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Spain Is Serious About Stopping Bogus Self-Employment

Spain's 2021 'Rider Law' was a breakthrough in employment rights for delivery riders, but giants like Glovo have been all too willing to flout it – so they've been slapped with a record €79 million fine.

Founded in Barcelona in 2015, Glovo has become the largest delivery platform in 16 out of the 25 countries in which it operates through pursuing a ‘growth at all costs’ business model. (Shashank Verma / Unsplash)

‘The full weight of the law will be brought down upon this company,’ insisted Spanish Deputy Prime Minister Yolanda Díaz last month as she announced a record €79 million fine against delivery platform Glovo. The fine related to Glovo’s use of fraudulent self-employment practices in Barcelona and Valencia between 2018 and 2021. But imposing such a sanction also represented a wider statement of intent from Díaz’s Labour Ministry as it moved to put down a growing corporate revolt against the implementation of the country’s new gig economy legislation.

The 2021 Riders’ Law had placed Spain in the vanguard across Europe in legislating against the extreme precariousness of on-demand delivery work. Under the legislation, app-based delivery couriers are classified as employees rather than self-employed freelancers, thus gaining access to basic labour rights such as a fixed hourly wage, sick pay, and holiday pay. ‘A young person on a bike with an app is not an entrepreneur,’ Díaz had insisted as the law was approved.

Compliance with the Riders’ Law has been uneven since it came into effect in August last year. In terms of advances, ‘around 12,000 couriers have received permanent employment contracts in only one year,’ Ruben Ranz from the UGT trade union tells Tribune—even if the bulk of these workers are not employed directly by the platforms but by third-party subcontracting firms. In particular, Ranz points to a collective agreement reached between Just Eat and the unions, which ‘secures a level of job security [for both direct employees and subcontracted staff] around timetabling, a guaranteed minimum number of hours and [an above minimum wage] hourly rate.’

Yet since the outset, Glovo, Spain’s largest platform, has defied the law—maintaining its preexisting model of piecemeal per-delivery pay for 80 percent of its riders. It has now been joined by UberEats, which announced before the first anniversary of the law that it would return to hiring self-employed couriers so as to be able ‘to compete [with Glovo] in equal conditions.’

‘No other country in Europe has a law which insists so clearly that there is an employee-employer relationship with respect to these delivery apps,’ Daniel Cruz from Comisiones Obreras union tells Tribune. ‘But these digital platforms are openly flaunting the legislation. The €79 million fine [which amounts to 15 percent of Glovo’s annual expenditure] is sending a message that this form of fraud won’t be tolerated.’

The new law was a legislative response to the nearly fifty court cases which had ruled in favour of the couriers’ employee status, but the last year has shown how difficult it is to actually impose regulations on gig economy giants. Now with Díaz, leader of the left-wing Unidas Podemos alliance, also threatening criminal proceedings against company executives, this standoff might finally be reaching a tipping point.

Glovo’s Calculation

Founded in Barcelona in 2015, Glovo has become the largest delivery platform in 16 out of the 25 countries in which it operates through pursuing a ‘growth at all costs’ business model. ‘It’s about achieving market domination through unstructured and rapid growth,’ insists Ranz. ‘Glovo has never earned a profit. Yet investment funds have been happy, at least until this year, to continue financing its expansion, based on an expectation that it can consolidate its position as a dominant player in many European and African markets.’

Cruz agrees. ‘Glovo’s current business model is not financially sustainable in itself. But for these companies, profitability is conceived in terms of forcing its competitors out of the market and eventually being able to operate like a monopoly. It is all about attracting a critical mass of customers.’

In this respect, Glovo’s noncompliance with the Riders’ Law has given the company a significant competitive advantage over its rivals in Spain. In particular, one of the keys to on-demand food delivery has been these platforms’ ability to maintain an army of unpaid riders on standby—normally waiting around major delivery hotspots, like fast food franchises. Whereas Glovo can still flood the streets with riders, its competitors, who are now paying their couriers a fixed hourly wage, cannot afford to have the same numbers of people left idle on the clock.

Working with this reduced number of couriers, companies like Uber Eats and Just Eat have been experiencing delays on deliveries, particularly at peak times, while also accumulating extra costs tied to the new employment model. These additional costs have been somewhat offset through the use of subcontracting companies, which allows firms to limit their responsibility to workers around things like employer social security contributions, as well as to avoid being bound by existing sectoral wage agreements for transport and logistic workers. Yet ultimately, as El Confidencial newspaper reported earlier this year, ‘Glovo is the only platform that can continue to deliver in 15 to 20 minutes at competitive prices.’

This newfound competitive edge clearly comes at the expense of their couriers who remain subject to the extreme informality and stress of per-delivery work. As part of its legal strategy to claim its relationship to its riders does not constitute one of formal employment, the company has, in fact, scaled back the more explicit uses of algorithmic surveillance for measuring riders’ performance. Its previous use of an AI ranking system to assign the number of active hours couriers received on the platform had placed workers under continual pressure to perform. But while riders are now entitled to connect to the app without limits, as well as to decline deliveries without fear of penalisation, the pressure to chase deliveries so as to make ends meet remains acute.

