Breaking The Shackles On The Precariat: Could BlockChain Technology Free The Self-Employed From Late Payments And Unwritten Contracts?Published: Friday, 24 March 2017 09:27
Category: The Pamphleteers
Sparks in the firework factory
The “Uber economy” which has taken root over the last decade has changed the face of employment for millions. In the UK, those classed as self-employed are set to outstrip those working in the public sector by 2018, by which time they will number about 4.8m people.
Some work in high-paid professional jobs, such as interim management or IT (iPros), however, many other - the so called “Precariat” - are in the low paid “gig economy”, what used to be called casual, or itinerant labour back in the 19th century.
Professionals and iPros often have formal written contracts and a reliable payment mechanism in place. Self-employment for them, can be said to be a lifestyle choice. But speak to the Precariat, and you will discover that for them this isn't always the case. As a result many do not have written contracts and late payments and defaults are common. Low pay, limited resources and a fear of not gaining further work leaves the Precariat with little bargaining power when it comes to negotiating the terms of their employment. This has resulted in diminishing their civil, political and economic rights, reducing them to supplicants, pleading for services and reliant on discretionary benefits, leaving them prey to ideologues from the extreme left and right.
The fight back begins
Technology helped revive the modern equivalent of the 19th century dockworker, but can it help bring 21st century working practices to this sector? Is it possible to help the growing number of self-employed workers in the economy to be paid on time and to have written contracts for their work?
The answer is yes, if we take inspiration from action in the USA and good practice from unions in the UK and combine them with latest technology.
In New York State, the influential Freelancers' Union recently took decisive action. They lobbied successfully for new state legislation which has been dubbed the 'Freelancing Isn't Free Act'. This Act gives freelancers, who are billing for more than $800, the rights to a written contract (otherwise a default one is assumed) and the right to be paid on time. It makes provision to levy substantial damages against employers who are habitual late-payers. The Act was agreed in November 2016 and comes into force on 15 May 2017 and the legislation has been broadly welcomed.
Unfortunately, whilst the UK already has Late Payments legislation, it is has limited effect for freelancers, who don't have bargaining power or wish to risk upsetting clients from whom they want further work. As a result there are no real consequences for employers who treat freelancers badly or pay them late.
As a freelancer myself, I would like to see late payments triggering automatic third party action. This would allow me to say ‘it is out of my hands’ to my client, and create enhanced bargaining power.
Some freelancers already have this. The Musicians' Union is a good case study, as most of their members are self-employed. If a client is late in paying them, instead of factoring the debt, they simply inform the trade union who then act on their behalf. The union has a strong reputation for getting results so it acts as a deterrent against late payment.
So how can this help the Precariat members of the gig economy or professional freelancers from suffering the same fate?
Few if any are in a union, as their perception is that unions are focused on employees’ rights, not freelancers and payments. However, a solution may be at hand- if we were to take the existing late payments legislation and combine in a framework similar to that of the 'Freelancing Isn't Free Act', we could create a link to a third party which would chase up late payments by default, just as the Musicians' Union does.
The Magic Tally Stick
My proposed version of the Freelancing Isn’t Free Act would allow a freelancer to nominate a Late Payments Provider, (which is what the Musicians' Union are) to whom the lack of a contract or late payments would be automatically referred.
Technology can help us enforce this and do it at scale: If you consider the market an untrusting environment with unknown players, the solution is to provide control collectively not centrally. The technology that works best in such environment is Mutually Distributed Ledgers (aka the Blockchain).
An employer and the freelancer can use a Mutual Distributed Ledger to load up a copy of a standard contract which can be hashed and timestamped. This will result in a trusted, stored copy.
The contract would have a number of parameters including payments terms. The payment terms would be shared with nominated Late Payment Provider. Invoices would then be issued against this contract and those terms. Like all ledgers it has two entries one for the debt owed and one from it has been received.
On top of the contract and invoice would be a smart contract, ticking away waiting for payments to be made.
If a payment is not made against an invoice within the stipulated time then a notification would automatically be passed to the Late Payment Provider. This means that the freelancer could simply hold their hands up and state that matters are out of their hands.
The Late Payments Provider would recover the late payment and charge an administration fee. The beauty of the scenario is that the system will pay for its self through administration and membership fees.
The Mutual Distributed Ledger network would consist of servers provided by the Late Payment Providers. They could be unions, co-ops or private third parties.
The trade unions have expressed interest in the idea as it actually provides a legitimate and tangible reason, with immediate benefits, for joining a union if you are self-employed.
For UK, we could move beyond words of sympathy to concrete action for the growing number of workers in the “gig economy”, providing a secure and trusted platform that is in their corner and works for them.
A UK version of a ‘Freelancing Isn't Free Act’ is being proposed with cross party support as a Private Members Bill. Our goal is to see if we can write in provision for Mutual Distributed Ledgers.
This is the first step on a long road to providing security for the precariat, and whilst legislation is not required to make this happen, it would help strengthen the relationship between low-paid casual workers and the state, perhaps going some way towards reduce the nihilism currently afflicting western democracy.
Philip Ross is a freelance Agile Business Analyst working in fintech. He is also a leading member of the freelancing community and author of publications on self-employment and the future role of co-ops and unions.
A useful resource for freelancers who are just setting out, can be found at www.thesimpledollar.com/ultimate-freelancers-guide/