Earlier this month, a group of lawyers, entrepreneurs, business owners, ecovillage leaders, and community facilitators gathered in Portland, Oregon, for a two-day seminar on Legal Tools for the Sharing Economy. The course was taught by Janelle Orsi, co-founder of the Sustainable Economies Law Center (SELC) and author of the recently-published book Practicing Law in the Sharing Economy.
The course provided an expertly guided journey through what is, by all accounts, nascent territory. Legal, regulatory, and policy issues are central to the success and scale of Sharing Economy models. They exist at local, state, national, and even international levels. The list of applicable rules is long: transactional and business law; housing, land use, and zoning; labor and employment; intellectual property; corporate governance; non-profit law; and regulations relating to commerce, production, and fundraising… just to name a few.
However, many current laws and regulations affecting sharing-based businesses were drafted in and for an era of industrial production and mass consumption. Today, they are outdated and inappropriate. Thoughtful attention needs to be paid to revising – and, where necessary, overhauling – those rules that prevent the Sharing Economy from reaching its full potential, while maintaining basic protections of individuals and society at large. The Policy Agenda for a Sharing Economy recently published by SPUR offers a useful starting point for such efforts. The course took some of these issues even further.
Gifting and bartering are seen differently under the law and the IRS tax code. Image used courtesy of Janelle Orsi.
Who Needs Laws, Anyway?
Fundamentally, the principal purpose behind many laws is good, such as rules designed to protect workers and consumers. But, when you apply them to many Sharing Economy transactions, they simply break down. Let’s take a look at a couple of examples.
At a hyper-local level, imagine you would like to host an event at which everyone brings a dish to share, pays $5, and swaps clothes. For most of us, this seems like a normal social gathering that has little to do with business. However, from a strictly legal perspective, a host of issues are raised:
- Does the food constitute a donation? A gift? Is it swapped? Bartered? Sampled? Sold?
- Does the $5 entrance fee constitute income? Does this answer change if you’ve invited five people versus 500 people?
- Do health and safety regulations apply if you’re serving people food in an (arguably) commercial setting?
These questions may seem bizarre, especially for non-lawyers, but in today’s world, there is a minefield of legal issues that arise from even a basic transaction. For example, donations and gifts are deemed non-taxable income, while barter exchange is taxable. Indeed, even if no cash is involved in a barter exchange, the IRS wants its share – in money – of the ‘value’ of such transaction. (Yes, this presents a conundrum not only for people who barter, but for policy makers themselves.)
At a macro level, various car-sharing services are bumping into very real challenges because the laws and policies governing transport were drafted during a time when the American dream was to own one (or often, more like three) cars and public transport was often an inferior second choice. Janelle’s earlier Shareable post on car sharing and parking sharing places this topic in context.
The key legal issues for shared transport today revolve around insurance, licensing, and zoning:
- Insurance: How can car-sharing companies obtain group insurance at economical rates, when most insurers are not equipped to develop such policies? How should these companies address insurers’ concerns about trust, risk, and safety head-on?
- Licensing: How can ride-sharing companies avoid onerous licensing requirements – such as those for taxi and limo drivers – for individuals using the service while still ensuring policy makers – whose top priority is to protect customers and promote safety – that drivers are safe, reliable, and trustworthy?
- Taxation: At what point does a casual car sharer become a business? Is there a difference, from a tax perspective, between car sharing to save money versus to earn money? (IRS answer: Sometimes.)
- Zoning: To promote resource-efficient, livable cities, what is the appropriate zoning for car-sharing spaces? Parking spaces? Should shared transport options be given preferential tax treatment or placement and, if so, how should these benefits be quantified and adjusted over time?
One can also imagine “next generation” policy opportunities related to transport and urban infrastructure. For example, what about creating a process for developing intersections into shareable community spaces (as Portland already does)? That not only calms traffic flow, but it also benefits – and beautifies – the surrounding area in invaluable ways.
Car share companies are springing up all over the U.S. and abroad. Photo credit: Christian Paul. Used under Creative Commons license.
So, What To Do? The (Legal) Path Forward
The course covered myriad legal issues ranging from taxation of cooperatives to the new Crowdfunding Act in the United States, community currencies (275 local currencies launched in Spain last year alone), and corporate governance for co-housing communities. Despite the diversity of topics, a few common themes evolved which provide robust guidance for any type of sharing-based enterprise – small or large, for-profit or non-profit, local or international – to best navigate today’s policy space. These themes also help identify recommendations for policy makers who wish to proactively manage risk and promote the Sharing Economy:
- Truly share. One of the easiest ways to avoid legal hassles is to genuinely embody the spirit of sharing. For example, if you establish a truly cooperative governance structure, you have eliminated – or at least mitigated – many of the risks often associated with collective ownership. Further, the more truly cooperative you are in the workplace, the less likely you are to have employment-related problems. (See Upstream 21 for further inspiration.)
- Get out of the gray, if you can. If your activities fall within a legal gray area, do what you can to make them “less gray” and less burdensome. For example, if you make small-batch food for sale in your home kitchen, see if you can negotiate shared use of a commercial kitchen space instead. Or if you’re in licensing no-man’s land, make sure that your self-regulation is at least as rigorous as what the licensing authority would require (aside from obtaining the license, of course).
- Agree. Develop contracts to further manage your risks. Legal agreements are an important way to spell out expectations and memorialize commitments. They also help to clarify who assumes certain liabilities and risks, and how disagreements are to be handled. Treat these agreements like an insurance policy – if all goes well, you won’t need them and, if it doesn’t, you’ll be prepared. In addition, you’ll be treating your colleagues, partners, and fellow sharers with the professional respect they deserve.
- Exempt. Prior to drafting new laws (which can be an extremely long process), policy makers should look at opportunities to create exemptions or carve-outs from current laws that fit with Sharing Economy enterprises. They could consider temporary exemptions on a pilot basis to determine whether it is appropriate to extend the exemption permanently and/or what other mitigating measures might be taken.
- Revise and redraft. The most salient – and, arguably, the most challenging – step is to redraft and update current laws and regulations for the Sharing Economy. This also includes drafting new legislation for the first time, which should be done on a sector-by-sector basis and incorporating feedback from the community. Iceland crowdsourced its new constitution: legislators everywhere could use the insights from that experience to involve a broad set of stakeholders in the process. Doing so would also enable a better understanding of how collaborative consumption is being adopted and could create feedback loops among policy-makers, sharing-based enterprises, customers, and community residents.
- Iterate. Even with revised laws and additional exemptions, the legal and policy issues for the Sharing Economy will be far from over. As sharing-based businesses grow, thrive, and occasionally fail, we will discover additional gaps in the rules and identify new ways to improve the current system. Especially early on, these laws should not be static and set in stone, for that would assume (at some risk) that legislators get it right the first time – and that the Sharing Economy itself is uniform. Much better would be to adopt a thoughtful process of iteration which ensures that laws are refined and that best practices evolve over time.
Today presents an unparalleled opportunity for current and aspiring lawyers, policy makers, and engaged citizens to help redefine the enabling environment for the Sharing Economy and, in the process, to help rewrite the cultural narrative about what “the good life” means. Cities are starting to take notice of such opportunities: in San Francisco, Board of Supervisors President David Chiu is “revolutionizing cities” and spearheading legislation designed to address the key pain points of shared accommodation. This is only the beginning.