Last update on .

Uber driver: “If we get pulled over by the police, I’m your uncle and I’m giving you a lift”.

It can be the Wild West when you hop into an Uber. Not because of the service – the service is great – but because the driver doesn’t know whether they’re breaking the law, whether the Sheriff will show up. For the rider? Well, at first blush, the hardest part is working out how you’ll explain to the Sheriff that the driver’s your uncle.

Uber and Airbnb have quickly become commonplace. Each has presented society with challenges in deciding whether and how to regulate disruptive technology. How are regulators responding to individuals making rational choices and adopting new technologies which are changing our society? Legal innovators and their regulators should take note.

The tl;dr answer is:

-       Regulators are having a hard time balancing the need to protect the community with allowing real people to vote with their feet. The result is an absence of targeted regulation and resulting uncertainty for developers and consumers;

-       We think that a laissez faire regulatory approach to new technologies which lets developers and consumers try out new ideas and work practices without fear of breaking the law, breaching obligations or imperilling others is important – particularly for otherwise highly regulated industries, such as the legal profession; and

-       Regulators should be articulating the outcomes they see as acceptable, and only stepping in and regulating if it is evident that individuals or the common good are at risk.

1.    What’s the sharing economy doing to the real world?

Real people like cheap, clean, comfortable and convenient car-transport. Real people don’t really care about whether the person driving them is complying with transport regulations, has appropriate insurance, or is complying with anti-discrimination laws. Real people dislike taxis. As a result, the taxi industry appears to be in terminal decline.

Aside from price, the contrast between traditional bed and breakfast or hotel choices and Airbnb is less stark. While Uber wins on quality, Airbnb’s charms depend on the property. Sure, some real people want to rent a family home for the weekend because having a kitchen is great. Other real people just want a party pad metres from the casino or King Street, and I guess a party pad is better when there’s no officious receptionist to evict you at 3am after you’ve clocked your 37th noise complaint.

Real people are embracing the sharing economy both in spite and because of limited regulation that’s hard to enforce. That might be great for the real people who are using the services, but third parties are suffering. They aren’t just taxi drivers or hoteliers. They include the neighbours to Airbnb properties and users of wheelchair accessible-taxis supported by government subsidised schemes that rely on effective regulation to let them enjoy their apartments or even to get around who are finding it hard to enforce their rights or even to persuade a taxi driver to pick them up.

At its core, the fundamental disagreement is between an “each according to their needs” philosophy and a disruptive libertarianism under which the internet and technology will fix everything.

2. The regulators – stuck in the middle

Government intervention is not unexpected by the companies or the users. While the users might be libertarians (at least when they are using exciting and disruptive technology), they know parliament and society will stick up for public safety and the interests of less powerful citizens. The Atlantic describes both companies’ modus operandi as follows:

‘Roll out a convenient, cheap product with scorched-earth marketing tactics, and rest easy knowing that city officials can’t write regulations as quickly as consumers get hooked. So, as cities continue to enact regulations that slightly alter Uber and Airbnb’s platforms, this is what the future of the platform economy might look like: a series of similar products that differ slightly from city to city, based on local customs, regulations, and tolerance for yielding to platforms’ visions of the world.’

Uber and Airbnb have provoked a patchwork of regulatory efforts. Uber’s now been okayed in NSW, the ACT and WA, but the Victorian government is still working through the details. It is expected that legislation will be put before Parliament by the end of the year. If the legislation is based on the existing private member’s Bill, then it will codify background checks of Uber drivers, plus legislate for standards of car safety and insurance. Sensible stuff. But largely already done by the company itself.

For Airbnb, the Victorian government is beefing up owners corporations’ rights to take action against operators of party pads. But striking an appropriate balance is hard. The proposed new law (currently a bill before Parliament) follows an Independent Panel report on unruly parties in short-stay accommodation in the CBD. The Panel admitted that most of the proposed reform ideas were ‘too broad, heavy-handed, unworkable, inapplicable to existing building or insufficiently enforceable’. Who would’ve thought?

Without legislation, we are left with the slow and piecemeal development of the law as Courts respond to isolated factual circumstances. Decisions on Airbnb show there’s no uniform approach and participants in the sharing economy are left to wonder whether they will fall foul of the law. That’s not the Courts’ fault; it’s simply not their job to legislate.

3. What can legal regulators and innovators learn from Victoria’s Uber and Airbnb experiences?

For innovators, the lesson is simple. If your product is indispensable, regulators are going to find the prospect of disallowing your service unpalatable.

For regulators, the questions are different. Are current regulations holding back the development and uptake of new technologies? What strategies should we put in place to protect users of new and cutting-edge technology so that real-world usefulness can be assessed without inadvertently breaking the law or harming others? Afterwards, when should we regulate?

In the law, there are many examples of the risks run by innovators. In her Disruption, Innovation and Change report for the LIV, Katie Miller identifies a number of Victorian regulations that are unclear in their application to innovative legal practice, such as referral fees, consent to costs agreements, use of fixed fees with trust accounts and online verification of identity requirements. She notes that innovators are increasing access to justice by giving clients legal services as cost effectively as possible, while increased regulation risks hampering this.

In light of this greater goal, Katie Miller encourages the legal insurers and regulators to consider issuing statements of regulatory intent in respect of innovative practices.

But instead solicitors are being held back by being told to avoid innovation, to be hesitant to charge less for simple documents, and to tell clients to ‘[w]rite down any questions or comments you have and bring them to meetings with us rather than emailing …. This will save you money as each phone call and email takes time for us to respond to which we will charge you for’.

Miller suggests that an outcomes-based regulatory system would let lawyers pursue innovations that uphold the public interest, without inflexible prescriptions as to the manner and form of legal practice.

We agree. This comes close to the safe-harbour model for innovators and early adopters alluded to above, and it means that regulators can regulate when it is clear that particular technologies or work practices are actually problematic if left unregulated. As we’ve said before, we think the LIV report is the most enlightened commentary we’ve seen on regulation of legal innovation in a long time (or hotels and taxis for that).

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