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Understanding the EU’s Proposed Directive on Platform Workers

Compliance & Contractor Classification
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CXC Global12 min read
CXC GlobalMay 17, 2023
CXC Global

According to EU data, there are some 500 labour platforms operating within the EU. These companies allow workers to make a living by performing on-demand tasks like delivering food or picking up groceries. Others pay workers per-task fees for online work like translating documents or creating web content. 

According to EU data, nine out of ten of these platforms classify their workers as self-employed. In many cases, this is the correct classification. But some workers have been incorrectly classified this way by platforms, even though their actual working conditions look more like employment. These misclassified workers might be missing out on rights like the National Minimum Wage (where one exists), protected rest breaks and sick pay — and the companies that employ them could be risking fines and legal consequences. 

The EU’s Platform Work Package is a set of measures proposed by the EU Commission to address this situation. Read on for our full guide to the package, including what the new rules could mean for workers, users and platform operators — and CXC’s view on the situation. 

Note: The EU Directive on Platform Workers is currently going through the process of being approved by the various bodies of the European Union. In March 2024, EU employment and social affairs ministers confirmed a provisional agreement reached between the EU Council’s presidency and the European parliament’s negotiators. This article has been updated to reflect the latest changes to the rules.

What is the European directive on platform workers? 

The European Directive on Platform Workers is a piece of legislation proposed by the EU Commission to improve working conditions for people who work through labour platforms. It’s part of a set of measures that the EU Commission put forward in December 2021. These measures are referred to collectively as the Platform Work Package. The idea behind the package is to create a common set of rules to be used across the EU. In theory, this will level the playing field for platform operators and protect workers at the same time. 

What is a digital labour platform? 

A digital labour platform or gig platform is an online or mobile-based application that connects workers to work opportunities. Workers are usually paid a set fee for every task they complete. Broadly speaking, there are two categories of digital labour platforms: online web-based platforms, and location-based platforms.

  • Location-based platforms assign jobs to workers based on their location. They include things like takeaway food delivery apps, ride-hailing apps and grocery delivery services. 
  • Web-based platforms are not limited by location. They permit individuals or companies to hire freelancers in real time for various knowledge-based tasks, such as translation, transcription, programming or graphic design.

Why is the EU directive necessary? 

According to EU estimates, there are currently more than 28 million people working through labour platforms in the EU. And that figure is set to grow to around 43 million by 2025. The majority of these workers are true self-employed professionals. They work autonomously, set their own schedules, and choose to accept or decline work to fit around their other commitments. 

However, the EU Commission estimates that about 5.5 million gig workers have been incorrectly categorised as self-employed by the platforms they work for. That means that they are currently missing out on the statutory employment rights they would be entitled to as employees. Because they’re officially freelancers, these workers may not make the minimum wage, have the right to breaks from work, or get paid sick leave, for example. 

What does the Platform Work Package include? 

The Platform Work Package is the collective name given to the set of measures proposed by the EU Commission in December 2021. The package includes: 

  • A communication setting out the EU measures: This sets out the approach that the EU will take to improve standards for platform work. It also describes the actions that national authorities, social partners and other relevant parties should take to complement the EU measures. 
  • A proposed Directive to improve working conditions: This includes measures to correctly determine the employment status of people working through digital labour platforms. It also sets out the new rights that workers will have regarding algorithmic management practices. 
  • Draft guidelines on the application of EU competition law to collective bargaining agreements: The aim of the guidelines is to make it easier for solo freelancers, including those working through labour platforms, to collectively seek to improve their working conditions. 

What changes will the platform work package bring about? 

The measures proposed by the EU Commission are intended as a comprehensive set of guidelines to help improve working conditions for platform workers. The directive alone runs to some 40 pages — so there’s a lot to digest. 

However, the main changes that the package will bring about if the measures it sets out are approved are: 

  1. Clarity on employment status 
  2. Transparency around algorithmic management 
  3. Transparency and traceability of labour platform data 
  4. Legal certainty around collective bargaining for independent workers

Let’s take these four points one by one. 

  1. Clarity on the employment status of platform workers

One of the main aims of this directive is to clean up the classification of platform workers. Many platform workers see themselves as freelancers. They entered into the situation voluntarily and enjoy the flexibility this status offers. But others are effectively being denied employment rights through this arrangement.

Under the directive, each member state will have to establish the conditions under which platform workers will be considered to be employees. Although the rules will look slightly different in every country, the general idea is that workers who are under a significant degree of control or direction will automatically be considered employees, regardless of what their contract says.

Member states will also be able to carry out controls and inspections to determine whether workers have been incorrectly classified. However, this will be at the discretion of national governments, so exactly what this looks like will differ from one country to another.

