Deliveroo benefits in the pandemic, but not its workers
by Alex Davidson
The gig economy is a free market system in which organisations hire so-called ‘independent’ workers. It tends to refer to people using apps to sell their labour. The most commonly used examples are Uber and Deliveroo but there are many platforms facilitating working in this way and they are growing in number. The workers in the gig economy have no protection against unfair dismissal, and they have no right to receive the national minimum wage, redundancy payments, paid holiday leave or paid sick leave and work is precarious. In addition to that, employers benefit from the fact that they only pay when work is available so don’t incur staff costs when demand is not there.
Deliveroo is legally incorporated as RooFoods Ltd. This online food delivery company was founded in 2013 in London by the American, William Shu, previously an investment banker. It has operations in the UK, Netherlands, France, Belgium, Ireland, Spain, Italy, Australia, New Zealand, Singapore, Hong Kong, United Arab Emirates and Kuwait. It has withdrawn from Germany and Taiwan. (1) Deliveroo currently operates in 200 cities in the UK. It employs some 2,300 people and some 50,000 couriers. In January 2021 Deliveroo announced plans to expand into a further 100 towns and cities across the UK, enabling it to reach an additional four million people. The company has established Deliveroo Editions (or RooBox) in 16 sites across England including London, Brighton, Cambridge, Nottingham, Leeds, Reading and Salford, which create kitchens in shipping containers with partner restaurants supplying the recipes and chefs. Deliveroo then makes home deliveries of the restaurant food. It expands the restaurant’s business without the need to invest in premises, rates, utility bills, equipment, tableware, waiting and other staff. The only cost to the restaurants is that of a commission to Deliveroo.
Its revenue grew 611% to £129 million in 2016 and continued to rise reaching £476 million in 2018. Since its inception it had consistently made losses ballooning to a loss of £317.7 million in 2019. In the second and third quarters of 2020 it made an operating profit for the first time.
Deliveroo has succeeded in attracting huge investment with eight rounds of venture capital investment since its inception and reached a valuation in excess of some £1.4 billion making it a unicorn company. (2)
The Competition and Markets Authority (CMA) had put on hold a proposed investment by Amazon in Deliveroo as it had raised concerns that it might undermine competition. However, Deliveroo informed the CMA that “the impact of the coronavirus pandemic on its business meant that it would fail financially and exit the market without the Amazon investment.” In April 2020 Amazon’s investment of £439 million in Deliveroo was given the go-ahead by the Competition and Markets Authority. In making its decision the CMA stated that the Covid-19 outbreak had had “a significant negative impact on the UK takeaway courier’s business after several major restaurant chains including Nando’s, KFC and Pret closed their doors.” The CMA said the “imminent exit of Deliveroo would be worse for competition than allowing the Amazon investment to proceed.”
Investors now believe that the company is doing well enough for them to sell their shares for many times the amount they originally paid for them by allowing company shares to be bought and sold on the stock market. Deliveroo has now hired a group of investment banks including Bank of America, Merrill Lynch and Citi to help it launch what could be London's biggest stock market flotation of 2021. The investment banks will work underneath Goldman Sachs and JP Morgan on Deliveroo’s initial public offering, which is expected to be launched around April 2021. It is expected to be valued at well over £5bn. However, the surge in revenues that Deliveroo has seen since the start of the coronavirus pandemic is likely to prompt a sharp upward revision in its advisers' expectations of the valuation it could now achieve.
Deliveroo’s investors include Silicon Valley Venture capital firms and other tech financiers. Before the Amazon investment the main shareholders were:
- Index Ventures: 16% (US Venture capital with funds registered in Jersey)
- DST Global: 16% (Hong Kong based, founded by Yuri Milner, Russian tech investor)
- Greenoaks Capital: 13% (San Francisco based with funds registered in the Cayman Islands)
- William Shu: 12% (founder and Chief Executive)
- Bridgepoint Capital: 10% (UK based private equity firm; also owns Zizzi, Pret a Manger, Leeds Bradford airport, Care UK, Tunstall Healthcare)
- Accel Partners: 10% (US venture capital firm)
- General Catalyst: 3% (US based investor)
- Greg Orlowski: 3% (co-founder, resigned from company 2019)
In November 2017 the Central Arbitration Committee (CAC) rejected an application from the Independent Workers Union of Great Britain (IWGB) for collective bargaining rights in respect of Deliveroo riders. The IWGB then called for a judicial review of the case. The UK High Court dismissed the judicial review challenge by the IWGB in 2019. Collective bargaining rights only apply to workers and the CAC and High Court both upheld Deliveroo’s position that their riders are self-employed contractors rather than workers in terms of the law.
