The world of tech: From Wild West to regulated industry

When entering the European market many US entrepreneurs and venture capital investors react with disbelief when confronted with European workers’ rights for the first time: minimum wage, anti-dismissal protection, working time regulations, contractual status and classification of platform works as ‘employees’ rather than independent workers.

A typical example: Some tech entrepreneurs are being surprised by their employees suddenly demanding co-determination and initiating the formation of a works council. Management often decides between two strategies: supporting the works council election or preventing it at all costs. Choosing “support” and doing it right could make the ties to your employees even stronger. Choosing “prevent” cannot just hurt your reputation and brand, but also result in serious operational costs because the consequence of fighting a works council can be a hostile works council.

This example illustrates one of the many questions that tech entrepreneurs and venture capital investors need to consider in terms of labour relations when setting up business in Europe: What is a company allowed to do not just from a legal but also from a legitimacy point of view? What implications do European workers’ rights have for my business and its operations? How will regulations such as the EU’s proposal to improve working conditions in platform work affect my business? Which other legislative initiatives are in in the pipeline that might question the core of my business model?

In autumn 2020, Germany amended its competition law – the GWB – aiming to address the to some extent “wild west situation” in the digital / tech sector. Smaller and medium-sized companies had long complained about the GAFAs’ anti-competitive behaviour. Against this background, the challenge for them was to successfully foster political impetus to create and implement concrete measures to curb this anti-competitive behaviour. While facing significant counter-efforts of the GAFAs, the “digital SMEs” were able to underline the need for new rules: Now, gatekeepers are prevented from engaging in certain types of behaviour, e.g. self-preference of their own services or preventing third parties from entering the market by withholding certain data.

Now, with the Digital Services Act and Digital Markets Act, a regulatory project of even greater proportions is being discussed at the EU level. The political willingness to think about and introduce regulation in the sector will remain even after its adoption. It is already clear that companies must carefully examine which opportunities arise from a stronger regulation of “Big Tech” (without limiting true innovation) and where there is a need for action and positioning.

Often, regulation lags behind new technologies thus hampering commercialization of innovative products. But in those rare cases in which regulation is astride with or even paves the way for bringing to market your innovation, true pioneering work can be achieved – as in the case of autonomous driving: Germany will most likely be the first country in the world where you can officially register level 4 autonomously driving vehicles and have a nationwide regulatory framework that is attractive for innovative companies and investors alike as it increases the chances for a prompt transition to commercial use.

However, the existing German legal framework has yet to take full shape. What is still missing is the necessary implementing legislation which, among other things, is to define the technical requirements and procedural rules for the granting of permits. In order not to lose its desired pioneering role in the field of autonomous driving, the German legislator must hurry. Because an exciting development is also emerging at EU level: The EU Commission is now also working very actively on the creation of a legal framework for automated driving systems.

Policymakers and the ecosystem of influence around them shape markets, creating new opportunities for profitable growth – or disrupting your best-laid plans. It's not always about Brussels and the EU. It is also important to keep an eye on the local level.

The market for vacation homes is a good example of this: First local authorities in Amsterdam limited the nights of Airbnb flats to 30 per year in 2018. Then in 2021, a general tourism-quota followed: Amsterdam adopted a regulation limiting the number of tourism-related overnight stays in the city to 20m per year. True, a Dutch court overthrew this regulation later, but it still underlines how municipalities across Europe are trying to get a grip on mass-tourism often facilitated by platforms. With success: in September 2021, EU lawmakers launched a consultation on how to regulate the short-term rental market across the bloc.