[Arjun Agarwal is a 5th year student at WB National University of Juridical Sciences, Kolkata and Pragya Dahiya a 4th year student at Jindal Global Law School, Sonipat. The authors can be contacted at [email protected]]
Much has been written about anti-trust issues surrounding the practices adopted by the likes of Uber and Ola in India. Hardly any attention has, however, been paid to the collective negotiation practices of drivers, who might very well be independent contractors, and hence unprotected by statutory and constitutional labour rights and subject to a similar antitrust scrutiny.
Before delving into the substantive issues, we must state that we do not intend to express any personal opinion or value judgments on the factual issues involved herein. Our attempt is merely to flesh out the legal and policy issues and prospects pertaining to antitrust and related regulation as applicable to the peculiar case of transport aggregators operating in India.
In what is perhaps a surprising first, the United States’ (US) Federal Trade Commission (FTC) has aligned with transport aggregators Uber and Lyft (Aggregators) in an appeal filed by the latter before the Ninth Circuit. The City of Seattle Ordinance 124968 of 2015 (Ordinance) advocated and allowed “collective negotiation” by drivers partnering with aggregators. Subsequently, a federal judge upheld the Ordinance as validly exempted from antitrust regulation under the “state action doctrine”. This doctrine allows a US state to claim an exemption from federal antitrust regulation by clearly articulating its intention to displace competition in a particular field with a regulatory regime.
Jointly filing their amicus brief in Chamber of Commerce of the United States of America and Rasier, LLC v. City of Seattle, earlier this month the FTC and the U.S. Justice Department have vehemently argued that there is no clear articulation of such an intention in relation to this particular field by the State of Washington. A similar amicus brief has been jointly filed by other business groups that oppose the Ordinance.
Most notably, both these briefs articulate apprehensions of collusion and the resultant price fixing by drivers who partner with the Aggregators, who are in turn classified by the Aggregators as independent contractors.
Relevance in India
The “state action doctrine” is not a recognised exception to antitrust regulation under the Competition Act, 2002 (Act). As a result, State Governments in India cannot claim antitrust exemptions under Indian law. However, the Central Government may, by notification, exempt the application of the Act or any of its provisions for a specified, or by necessary implication, an unspecified period of time. The relevant part of Section 54 of the Act reads:
54. Power to Exempt. The Central Government may, by notification, exempt from the application of this Act, or any provision thereof, and for such period as it may specify in such notification—
(a) any class of enterprises if such exemption is necessary in the interest of security of the State or public interest;
In the past, the Central Government has, in fact, effectively ‘tweaked’ the statutory thresholds under section 5 of the Act by way of notifications (March 2011 and March 2017). More recently, a notification that has curiously avoided media attention altogether exempted the requirement of a thirty-day notice for combinations stipulated section 5 of the Act for a period of five years. All these notifications are characterised with a mere iteration of the relevant provision and the applicable ground, viz., “public interest”. Indeed, challenges to such notifications for improper invocation of the “public interest” ground are not completely remote. Similarly, it is arguable that the exemption is not for “any class of enterprises” (section 54(a) of the Act) or “a particular field” (state action doctrine in the US).
Regardless, a case for an appropriately tailored exemption allowing unionization/collective bargaining by independent contractors in aggregation segments with a virtual oligopoly is not entirely unfounded either. Another possible alternative is the introduction of a tailor-made regulatory regime.
More generally, however, the Ordinance and all this subsequent litigation in the US reminds us of the interesting prospects of Section 54(a) of the Act which currently remain unexplored!
As transport aggregators in India incrementally cut down incentives for partnering drivers, the employment related woes of the latter are “far from over”. This may certainly become a significant policy challenge for the Central Government in the coming years with the rapid expansion of these aggregators in the transport business.
Indeed, the second of the two alternatives suggested above seems more promising given the ground realities. Unionisation and collective bargaining by these “independent contractors” – even though not expressly authorised by the law of the land – is one significant ground reality that cannot be ignored. At least two strikes have been called by the Sarvodaya Drivers Association of Delhi (which claims to represent over 20,000 taxi drivers) and the Delhi Taxi Tourist Transporters’ Association (which has around 50,000 driver members) earlier in the year for “higher incentives and better work conditions”.
These instances point to a bigger problem, typical of the transport aggregation segment in India – the absence of comprehensive governmental regulation! Do such actions by driving partners of aggregators raise a presumption of appreciable adverse effect on competition under section 3(3)(a) of the Act? Going by a literal interpretation, the answer would be a “yes”. Therefore, a tailor-made exemption under the Act will effectively serve no new purpose and, absent additional regulation, it might be quite ill-suited and counterproductive for the relevant market segment.
While predominantly executive solutions are likely to address potential problem, there are possible legislative or judicial solutions as well. It can be fairly argued that legalising collectivisation by drivers (who are arguably independent contractors) is not an appropriate policy – it might have far worse effects than its positives. However, in what was another first from the US, a California court in Berwick v. Uber Technologies (Berwick) deemed partner drivers to be employees of Uber. This might provide additional insights that are worth exploring.
