Nerdy man tearing hold half a torn hundred dollar billMany of the laws that our economy is structured upon and bound by are decades, if not centuries old—when the primary role of the law was to protect individual capitalistic rights. So in that light, it becomes difficult to fully embrace this new wave of the sharing economy (sometimes called the “grassroots economy” or “new economy”).

This new idea—based on cooperation, sharing of products and ideas, and building on or riffing off of existing properties—quickly becomes complex and the law is forced to adapt.  And people are starting to catch on…

Groups like Spur (a member-supported non-profit) are calling for a change, but they’re not just shaking their fists at the sky.  Spur has created what it calls A Policy Agenda for the Sharing Economy which it hopes will grow from an open discourse about such issues into a guide for revamping outdated laws that are strangling potential business growth.

But if and until certain laws are changed, businesses and entrepreneurs will continue to run into legal roadblocks that can deflate or even derail any momentum they’ve acquired.

We’re Forced to Redefine Ownership

Car Sharing (a trend that has literally exploded in cities all around the globe) is a prime example of this.  From a legal standpoint, automobile ownership has been at the central core of just about every applicable law.  The owner must insure the vehicle, prove they are legally allowed to operate it, pay taxes on said vehicle, provide proof the car is safe (inspection) and the list goes on.

But how does one define ownership when the car is truly shared across multiple users?

Current car sharing companies like CityCarShare in San Francisco and Phillycarshare in the city of Brotherly Love generally act as legal entities, making the business itself responsible for providing all of the legal paperwork.  In essence, the sharing company becomes more like a rental company—even though the cars aren’t rented.

This provides a number of legal hurdles.  First, outdated insurance policies weren’t designed to take this type of arrangement into account, forcing many of these sharing services to negotiate on an individual basis with insurance providers.

Secondly is the issue of taxation: The sharing service doesn’t really own the car, but taxes still must be paid.  And then there’s parking. City zoning restrictions may make it difficult for such services to provide members with the level of service they deserve if there’s nowhere to store cars while not in use.

It all boils down to the fact that laws were created to protect, and limit, commercial entities, whether that entity is a corporation or an individual.  When that paradigm shifts, the law forms restrictive barriers rather than protective ones—and must be skirted or changed.

The Rights of Existing Companies Aren’t Protected

The power of the sharing economy hit the hospitality industry hard when a little startup called Airbnb launched.  The service allows individuals to rent out rooms on a commercial basis, essentially turning any house on the block into publicly-accessible lodging.

It sounds like a great idea (and really isn’t all that different than room swapping or letting, which have both been around for decades), but that didn’t stop a group of hoteliers from feeling that Airbnb’s business model unfairly penalizes them. As a result, they’re putting pressure on legislators to change applicable laws.

They believe that Airbnb skirts the laws that restrict hotel chains.  When you take into account all of the applicable safety restrictions, zoning requirements, tax laws, and other legal issues which hotels must abide by, you’re looking at a considerable financial expense that’s born by traditional hotels—but not Airbnb competitors. By avoiding all or at least most of these applicable laws, individual “hoteliers” are operating at a significant financial advantage—an advantage that the hotel lobby claims is unfair.

The solution to this issue isn’t an easy one.  Lawmakers must take into account the fact that, in many cases, individuals are now providing the same type of service as corporations.  But how do you apply regulations designed to fit corporations to individuals?

The Well-being of the General Public Isn’t Safeguarded

Some say that we live in a society that places too much emphasis on government regulation of private lives.  But it’s also very clear that certain government regulations have saved millions of lives over the course of their lifespan.

Take FDA regulations, for instance.  Designed to safeguard the food supply of the United States, these regulations follow foodstuffs through every step of production—from growth and manufacture, through preparation and serving.  Without this type of oversight, individuals may well be taking their very lives into their hands.

So yes, the FDA potentially saves you from consuming bad hot dogs from a street vendor, and helps to ensure you’re dining on quality filet mignon in a five-star French restaurant.  But how do you regulate the food service “industry” on a macro scale? What happens when the sharing economy evolves our contemporary definition of industry?

The sharing economy has given rebirth to an ages-old practice:  cooking for your neighbor.  Groups like Shareyourmeal, Cookening, and Eat with Me allow individuals to connect over food.  Basically, these meals are prepared by and swapped between neighbors—and even strangers—in sort of a primitive barter system.

This raises two interesting questions:  are such “services” taxable?  And how does one regard such a service through the food safety lens?

Public food preparation, whether carried out in traditional restaurants or even newer food trucks, is very restricted.  Even commercial entities that produce goods in “home kitchens” must endure safety inspections and face closure if their facilities are not up to snuff.  But when someone is just cooking for a neighbor, where do they cross the line?

Surely, the FDA wouldn’t regulate every batch of cookies you pass on to the kids next door, but it still changes the discussion: maybe it should investigate your kitchen if you’re swapping food through one of the services mentioned above.

Adapting traditional law and, by extension, legal practices will be an ongoing affair from some time to come.  America is somewhat lagging behind the rest of the world in terms of fully supporting the new sharing economy—which, in reality, is actually a return to a more ancient and more primitive economy.

As a result, we can expect to see numerous struggles both on an individual level and at the municipal and state levels.  And as the emerging share economy changes, laws must continue to expand their ever-pressured boundaries. Make sure that you stay in the know and keep yourself protected from unfair legislation.

About Author Matt Faustman


Matt is the co-founder and CEO at UpCounsel. Matt believes in the power of online platforms to change antiquated ways of life and founded UpCounsel to make legal services efficiently accessible. He is responsible for our overall vision and growth of the UpCounsel platform. Before founding UpCounsel, Matt practiced as a startup and business attorney.

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