Copying Business Model
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This article has been written by Pratibha Chauhan, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. This article has been edited by Ruchika Mohapatra (Associate, Lawsikho). 

Introduction

Much has been written about the antitrust issues surrounding Uber and Ola’s business operations in India. The collective bargaining procedures of drivers, who may or may not be independently operating contractors and hence, are unprotected by statutory provisions and constitutional rights for labour and susceptible to similar antitrust scrutiny, have received little attention.

Before we get into the meat of the matter, we should clarify that we do not want to offer any personal opinions or value judgments about the facts at hand. We are attempting to merely bring out the legal and policy issues and related prospects pertaining to antitrust and the regulations relating to it as applicable to the transport aggregators who are operating in India.

Antitrust regulations and antitrust aggregators

In what may be a surprising first, the Federal Trade Commission (FTC) of the United States (US) has sided with two transportation aggregators Uber and Lyft in an appeal that was filed before the Ninth Circuit by the latter. Collective bargaining by drivers who are collaborating with aggregators was advocated and permitted by the City of Seattle Ordinance 124968 of 2015.

Following that, a federal judge ruled that the Ordinance was exempted validly from antitrust regulations as given in the “state action doctrine”. According to this doctrine, a state in the USA can claim an exemption from federal antitrust regulations by articulating its intent clearly in order to displace the competition in a particular field with a regulatory regime.

Filing their amicus brief together, in the Chamber of Commerce of the USA and Rasier, LLC v. City of Seattle, earlier in that month the FTC and the US Justice Department argued vehemently that no clear articulation of an intention of such kind in relation to this particular field by the State of Washington was there. An amicus brief with similar features has been jointly filed by other business groups opposing the ordinance.

Most notably, the above-mentioned briefs aim at expressing concerns about collusion and the consequence of price-fixing by drivers working with the aggregators which are thus categorized as independent contractors by the aggregators.

State action doctrine and its relevance in India 

The “State Action Doctrine” is not a recognised exception to the antitrust regulations as given under the Competition Act, 2002. As a consequence of this, state governments in India are not able to claim antitrust exemptions under Indian law. However, the Central Government may exempt the execution of the Act or any arrangements given under it by notification for a specified, or by mandatory implication, an unspecified span of time. The relevant part of Section 54 of the Act states about the same.

Historically, the Central Government has essentially “tweaked” the statutory limits provided under Section 5 of the Act via notifications (released in March 2011 and March 2017). Most recently a notification that eerily avoided public attention entirely omitted the necessity of a thirty-day notice for combinations provided in Section 5 of the Act for a five-year period. All of these notices are distinguished by a simple repetition of the relevant clause and the applicable ground, namely “public interest.” Indeed, challenges to such announcements for improper use of the “public interest” premise are not out of the question. In a similar manner, it can be argued that the exemption is not provisioned for “any class of enterprises” (states Section 54(a)) or “a particular field” (according to state action doctrine in the USA).

Regardless, there is a case to be made for a properly defined exemption enabling unionisation/collective bargaining by independent contractors in aggregate areas with a virtual oligopoly. Another possibility is the implementation of a custom-made regulatory regime. More broadly, the Ordinance and all of the subsequent litigation in the United States remind us of the intriguing prospects of the Act given in Section 54(a), which are still unexplored!

Ground realities

As transportation aggregators in India gradually reduce incentives for partnering drivers, the latter’s employment difficulties are “far from over.” With the rapid rise of these aggregators in the transportation market, this will almost probably become a key legislative concern for the Central Government in the future years.

Given the ground facts, the second of the two choices described above appears to be more promising. Union activity and collective bargaining by these “independent contractors” – despite the fact that it is not expressly permitted by law – is a crucial ground reality that cannot be ignored. In the year 2017, an association in Delhi named Sarvodaya Drivers Association (that claims to be the representative association of more than 20,000 taxi drivers) and the Delhi Taxi Tourist Transporters’ Association (having more than 50,000 drivers) called at least two strikes in assistance of “higher incentives and better conditions.”