‘Riders earn very little, only about €3.00 per delivery right now, with many forced to work 12 hours a day,’ Ranz explains. ‘These conditions are only possible to sustain through the exploitation of migrant workers.’ Indeed many of those who work as Glovo couriers do not have the legal right to work in Spain, according to Cruz. ‘Some accounts on these platforms are active for 18-20 hours a day,’ he tells Tribune. ‘You only need one valid social security number to sign up but then the account is rented out to others, with two or three people working under the same name.’

Enforcing the Law

Yet according to Felipe Corredor, a spokesperson for grassroots courier association Riders x Derechos, Glovo’s disregard for the law has been possible because ‘until now sanctions have been relatively low and the judicial process very slow.’ ‘It can take years for these cases to make their way through the courts with the platforms dragging out the appeals process for as long as possible. You also have the gutting of the Labour Inspectorate during a decade of austerity,’ he continues. ‘The state does not have the necessary resources to pursue these platforms and so from the companies’ perspective it can make sense to resist complying with the law.’

On the other side of this standoff, however, Díaz has invested heavily in the Riders’ Law’s success. Within the Socialist Party-Unidas Podemos coalition, her labour ministry is the most significant post held by the junior partner, and from cabinet Díaz is seeking to rebrand the Spanish left around the idea of a renewed labourism, with an alliance with the country’s major unions at the core of her project.

Whatever their limits, both the Riders’ Law and the coalition’s broader reform of Spanish labour law are being framed by Diaz as offering an alternative model to the ‘poverty and precariousness’ that defined Spain’s post-2008 financial crisis recovery. ‘I’m here to change things, like in the labour market where young people are excluded,’ she insisted last year. ‘We can have dignified lives, with dignified employment.’

Glovo’s defiance represented a direct threat to such an agenda and called into question the government’s capacity to enforce basic workers’ rights against such platforms. By the first anniversary of the law, La Vanguardia newspaper was talking about ‘a race against time’ to prove the legislation could be effectively applied.

Yet a key element of Diaz’s Labour Reform was the strengthening of the Labour Inspectorate’s sanction regime, with fines now applicable for each worker involved in an offence rather than a single company-level penalty. Each of Glovo’s violations involves thousands of workers, and so the fines jumped from the previous range of €5-8 million to last month’s €79 million. Days later a further €10 million fine was announced with respect to a labour inspection carried out in Zaragoza, while maybe the largest sanction to date is expected in the coming months in relation to fraudulent self-employment practices in Madrid during the period prior to 2021.

‘We [the couriers] are waiting expectantly to see what happens next,’ Corredor tells Tribune. ‘But further measures are needed to maintain pressure because Glovo is going to appeal the €79 million fine so as to buy itself more time. You have to remember that these fines have been issued with respect to fraudulent self-employment offences that took place under the old regulations and prior to the [more unequivocal] Rider Law coming into effect last year. The whole process is so slow.’

In the Balance

Yet Ranz doubts whether Glovo can sustain its standoff much longer. Since June the firm has been under new ownership, but only after a difficult takeover process during which the stock value of its new German parent company Delivery Hero fell by 59 percent. For Ranz, this collapse reflects the fact that ‘with growing inflation, the type of finance that fuelled these delivery platforms is no longer so readily available.’

As long as interest rates remained low, ‘venture capital had been happy to throw money at these companies so as to cover losses with further rounds of financing. But now as these investors have to assume the increased costs of servicing their debts, they are suddenly concentrating on when these firms will actually be able to turn a profit.’ In total, Europe’s three largest delivery platforms (Delivery Hero, Just Eat, and Deliveroo) had €21.3 billion wiped off their market value in the first quarter of 2021.

HSBC had described Delivery Hero’s takeover of Glovo as ‘baffling’ given the latter’s €330 million losses for 2021 and projected losses for this year. In response, Glovo founder Sacha Michaud insisted last week: ‘The next two years we’re focused on reaching profitability. That’s a key focus.’ Yet to continue resisting the law only risks a raft of further multimillion euro sanctions. ‘OK, the company is going to appeal the record fine, but it is still facing a further 15-20 judicial processes and the sheer quantity of fines are going to make its financial model ever more unsustainable,’ Cruz tells Tribune.

One theory is that both Glovo and Uber Eats could be looking to hold out until elections next year, in the hope a right-wing victory brings a more favourable regulatory regime. But ultimately for the company, it will be a question of weighing up the risk between the financial consequences of continuing to remain in breach of the law versus the potential benefits of continuing with its freelancer model. Added into that calculation is whether Díaz can make good on her threat to also target restaurants who work with Glovo for sanctions and whether her request to the State Prosecutor’s office to open a criminal investigation into Glovo goes anywhere.

This remains to be seen. But at a rally in the Catalan city Sabadell last weekend, the Deputy PM sought to erase any no doubt as to who would come out on top: ‘No matter how much it shouts or how much of a Spanish company it is, Glovo will comply with the law. I say this with complete certainty.’

The importance of that promise is clear for all to see. Glovo has made international headlines in recent weeks after it had sought to fire a courier in Italy who had been killed the previous day on a delivery. The company sent an email informing Sebastian Galassi, 26, that he had been ‘disconnected’ from the platform for ‘non-compliance’ with the terms of his role, having not completed the delivery during which he had been killed in a fatal accident. In the subsequent protests, one protester’s sign read ‘my life is worth more than the price of a sandwich.’