7 minute read 29 Aug 2020
Man enjoying sunset over a hill in Norway

How the EU’s agenda might result in a common set of contract rules

By

Kiran Desai

EY EU Competition Law Leader

Competition and EU regulatory lawyer with over 25 years of private practice. Significant experience of novel substantive and procedural issues.

7 minute read 29 Aug 2020
Related topics Law Tax

With potential changes in motion for EU’s sharing economy, businesses should determine the possible consequences.

Three questions to ask
  • How would my business be affected by the possible new EU rules, particularly if these rules become the effective global standard?
  • What are the pros and cons for my sharing economy business choosing to adopt a single set of contract rules?
  • Should my business engage with the regulator to ensure my views are known before the rules are settled?  

The sharing economy, sometimes called the collaborative economy, covers a great variety of sectors and is rapidly emerging. Many people have already used, or are aware of sharing economy services, which range from sharing houses and car journeys to domestic services. The sharing economy provides new opportunities for citizens and innovative entrepreneurs. One of the first issues to address when considering the sharing economy is whether there is a common understanding of what constitutes the sharing economy. Such definition is important if there is an intention to impose new laws or regulate it.

What is the sharing economy?

The EU definition is business models where activities are facilitated by collaborative platforms that create an open marketplace for the temporary usage of goods or services often provided by private individuals. The collaborative economy involves three categories of actors:

  1. Service providers who share assets, resources, time and/or skills — these can be private individuals offering services on an occasional basis (“peers”) or service providers acting in their professional capacity (“professional services providers”);
  2. users of these; and
  3. Intermediaries that connect — via an online platform — providers with users and that facilitate transactions between them (“collaborative platforms”). Collaborative economy transactions generally do not involve a change of ownership and can be carried out for profit or not-for-profit.”1 As the European Commission recognizes in offering such definition, “The term collaborative economy is often interchangeably used with the term “sharing economy”. Collaborative economy is a rapid evolving phenomenon and its definition may evolve accordingly.”2

One interesting example to evidence the definitional challenge is that of a well-known hotel chain. It was faced with underutilized meeting rooms and lobby spaces at hundreds of its hotels. In 2012 it partnered with a sharing economy start-up to help it offer meeting rooms for short-term rentals through an app-based platform. The scheme was tested then rolled-out to 432 hotels in the US and Canada. The outcome was regarded as successful given that 18% of customers that booked on the app were new to the hotel chain in the US, and it had developed an incremental revenue stream.3 It is an often-quoted example of the success of the sharing economy.

From a legal analysis to identify the asset (a meeting room) as being shared seems to stretch the definition of sharing, because otherwise all hotel businesses having always been by their very nature participants in the sharing economy. As identified by the Centre for European Policy Studies, “some companies operate hybrid business models that fall both inside and outside”4 the definition of sharing economy.

Given the loose definitions of  sharing economy, many have adopted a flexible and open approach to the topic. An example in this regard is of the sharing economy landscape that has been identified by EY teams in their analysis in this area, as shown in the diagram below.

The work of the EU in this area

There are many aspects relevant to the sharing economy where the EU has taken or is taking policy and legislative action.5 We focus on one recent activity by the European Commission that might suggest a possible change in laws concerning the sharing economy. Given the policy and rule-setting influence the EU has on the global regulatory environment and the size of the EU economy, such changes might lead to changes to the laws of non-EU countries. Alternatively, businesses active globally might decide it is more efficient to adopt a single set of global rules for their agreements that are consistent with the EU rules. Consequently, there are questions businesses should consider in their medium- to long-term operational and strategic planning.

The EU has engaged in the production of a number of studies, surveys and other activities such as workshops, to increase its understanding and knowledge of the sharing economy, and to inform EU citizens and businesses through publications and other outreach activities.

In 2018 the European Commission produced a number of studies:

The collaborative short-term accommodation sector

The study aims to provide a description and preliminary assessment of the regulatory environment in EU countries while taking into account the dynamics and on-going changes in the sector.6

Monitoring the business and regulatory environment

This study assesses the business environment in the collaborative economy across six themes (accommodation, transport, finance, public administration, business support and alignment) in EU countries. The study developed a “Collaborative Economy Index” to measure and benchmark the openness of regulatory environments and the supportiveness of administrative actions.7

Monitoring the economic development of the collaborative economy

This study measures how developed the EU collaborative economy is in the transport, accommodation, finance and online skills sectors. The size of the collaborative economy was estimated at €26.5 billion (0.17% of EU GDP in 2016) and provides work for 394,000 people (0.15% of EU employment).8

Platform workers in Europe

This Joint Research Centre (JRC) Science for Policy report helps to estimate the scale of platform work, outline the main characteristics of platform workers, their working conditions and motivations, and describes the type of services provided through digital employment platforms. It is based on a survey of over 32,000 people across 14 EU countries.9

In October 2018, the Commission organized a high-level conference, “Collaborative economy: opportunities, challenges, policies” to take stock of policy, regulatory and market developments. At the conference, then EU Commissioner, Bieńkowska affirmed her conviction that the European single market must help new business models. The European Commissioner called for common answers to common issues to decrease the current degree of regulatory fragmentation. Also noteworthy is that at the conference a panelist on policy and market developments emphasized that it is urgent for the EU to address regulatory fragmentation in the EU so that businesses can scale up and Europe is not left further behind the US and China in digital technologies and services. He urged the European Commission to be more active in promoting market harmonization.10

As the European Commission’s work evolved in the identification of regulatory issues, while at the same time understanding the benefits that the sharing economy has brought, several issues were brought to light. For example, in some countries there are price restrictions in relation to the transport sector, while in the accommodation sector there are differences in registration and authorizations. To an extent, EU Member States have sought to address those issues through laws, including mandatory laws applicable to contracts in the sharing economy. Such mandatory laws are additional to those laws that pre-existed the development of the sharing economy.

For example, most Member States have had for many years regulations concerning insurance and safety issues for drivers and vehicles carrying fare-paying passengers; in relation to accommodation there are high levels of fire safety rules that apply to hotels but do not apply to domestic homes that rent out spare rooms to paying guests. In addition, such pre-existing laws are applied to the sharing economy but they may not be fully appropriate or adequate given its particular characteristics.

Recent EU activity

In January 2020 in a call for tenders the European Commission (Directorate-General for Justice and Consumers (DG JUST)) called on prospective tenderers to respond to a theoretical study in relation to the mandatory laws of the EU countries as applied to the sharing economy. The European Commission identifies in the call for tenders that, “in order for DG JUST to identify whether and to which extent market obstacles or failures may result from legal fragmentation or gaps in national legal frameworks, a comprehensive overview/mapping of national rules applicable in specific sectors is essential.”11

This, combined with the other changes relevant to the sharing economy being proposed by the EU,12 leads to a number of questions which businesses should consider in their medium to long-term operational and potentially strategic planning.

(The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made - This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, legal or other professional advice - EY member firms do not practice law where not permitted by local law and regulations.)

Summary

Though vaguely defined, the sharing economy is big and getting bigger. Recent activity by the EU suggests regulatory changes to the sharing economy are contemplated. Such changes would be important both for businesses in the sharing economy and those that compete with such businesses. Determining the possible consequences for your business is recommended. Engaging with the regulator may be necessary.

About this article

By

Kiran Desai

EY EU Competition Law Leader

Competition and EU regulatory lawyer with over 25 years of private practice. Significant experience of novel substantive and procedural issues.

Related topics Law Tax