The legislation also introduces a shift of the burden of proving a worker’s status from the worker to the employer. Currently, platform workers often have to go through lengthy and costly legal procedures to prove that they are in fact employed — something which is financially inaccessible to many. 

  1. More transparency on algorithmic management practices 

Many platforms use algorithmic management to remotely manage their workers. These technological tools and processes rely on the collection of data such as worker location and customer-generated reviews and ratings. They allow the company to make decisions automatically or semi-automatically based on this data. 

Because it’s not always easy for workers to understand how decisions are made, these systems can create significant power imbalances between workers and their employers. There is also a potential issue of bias when things like customer reviews are used to make decisions that affect workers. 

The proposed new rules will put more restrictions on the types of data platforms can process, and for what purposes. Platforms will have to inform workers of their use of automated monitoring and decision-making tools and will have to guarantee a certain level of human oversight. For example, decisions that result in the termination of an employee’s contract will have to be made by a human. Workers will also have the right to have any automated decisions reviewed and explained by a human.

These new rules will apply to both self-employed people and those who will be newly classified as employees.

  1. More transparency and traceability from labour platforms 

One of the problems with the platform economy is that national authorities often struggle to access data on platforms and the people who work for them. The fact that many platforms operate across borders makes this even more difficult, since it’s often unclear where (and by whom) work was actually performed. 

Naturally, this can cause regulatory and tax issues, since national authorities don’t have a clear picture of the work being done in their countries. Part of the Commission’s proposal aims to bring more transparency around this issue, by clarifying platforms’ existing obligations to declare activities to national authorities. Platforms will be asked to make key data, like the number of workers on the platform and information about their working conditions and contracts, available to the relevant authorities. 

  1. Legal certainty around collective bargaining agreements

The package also includes a set of draft guidelines that aim to provide legal clarity to solo freelancers on the circumstances in which they can collectively bargain for better working conditions, including pay. 

Currently, EU competition law, which prevents businesses from effectively limiting or distorting the open market, prohibits those classified as freelancers from unionising and negotiating a better deal for themselves.

The guidelines would affect freelancers if one of the following conditions applies to their situation: 

  • 50% or more of their total annual income comes from one customer
  • They work ‘side-by-side’ with employed workers, performing the same or similar tasks
  • They work through a digital labour platform

Under the proposed guidelines, such workers would be treated as employees in this context, granting them the right to collectively bargain for better working conditions.

Next Steps

Now that an agreement has been reached, the text of the agreement will be finalised in all official languages and formally adopted by both the EU Council and the European Parliament. Once this happens, member states will have up to two years to transpose the rules into national law.

Who will be affected by the changes? 

There are three main groups that will be affected by the EU’s Platform Work Package: 

  1. People who work through labour platforms
  2. Customers customers that use the platforms
  3. The platforms (operators) themselves. 

Let’s take a look at what the changes will mean for each group. 

  1. What does the EU’s Platform Work Package mean for platform workers?

The EU directive is undoubtedly a welcome initiative for many workers who have been incorrectly classified as freelancers and effectively denied the employment rights they are entitled to. This is particularly relevant in the context of the COVID-19 pandemic, during which many gig workers were left without the social safety net that comes with an employment contract. 

However, some genuine freelancers who use platforms have concerns about the unintended side effects of the proposal. Some are concerned that they may be inadvertently lumped in with those workers who have not chosen the freelance status deliberately and treated as employees.

This could effectively negate some of the reasons that many become freelancers in the first place, including the freedom to choose the work they take on and how they complete it, and the ability to turn down work. There’s also a concern among some that collective labour agreements might stifle flexibility and innovation within certain industries. 

  1. What does the EU’s Platform Work Package mean for platform users? 

Many people use platform work in some capacity — even if they don’t necessarily realise it. For example, if you’ve ever taken an Uber or ordered takeaway food on Deliveroo, you’ve probably used a labour platform. Other possible use cases include things like using an online platform for a translation or a transcription of a document. 

Ultimately, the EU’s proposed set of measures shouldn’t have much of an impact on people who use platforms casually. However, one possible result is that these services might get more expensive in the future. If platforms are forced to classify their workers as employees, their operating costs are likely to increase — and part of that cost might be passed on to customers. 

  1. What does the EU’s Platform Work Package mean for platform operators? 

The proposed directive means that labour platforms will need to prove that the workers they employ are really self-employed freelancers, not employees. How platforms will be affected by the changes depends on whether their workers are determined to be employees or not. 

When workers are found to be self-employed freelancers

In theory, the EU Directive shouldn’t affect platforms whose workers are genuinely working on a freelance basis. In these cases, the platform operator is not required to provide their workers with employment benefits like sick pay, set rest times or the national minimum wage. 

