The on-demand economy aims to provide a growing client base with goods and services faster and more conveniently. Two of its major components are:
(Online) Marketplaces: A digital space that connects two sides of a transaction: buyer and seller, service provider and client. The facilitator of the connection (aka the technological platform) often collects the payment from the buyer and remits it to the seller.
Today's consumers have come to expect quick, cost-effective, and user-friendly service along with access to a wide range of goods and services. Industries that have not adopted to today's consumer mindset are at risk of missing out on potential customers and revenue. However, the speed and volume at which business must now move makes transactions open to more potential risk. Gig economy and online marketplace transactions begin with a contract. And while contracts define the scope of business-customer relationships, they are a notoriously slow-moving endeavor. So, how can you move quickly while ensuring your contracting process is compliant and enforceable?
Your contracts must evolve from time-consuming processes to right-now methods.
A robust clickthrough platform can allow you to track and manage your multiple agreements scattered across your digital ecosystem. A system that provides a bird’s eye view of the different types of legal agreements you have online and what each agreement stipulates gives your legal team necessary control to protect your business. Further, a comprehensive clickthrough platform will provide insight into which users have signed what version of a specific agreement and allow you to push updates quickly and efficiently.
In this guide, you will learn about risks for online marketplaces you aren’t thinking about (yet), how to identify potential risk in your contract clauses and presentation, how to minimize your online marketplace risk, and how a clickthrough is your best shot at success in the on-demand economy. Ultimately, you will come away with the knowledge you need to move quickly without increasing risk.
Independent contractors are a huge benefit for many organizations. This is especially so for online marketplaces, whose customers hire a significant number of contractors or freelancers to provide goods or fulfill services. This has given rise to the so-called “1099 economy” (or “gig economy”).
The 1099 economy is a labor market that utilizes contracted human labor to fulfill the service promises from online marketplace/shared economy platforms. Named for the U.S. tax form filled out by independent contractors, the 1099 economy is changing fundamental expectations around the very nature of work.
In a 2010 study, Intuit predicted that more than 40% of American workers will be contractors or freelancers by 2020. It is important, then, that your legal terms with workers outline your liabilities in clear, enforceable terms. Otherwise, your large volume of contractors can unite as a class and bring costly suits against your business.
Because of this, one key aspect of agreement between business and independent contractor is the arbitration clause. The arbitration clause mandates that independent contractors must resolve disputes with businesses through the arbitration process, thereby preventing class action risk. Many online marketplace owners make arbitration mandatory because it leads to a quicker settlement, costs less, and protects a company’s reputation.
An arbitration clause can part of an organization’s agreement with its independent contractors and customers. If executed properly, this clause can help prevent against one of the more common (and costly) risks endemic to any organization with a high volume of signers. After all, a greater volume of transactions (be it for employment or for goods/services) inherently carries of risk of people who can be displeased and rise up as a class and bring your organization to court.
Does this mean that your agreements online are at even higher risk than the ones done by manual processes? Yes and no.
Presenting agreements to customers or contractors via a clickthrough can mean doing business more quickly, but clauses like your arbitration clause can only be upheld if your clickthrough is enforceable.
Here are two examples of what not to do:
The enforceability of a clickthrough depends a lot on its design. Even if terms were crafted perfectly, it will not hold weight unless it meets some of the following criteria:
Ultimately, enforceable agreements are the key to protecting your online marketplace in the 1099 economy. It is important to know what agreement each party signed when, and what clauses they accepted. With this vital work of minimizing risk handled, you can spend more time focusing on scaling your marketplace and building for future success.
Online marketplaces are booming. According to Internet Retailer, $1.5 trillion was spent globally in the top 75 online marketplaces in 2017 alone. With so much attention focused on rapid expansion and growth, the legal implications have often been skimmed over.
For example, many companies understand that customers must be presented with legal terms that govern use of a business’s website. Few realize, however, that these terms must be well-designed and clearly presented in order to be enforceable.
Data privacy and the nuance of consent: Using consumer data (i.e., spending habits, income, social connections, etc.) to inform business decisions is a double-edged sword. While this data can help online marketplace platforms sell more efficiently, it is meaningless without the customer’s explicit consent. And in the age of GDPR and several other privacy acts, your organization can face serious repercussions for (mis)using information they were not permitted to.