These incidents speak to a larger issue, which is characteristic of the transport aggregation market in India: the lack of thorough governmental regulation! Do such activities by aggregators’ driving partners give rise to a presumption of an appreciable reverse impact on competition under Section 3(3) (a) of the Act? As per a literal understanding, the response is “yes.” As a result, a tailored exemption provided by the Act will impactfully serve no new purpose and, in the absence of additional regulation, may be quite ill-suited and unproductive for the meaningful market segment.

Alternative approaches

When predominantly executive resolutions seem to be addressing the potential problem, there exist possible legislative and judicial solutions too. It would be fair to argue that legalising collectivisation by the drivers (arguably independent contractors) doesn’t seem to be an appropriate policy- it might be causing more worsened effects than the positive expected.

Contractual implications of such relationship conclusions

Discriminatory provisions in an employment contract may be scrutinised more closely by Indian Courts than contracts with independent contractors in the near future. A fundamental underlying goal of providing stronger protection to the former category under labour law is most likely the difference in bargaining power between the two categories vis-à-vis the employer or hirer. Simply put, there appears to be an underlying notion that independent freelancers have higher bargaining power than those hiring their services.

A US district judge, for example, ruled that the arbitration clause in the contract between the concerned partners and Uber was ‘Unconscionable’ since it was hidden in the contract and inconsistent with other clauses. A stipulation in the stated agreement obliged the driving partners to handle their conflicts through arbitration, including those originating from employment termination, and to forgo their ability to file a class-action lawsuit against the corporation. However, the Ninth Circuit ruled on appeal that the arbitration clause was not “unconscionable” because the drivers had the option to opt-out of the arbitration, which a handful did. The Court stated that the party who has signed the contract is responsible and cannot complain about the language or unfamiliarity with the language of the agreement.

While determining the impartiality and fairness of the terms in the contract, the Supreme Court of India in the case of L.I.C v. Consumer Education and Research approved that the freedom of agreement must be determined on the basis of equal bargaining power between contracting parties. Though ad idem is assumed, the rule lies in the standard form contract. The consent or consensus ad idem of the vulnerable party is completely missing. He must affirm the same in terms of the dotted line contract or forgo the goods and services. The free and equal power of negotiations is mostly an illusion. 

Keeping that in mind, the 199th Report of the Law Commission of India (2006) inferred that Indian law is deficient to manage meaningful and authoritative shamefulness, in this manner proposing provisos for a devoted enactment. Maybe this vagueness in the homegrown legitimate system could likewise be explained by adding global lawful shows to the homegrown law.

In Vishakha and Ors. v Territory of Rajasthan and Ors the Supreme Court of India held that bringing in global shows without a trace of conflicting domestic legislation in a specific field is an acknowledged guideline of translation. The UNIDROIT Standards on Worldwide Business Agreements 2010 (UNIDROIT Standards) give a global structure to general standards of agreement law that can be applied to any country regardless of its lawful practices and its monetary 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.

As per the Official Comment, 2 to Article 3.2.7, an individual term of the contract can be avoided by a party when the party has been taking an unfair privilege of his ignorance, inexperience, or weak negotiation skills. As such, the court has the power to extrapolate the principle of gross disparity in order to fill the gap or cover up the lacunae in the contemporary Indian legal regime regarding contract related unfairness in the form of a substitute to the principle of unconscionability.

Conclusion

It is abundantly clear that the government today endorses fast growth and high competition in the transport industry. Economic development is at the forefront of the Government’s agenda. The taxi market through the aggregator model in India like the ones followed by Ola and Uber is still at a very nascent stage and demands time to fully develop its pricing strategy. It would be wise for the concerned authorities and government to draw up a course of action and plan for the small and traditional players in the market in order for them to survive and continue to add to the development of the economy as a whole.


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