At the core of Berwick’s final conclusion is the crucial finding that Uber, contrary to its own claims, is not a technology company – “Uber does not simply sell software; it sells rides”. In doing so, Berwick relies on precedent to hold that since the contract was for provision of personal services, and the services rendered by partner drivers had a low requirement of skill and judgment, the relevant threshold for control and supervision was minimal. It concluded that the non-negotiable nature of service and cancellation fee paid to drivers and the ultimate discretion with respect to registration of drivers implied that Uber “retained all necessary control over the operation as a whole”.
In the Indian context, the jurisprudence and various tests and factors propounded in the landmark decisions of the Supreme Court in Silver Jubilee Tailoring House v. Chief Inspector, Hussainbhai v. Alath Factory and Workmen of Nilgiri Co-op v. State of Tamil Nadu can fairly be construed to hold driving partners of aggregators to be workmen, assuming a similar factual scenario similar to Berwick. However, as stated at the outset, such factual determination is not the focus of the present post.
If we were to assume that the Berwick conclusions are true in India as well, labour rights guaranteed by the Constitution of India and the dedicated statutory regime in place might be applicable to driver partners of aggregators as well. Resultantly, contracts that deprive partner drivers of their statutory and contractual rights could be against public policy.
Contractual Implications of Such Relationship Conclusions
More imminently, however, unfair terms in an employment contract might receive closer scrutiny by Indian courts than contracts involving independent contractors. A basic underlying objective behind affording greater protection to the former category under labour rights law is probably the difference in bargaining powers vis-à-vis the employer or hirer in the two categories. Simply put, there seems to be an underlying assumption (albeit, unstated – properly referred to as an enthymeme) that independent contractors have a greater bargaining power vis-à-vis those hiring their services as opposed to employees.
For instance, a US district court held that the arbitration clause contained in the agreement between the concerned driving partners and Uber was “unconscionable” for being buried in the contract and inconsistent with other clauses. A clause in the said agreement required the driving partners to resolve their disputes by arbitration including disputes arising from the termination of employment, and to waive their right to bring a class action suit against the company. However, on appeal the Ninth Circuit held that the arbitration clause was not “unconscionable” as the drivers had the opportunity to opt out of the arbitration, and in fact a few drivers had indeed opted out. The Court held that although the opt out provision was “buried in the contract” the party who signs the agreement is bound by its provisions and “cannot complain of unfamiliarity with the language of the instrument.”
When determining fairness of contractual terms, the Supreme Court of India in L.I.C. v Consumer Education & Research approved:
the freedom of contract must be founded on equality of bargaining power between contracting arties. Though ad idem is assumed, the standard form contract is the rule. The consent or consensus ad idem of a weaker party be totally absent. He must assent to it in terms of the dotted line contract or to forgo the goods or services. The freedom of equal bargaining power is largely an illusion. It was also further held that in paragraph 22 at p.308 that in today’s complex world of giant corporations with their vast infrastructural organisations and …. There can be myriad situations which result in unfair and unreasonable bargain between parties possess wholly disproportionate and unequal bargaining power. The court must judge each case on its own facts and circumstances.”
However, there is hardly enough jurisprudence in India to, without further development, establish unfairness in this case. To that end, the 199th Report of the Law Commission of India (2006) concluded that Indian statutory law is insufficient to deal with substantive and contractual unfairness, thereby proposing clauses for a dedicated legislation. Perhaps this ambiguity in the domestic legal regime could also be clarified by reading international legal conventions into the domestic law. In Vishakha and Ors. v. State of Rajasthan and Ors., the Supreme Court of India held that importing international conventions in the absence of inconsistent domestic legislation in a certain field is an accepted rule of interpretation. The UNIDROIT Principles on International Commercial Contracts 2010 (UNIDROIT Principles) provide an international framework for general principles of contract law that can be applied to any country irrespective of its legal traditions and its economic and political condition.
Article 3.2.7(1) of the UNIDROIT Principles lays down grounds for avoidance of a contractual term in cases of “gross disparity”. It states:
(1) A party may avoid the contract or an individual term of it if, at the time of the conclusion of the contract, the contract or term unjustifiably gave the other party an excessive advantage. Regard is to be had, among other factors, to
(a) the fact that the other party has taken unfair advantage of the first party’s dependence, economic distress or urgent needs, or of its improvidence, ignorance, inexperience or lack of bargaining skill, and
(b) the nature and purpose of the contract.
According to the Official Comment 2 to Article 3.2.7, a party can avoid an individual term of the contract when the other party has taken a unfair advantage of his ignorance, inexperience or lack of bargaining skill. It further states that there are situations where an excessive advantage is unjustifiable even if the party who benefitted from the contract has not abused the other party’s weak bargaining position depending on the nature and purpose of the contract. As such, the courts could extrapolate this principle of gross disparity to fill the lacunae in current Indian legal regime regarding contractual unfairness as a substitute to the principle of unconscionability.
– Arjun Agarwal and Pragya Dahiya