Laws of other countries: The reach of the online marketplace is global. This means that inevitably, you will be doing business with people outside of the U.S. As a result, online marketplaces must ensure that their rules comply with those of other countries. For example, the GDPR originated in Europe, but people outside of Europe who do business with European organizations or entities must comply to this regulation. Otherwise, those organizations could face fines as large as 4% of their annual revenue.
Class action risks: It is almost inevitable that each organization will have contractors and/or customers who will take issue with some provided product or service. If enough people get together and find something wrong, they can file a class action suit against your company or business. Case in point: when customers complained that Uber charged them extraneous fees for travels in East Boston and to Logan Airport, they convened as a class to bring the ride-hailing giant to court. (And because Uber’s clickthrough agreements were not enforceable, courts shot down their arbitration clause.)
Scaling too fast: Marketplaces already move quickly with a high velocity of users and transactions. This risk multiplies exponentially when the business moves too quickly without the necessary protections in place. For example, if an organization presents their legal agreements via a clickthrough designed in-house, their solution should be able to track and manage each agreement, its location, and which customer signed. Failing to keep track of this puts your organization at greater risk of legal action.
Security: Security is indeed on everyone’s minds, but not with the necessary level of depth to minimize risk in an online marketplace. As is the nature of the business, online marketplaces often have thousands, if not millions, of customers’ personal information on file. A data breach can expose all this information to malicious sources, thereby putting your company’s reputation and well-being at risk. How can organizations ensure that their prospects, employees, and customers’ information remain safely within their possession? And what is the protocol for action if a breach does occur?
Keep these 5 risks top of mind as you scale your online marketplace. It is easy to think only about the growth aspects of your business, because that is the natural inclination of an entrepreneur. However, as a strategic participant in the on-demand economy, it is important to think about the legal risks involved with growing and scaling your business.
Given the sheer number of transactions processed daily, an online marketplace operates with a certain level of exposure to potential risk: enforceability of their clickthrough agreements, inefficient version tracking, a one-size-fits-all terms of service, and more. Few online marketplaces are aware of this. It is impossible to minimize marketplace risk without first being able to recognize it.
To begin to recognize your level of risk, start by assessing your current processes, protocols, and technologies. Here's how:
Standardized processes are key to mitigating risk. Ad hoc processes expose your organization to more risk than necessary. The following are three protocols you should consider in order to standardize your processes:
Standard Update Protocol
Your terms of service not only needs to be published, but updated on a regular basis. What is the process for making these updates? Other questions to ask include:
Standard Response Protocol
Should a data breach or some other emergency occur, what actions have been put in place to ensure that the damage is contained? How will departments and the organization as a whole respond?
A comprehensive clickthrough solution can help minimize marketplace risk.
Greater visibility into your tech stack and standardized processes can go a long with in helping to minimize online marketplace risk. A comprehensive clickthrough solution can help do both. PactSafe’s robust API-first clickthrough platform was built by lawyers, for lawyers to help track and manage the breadth of your online terms presented to users. It allows for excellent record-keeping, thereby helping you stay protected in the event of a subpoena or a class action suit.
There is greater opportunity for increased revenue in the on-demand economy, especially in the online marketplace. However, all of this is for naught if you have not legally protected your business. The first step in learning how to protect your business is learning what your risk factors are.
Online marketplaces have also become integral to our consumer-driven on-demand economy.Customers have come to expect goods and services at the click of a button, two-day shipping, and a ride on demand.
As a result, whether they serve customers or employ hundreds of contractors, online marketplaces manage a high volume of signers. This increase in volume and speed also bring about an increase in risk factors, like class actions, data breaches, and the instability of scaling too quickly. One giant step toward mitigating these risk factors is tracking and managing your online agreements: knowing who signed what, which version they signed, including terms that are reasonable and outline the extent of your liability, and storing them in a way that allows for easy recall.
With this vital work of minimizing risk handled, you and your organization receive back the gift of time. Not only will you gain back time lost on responding to legal threats, but you will be able to devote more time to doing what you do best: scaling your marketplace and building for future success.