However, we will likely see platforms that currently exert a certain amount of control over their workers making changes to their business models to create the right conditions for genuine self-employment. This might mean making it easier for freelancers to pick and choose the work they take on, or to build up a client base outside of the platform. 

Platforms will also have to provide more clarity to their workers on how they are using algorithmic management practices. Workers should be able to understand how decisions are made and will have the right to contest any automatic decisions. 

When workers are found to be employees

In cases where a platform’s workers are found to be employees under the new Directive, the platform company will be expected to enable them to enjoy the rights that come with this status. Naturally, this will come at a higher cost to platforms than simply engaging so-called ‘freelancers’. This means that platforms that have previously misclassified their workers — deliberately or otherwise — will lose the unfair advantage that they have enjoyed until now.

The Directive doesn’t address the consequences for platforms of misclassifying employees as freelancers. Instead, its aim is to unify the criteria that classify a worker as an employee across Europe and expand the situations in which platform workers will be considered to be employees. 

What will happen if companies don’t comply? 

Once the EU Directive is transposed into national law, each country will be able to decide on the sanctions they’ll impose for misclassifying workers. In countries that already have legislation around this, common consequences include fines, payment of back taxes and social security, and even criminal charges. 

It’s also likely that platforms will face lawsuits from misclassified workers seeking compensation for lost wages and benefits. And companies that are found to be deliberately misclassifying workers often also suffer damage to their reputations. 

We can’t know exactly what sanctions each country will impose. But looking at examples from countries that already have such sanctions in place can give us an idea of what the future might look like for labour platforms across the EU. 

Here are a few examples: 

Example #1: On-demand delivery app fined €79 million for breaching labour law in Spain  

Glovo, a Spanish on-demand delivery platform was fined €79 million in 2022, after misclassifying workers as ‘autónomos’ (self-employed) in Barcelona and Valencia. The company had previously been issued smaller amounts for similar infractions in other regions of Spain. But this penalty, which amounted to around 13% of Glovo’s 2021 revenue, was by far the biggest. 

Spain introduced a new law to protect platform workers, known as the ‘Riders’ Law’. However, Glovo argues that the breaches it has been sanctioned for happened before the new law came into force in August 2021. 

Example #2: Ride-sharing platform ordered to pay €17 million to drivers in misclassification case 

In early 2023, a French court ordered ride-sharing platform Uber to pay around €17 million in damages and lost salaries to a group of drivers who they had previously misclassified as self-employed. 

If the drivers had been classed as employed, the company would have had to reimburse them for professional expenses like fuel, and even the purchase of a car. They would also have had to pay overtime, which the drivers did not receive. 

Example #3: Domino’s pizza worker misclassification case reaches Supreme Court in Ireland

The Irish Supreme Court was set to hear an appeal over whether delivery drivers working for Domino’s Pizza in Ireland between 2010 and 2011 were mistakenly classed as self-employed independent contractors. 

This case has been making its way through the courts since 2018, when the tax Appeals Commissioner initially found that the workers should have been classed as PAYE employees. This decision was upheld by the High Court in 2020, and then overturned by the Court of Appeal in 2022. 

The final decision was made, that they were in fact employees, and costs are yet to be decided. This highlights the seriousness with which Ireland addresses employee misclassification issues.

CXC’s view 

At CXC, we have long held the view that people who work through digital labour platforms should be afforded the protections that they deserve. We also believe that deliberately misclassifying employees as freelancers is morally and legally unjustifiable. 

The EU Commission’s proposed regulations will help those workers, such as couriers and delivery drivers, who are working for labour platforms because of their relatively low barrier to entry. These people likely had little choice in their employment status, and it is widely known that some platforms have historically taken advantage of workers with few other choices. 

However, we are also concerned that the EU is taking a blanket approach to classifying platform workers, leaving little room for nuance. There is a large cohort of highly skilled knowledge workers who also work in the gig economy through labour platforms. These people have deliberately chosen to work in this way because of the flexibility and independence that this setup affords them. 

Under the new directive, it’s possible that certain workers in this category might find themselves grouped together with other types of gig workers and classified as employees against their will. In our view, a middle-ground status similar to the UK’s ‘worker’ status might be the most appropriate status for platform workers. This would provide workers with employment rights but still ensure flexibility in the labour market.

Above all, we believe that platform workers should be treated fairly. But it’s also important to note that introducing unnecessary rigidity into the labour market could be harmful to everyone involved.

Want to learn more about the EU Directive?

Connor Heaney (Managing Director CXC EMEA) spoke with Julia Kermode (IWORK) and Lucas Stuurop (Lexence) to get their views on what this directive will mean for gig platforms and workers. Listen to this episode below.

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