb, there can be gaps in insurance coverage. The insurance companies don’t cover any personal injury within the property or property damages by the guests. So, addressing these liabilities and ensuring they get proper insurance coverage remains a major legal implication for the players in a sharing economy.

4. Consumer Protection

Sharing economy platforms mostly operate in industries subjected to consumer protection regulations. However, these regulations are not always specifically tailored to address the unique characteristics of sharing economy transactions. So sharing economy faces a lot of issues like –

• Misrepresentation
• Fraud
• Dispute resolution
• Breach of privacy

However, there is a strong need for legal implications to address these issues and to protect the participants in the sharing economy.

5. Intellectual Property Rights

In a sharing economy, when two companies share the platform, it also involves the distribution and sharing of intellectual properties and copyrighted materials. We can take the example of the online marketplace iShippo. This platform allows home-based business owners to showcase and sell their products. However, when someone is selling art or handicrafts, it doesn't imply that intellectual rights are getting transferred to this CrowdSourced Logistics-enabled company.

Similarly, when you upload an original music video on YouTube, the uploader holds the rights to the content, according to the policy. But if someone else uses the same music in another video, YouTube may flag it as inappropriate even if the original composer gets mentioned. Hence, such cases cause inconvenience to users and lead to unwanted legal disputes.

6. Data Privacy and Security

Sharing economy platforms involve the collection of a vast amount of data on a daily basis. As companies collect and process the personal data of their users, it exposes them to a lack of privacy and data theft. Many companies further share this data with third parties for various purposes without the consent of the customers. So, it is essential that all companies in the sharing economy ensure compliance with data protection and privacy laws and implement robust security measures to protect user privacy and further legal consequences.

7. Taxation

One of the biggest legal issues for companies in the gig economy is taxation. Big companies like Airbnb and Uber have repeatedly failed to pay their taxes. The governments are also struggling to regulate and collect taxes for these platforms. In this model, the tax implication falls on the income of the individuals rather than the business entities. So, the whole process gets much more complex, as the officials don't have a clear idea about the profit makers.

However, as the rules are getting clear, the governments are taking a more role in addressing such issues. For example, in the US, the IRS has addressed the taxation problem by issuing circulars on how taxes should be paid by individuals earning through sharing economy. Many European countries like Spain and France have also introduced special tax laws for regulating the sharing economy participants.