In December 2020 a court in Bologna, Italy, ruled that a reputational-ranking algorithm used by Deliveroo discriminated against delivery workers by breaching local labour laws. The algorithm did not distinguish between legally protected reasons for withholding labour, for example, not working because a rider was sick or for not being as productive as they had indicated they would be. The court ordered Deliveroo to pay €50,000 to the applicants plus their legal costs.
There have been legal cases brought against Deliveroo in France, Belgium, Spain, Australia and other countries. Some of these cases have found against Deliveroo, for example, a French court ordered the company to pay a cyclist €30,000 in damages on the basis that it was paying the employee as an independent contractor and not a regular employee in “an attempt to skirt labour laws”. The definitions of ‘worker’, ‘employee’ and ‘independent contractor’ have become a matter of considerable controversy in labour law and deeply affect how people in work are treated by their employer, agency, or app. as in the case of Uber or Deliveroo.
Theresa May, when Prime Minister, set up a Government Commission in 2016 to look at changes in working practices with the increasing role of the gig economy. The Commission was led by Matthew Taylor, Chief Executive of the Royal Academy of Arts. Taylor was Head of the No.10 Policy Unity when Tony Blair was Prime Minister. There were three other members of the Commission:
- Greg Marsh, a shareholder in Deliveroo, but not publicly declared. Marsh had worked for Index Ventures, the earliest investor in Deliveroo, as part of their technology investment team. He left Index in 2009 to set up his own company, onefinestay, a luxury hospitality business that lets travellers enjoy hotel services in beautiful homes while the owners are away, probably on their yachts! It’s an upmarket version of Airbnb. Marsh sold the company to Accor Hotels in 2016 in a deal worth more than $250 million. Marsh sits on several boards including Lyvly (3) and APCOA, Europe’s largest car park operator. In 2017 he was elected to the International Board of Amnesty International.
- Diane Nicol, an employment lawyer with Pinsent Mason, which specialises in representing employers during industrial relations disputes. According to the legal firm’s website clients have described her as “always commercial”.
- Paul Broadbent, who at the time of the Commission was Chief Executive of the Gangmasters and Labour Abuse Authority. Previously he had been Assistant Chief Constable of Nottinghamshire Police.
So, the Government appointed Commission into the gig economy involved no worker or trade union representatives.
The Taylor Commission published its report, “Good Work: the Taylor review of modern working practices” in 2017. The Government accepted 51 of the 53 Taylor recommendations and published its “Good Work Plan” in December 2018. Consultations were launched on several different aspects and some of this has now been put into employment law. The Taylor Review called for a new category of employment status, which it called “dependent contractor”. This has still to be dealt with but it is unlikely to be of great assistance to those currently defined as so-called ‘independent contractors’ with Deliveroo.
(1) Deliveroo withdrew from Germany when the Dutch food delivery giant Takeaway.com, known in Germany as Lieferando, effectively tied up the German food delivery business for itself with its purchase of Delivery Hero’s extensive operations in the country for €990 million. With the takeover it meant that Lieferando had 98% of the food delivery market in Germany. Deliveroo withdrew from Taiwan in April 2020 after only nineteen months, citing as its reason the reallocation of resources to Europe from the Asia-Pacific and Middle East regions.
(2) A “unicorn” company is the term used in the business world to indicate a privately held start-up company valued at over $1 billion. As of October 2020, there were some 450 unicorn companies worldwide.
(3) Lyvly is a London-based start-up which brings together renters and landlords. It raised $4.6 million in its Series A funding. Greg Marsh is its Chairman and one of its investors.