Deliveroo Tacitly Admits That Its Business Model Relies on a Lack of Workers’ Rights

Restaurant delivery giant Deliveroo has said that legal challenges over workers’ rights could “affect our ability to continue operating” in certain regions, including the U.K. It admitted that its business model relies on employing riders as “self-employed contractors” in the investment prospectus, which establishes the terms of the £8.8 billion valuation it is seeking when it floats on the London Stock Exchange.

Referring to existing legal challenges over workers’ rights in Italy, Australia, Spain, and the Netherlands, the company said:

If government agencies in other jurisdictions were to implement similar industry-wide changes to gig economy and/or food delivery worker status without distinguishing between operating models, this could have a material impact on our business.

Deliveroo goes on to say that “if we were required to make changes to the basis on which we engage riders across a number of our markets, or in our key markets, this could affect our ability to continue operating in those markets or require material changes to our model.” This is an admission to investors that the shares they are buying could be compromised by Deliveroo having to give its riders employment protections.

One of its key markets is the U.K., where the Supreme Court recently ruled that rideshare company Uber has to classify its riders as workers, paying a minimum wage, pension, and holiday. That ruling isn’t going to change food delivery right away — even Uber, which also runs Uber Eats, says it is unmoved by any ramifications for its food delivery arm — but it has bought renewed attention to the means by which Deliveroo and Uber achieve such stratospheric valuations: depressing labour costs by eliminating minimum wages, pensions, and holiday pay from their balance sheet.

Deliveroo has put this information in its prospectus because it is, financially speaking, an investment risk: If it starts making less money, those who invest in it are also going to make less, or even lose money. One U.K. fund, Aviva, has flipped the script and said that actually, the lack of workers’ rights is the investment risk, in a naked clarification of the mechanisms at the heart of the £8.8 billion valuation. Investment forecasters said last week that the Uber ruling “dampened the mood” around Deliveroo’s Initial Public Offering (IPO,) with one describing it as “an existential threat to Deliveroo.”

But, the company has fought them off before. A Parliamentary inquiry by MP Frank Field, then representing Labour, found that its business model “for an unknown number of workers these imposed self-employment opportunities are all there is on offer, even though their need is for stable work for at least the level of the National Living Wage” in 2018. That followed the Independent Workers Union of Great Britain (IWGB) defeating Deliveroo over riders’ self-employment status, but the High Court upheld Deliveroo’s classification of riders and their consequent lack of rights to collective bargaining (unionisation) later that year. Deliveroo has long maintained that its riders seek the flexibility it can offer, even if that flexibility actually leads to a gamified relationship between rider and company.

The economics of food delivery are such that for these apps to be viable, they have to exploit someone — be it the worker or the restaurant. Deliveroo made its first profit this year after unprecedented demand linked to the Covid-19 pandemic, but its valuations, like Uber’s, and many other gig economy giants, are tied to growth before profitability, even though investors are starting to put pressure on this model. That explains why a company that still reported an underlying loss of £224 million in its most lucrative year to date can bid to value itself at £8.8 billion, while its riders can’t guarantee themselves a minimum wage when they log on, get on their bikes, and ferry food around the capital.