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Sharing Economy: No Need for New Regulation in Switzerland

The Swiss government does not intend to impede new business models by implementing new regulation. Rather, it considers a liberalisation of existing laws in order to ensure Switzerland remains an attractive business location.

Sharing Economy Creates Business Opportunities

Recent technological developments, which amongst others have facilitated the extensive spread of the internet, gave rise to a range of entirely new business models. In this context, the «Sharing Economy» (also known as «Access Economy» or «Collaborative Economy») creates new business opportunities. The basic idea behind this concept is to use online platforms (as intermediaries) to bring together suppliers and consumers in real time in order to «share» certain scarce resources and to offer associated services. Uber and Airbnb are the most prominent examples of companies in the Sharing Economy. From an economic perspective, the Sharing Economy is widely seen as beneficial because scarce resources are used more efficiently and competition is increased. Not least, a more efficient use of resources is beneficial for the environment. Compared to brick-and-mortar retailers, companies in the Sharing Economy are generally organised in a leaner structure, profit from lower fix costs and are therefore more flexible. This leads to a comparative advantage of such companies. On the other hand, consumers benefit from a greater variety in offers and often even from lower prices compared to the brick-and-mortar economy.

The concept and implementation of a Sharing Economy business model is relatively simple as the operator basically needs to set up and maintain an online platform. It is therefore attractive for many different industries. However, the examples of Uber and Airbnb show that entry into a highly regulated market, such as transportation or accommodation, presents legal challenges and often triggers resistance from current market participants. Further, the Sharing Economy has revealed that distinctions which have once been clear, such as employer vs. employee or supplier vs. consumer have now become blurred.

Swiss Federal Council's Digital Economy Report

In its report on «the Digital Economy» of 11 January 2017, the Swiss Federal Council tested the Swiss legal framework's suitability and readiness for digital businesses and considered whether (further) regulation is required. Primarily, the Swiss government sees the current digital transformation as an opportunity for Switzerland's economy and its position as an attractive business location. The Swiss Federal Council in particular points out that companies need foremost entrepreneurial freedom in order to exploit the opportunities of digitalisation and that the digital transformation should neither be restrained by existing legislation nor held up by new, premature and unsuitable regulation. The Swiss Federal Council further emphasizes the importance of international coordination, given that many online platforms are active on an international level. Rushing ahead isolated on national level would indeed not be expedient, but rather compromise continued success of business activities in Switzerland.

Even though the Swiss government does not see any necessity for extensive new regulation, the Sharing Economy has revealed some gaps in the current legislation that need further analysis and make selective adjustments of the current regime necessary.

Legal Challenges of the Sharing Economy

One of the legal questions discussed most controversially today in connection with the Sharing Economy is whether – from a social security and labour law perspective – platform staff (e.g. Uber drivers) are self-employed or rather employed by the platform operator. The answer to this question has a variety of severe legal consequences. Employees are subject to labour law and are, for instance, entitled to holidays, paid sick leave and payment for overtime hours. Further, the employer has to collect and pay social security contributions. The question of whether Uber drivers are self-employed or enjoy employee status has already been subject to court proceedings in jurisdictions such as the United Kingdom, but not yet in Switzerland. SUVA, a Swiss public sector insurer and leading Swiss provider of health care coverage for employees in case of accidents, however, qualified Uber drivers in its order of 29 December 2016 as employees. SUVA referred to decisions which concern other sectors and to the general principle according to which the qualification of self-employment depends on the degree of the staff's independence. SUVA concluded that Uber drivers are bound by Uber's instructions and therefore lack independence. It is likely that Uber will request a judicial review of this order. In its report, the Swiss Federal Council holds that there is no general answer to the question whether the workforce of a Sharing Economy platform is self-employed or employed. The platform structures and working models vary extensively from one case to another. Therefore, each platform, i.e. its business and employment model, needs to be assessed individually. Given that a one-size-fits-all approach in regulation would be overhauled by new business/working models very quickly, Swiss Federal Council's position is convincing and prevents unnecessary regulation.

The Sharing Economy also gives rise to questions relating to consumer protection matters. The Swiss Federal Council holds that new business models do not necessarily need to be subject to the same regulatory regime as business models of the brick-and-mortar economy. In case of increased transparency in the Sharing Economy, a lower regulatory regime may be more appropriate. This applies, for instance, to Uber where price transparency, reviews and ratings of the drivers lead to an even better information and hence protection of the consumer. Rather than implementing new regulations, the Swiss government even considers deregulation in areas such as traffic law. This is again a convincing approach as it may result in a level playing field across the passenger transportation sector. Based on two parliamentary motions, the Swiss Parliament has already started an examination of the existing Swiss traffic regulations on transporting third parties in vehicles.

Whereas subletters as in the case of Airbnb have to comply with regulatory requirements (such as the obligation to report any paying guests) just in the same way other suppliers of accommodation services have to, the repeated subletting through an accommodation platform challenges Swiss tenancy law. On the one hand, subletting requires the landlord's consent on an individual basis, i.e. Swiss tenancy law does not (yet) provide for blanket consent of the landlord. On the other hand, such subletting may seriously affect the private legal rights of neighbours, such as the effective legal defence of noise caused by subtenants. As a consequence, the Swiss Federal Council convincingly suggests a closer examination as to whether minor amendments of Swiss tenancy law should be made regarding repeated subletting.

The Swiss government also considers a minor amendment of Swiss competition law. Online platforms tend to merge with other platforms at an early stage in order to increase the number of consumers/users and hence the transactions and turnover. On the other hand, online platforms are also more attractive for consumers the bigger the number of users is. Due to these indirect network effects, platform markets are typically dominated by only a few operators or even one single operator. Whereas the Swiss Federal Council does not consider a fundamental change of Swiss competition law, it suggests amending the merger notification criteria in order to enable the Swiss competition authorities to examine whether mergers or acquisitions of such platforms could impact competition. In this regard, it considers the introduction of a Significant Impediment of Effective Competition (SIEC) test. This test can indeed prove a useful means to adequately assess the improved efficiency of merged platforms.

Switzerland is Ready for the Sharing Economy

The initial examination undertaken by the Swiss Federal Council shows that Switzerland is already fit and well equipped for the Digital Economy. Amending the current legislation is necessary only selectively, since the existing legal framework already provides for a great deal of operational flexibility. This position, which is currently reinforced by the Swiss Parliament, deserves credit, not least because new regulation should not prevent invention, nor lead to a protection of individual market participants from new business models or increased competition. Also, it is vital to avoid any premature regulation, given the pace of the developments in the digital transformation and their global dimension.

At the same time, it is crucial for companies of the Sharing Economy (as well as for potential investors) to monitor the dynamic regulatory developments in this area closely and to sporadically perform a legal review of their business models.