The impending £9 billion Deliveroo IPO, London’s biggest in almost a decade, risks being overshadowed by European investigations into the legal status of its delivery riders. Yesterday’s release of the IPO prospectus informed potential investors of regulatory processes and legal claims over how Deliveroo’s gig-economy riders are classified in the UK, as well as in France, Spain, Italy and the Netherlands.
IPO prospectuses are obliged to highlight risks and challenges the listing company faces. However, it is rare for these risks to include the kind of looming legal or regulatory developments that could require a complete rewrite of a company’s model. But that is exactly what Deliveroo would be faced with if forced to start treating riders like employees and provide minimum wages independent of delivery numbers, holiday and sick pay and other benefits.
Deliveroo is one of a host of large tech companies whose business models are defined as being based on the “gig economy”. Gig economy jobs are those where workers flexibly pick and choose when to work and are paid per job, rather than hours worked. They are defined as independent contractors. Companies operating gig economy models include most food delivery businesses and those like Uber operating ride hailing apps.
Critics of the gig economy business model believe that it is exploitative and leaves workers without any rights or protection if the are sick or otherwise unable to work as usual. Proponents argue it offers a flexible way for people to earn a supplementary income with no long-term commitment and the ability to pick and choose when to work.
However, for many gig economy workers it has become their main source of income. And it’s not always clear just how flexible these roles really are with algorithms assigning jobs often favouring workers based on their overall availability. Which, critics argue, means gig economy work is only really flexible in certain locations and during periods of peak demand.
The debate around the status of gig economy workers was brought into focus last month when the UK’s Supreme Court judged Uber to have broken British employment law by not providing benefits such as pension contributions or a minimum wage. The result was the company last week assigning worker status to its UK drivers – a precedent many see as marking the beginning of a wave of change across gig economy companies.
Deliveroo believes the Supreme Court ruling is not a precedent that will force it to take the same approach with its delivery riders, arguing they themselves value the flexibility the job offers. But it did warn in its prospectus that any similar ruling affecting its riders would mean a completely new business model would have to be found.
The stock exchange filing published last night read:
“If we were required to make changes to the basis on which we engage riders across a number of our markets . . . this could affect our ability to continue operating in those markets or require material changes to our model.”
Deliveroo, which is still lossmaking, expects to price its IPO before the end of this month and is targeting a valuation of between £7.6 billion and £8.8 billion, raising between £1.5 billion. It plans to raise £1.5 billion to £1.6 billion, rising to £1.7 billion after the over-allotment of shares. Around £1 billion will be kept by the company to continue to fund its expansion and cover short-term losses, with the rest going to existing investors selling shares.
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