Deliveroo plans to quit operating in Spain just four months after the government there announced that workers in the gig economy must be considered employees.
Bosses at the delivery app company said that to continue operating in the country would require a “disproportionate level of investment with highly uncertain long-term potential returns that could impact the economic viability of the market for the company”.
Deliveroo, which currently operates in 12 countries globally, said the move will not have a material impact on the business, with Spain accounting for less than 2% of its gross transaction value in the first half of the year.
The company said the plan to end operations in Spain means it can focus resources and investment in other markets.
It is understood that negotiations with trade unions in the country will start in September, with a view to ending operations in October.
Spain’s left-leaning government announced plans in March for a new law which would mean all platform workers are presumed “employees” and entitled to certain rights, unless a company can prove otherwise.
The new rules come into effect from August 12 but the other big food delivery platforms, Uber Eats and Glovo, have yet to introduce employee status, leading to denouncements from unions.
Uber Eats is now outsourcing its rider services to third parties, which the Spanish government said it will crack down on.
Deliveroo is expected to keep its riders as self-employed while it starts the process of pulling out of the country.
It added: “The company will make sure that appropriate compensation and goodwill packages, compliant with all local regulations and laws, will be available for riders and employees.”
Hadi Moussa, chief business officer for international at Deliveroo, said: “The decision to propose ending our operations in Spain is not one we have taken lightly.”
Deliveroo highlighted the proposed new laws in its prospectus ahead of its stock market listing earlier this year.
Shares tanked on listing, with some institutional investors raising fears over workers’ rights in the gig economy, while others expressed concern about Deliveroo’s prospects for becoming profitable.
In the UK, Deliveroo’s biggest market, the company has faced a series of strikes and challenges from rider unions, which have said that gig economy workers should no longer be classed as “self-employed”.
But courts in the UK have sided with Deliveroo and the Government has not commented on any plans to change the status of gig economy workers.
In it prospectus published in March, Deliveroo said law changes on employment status “could require us to fundamentally change our business model in the relevant jurisdiction and could make it more difficult to protect our intellectual property and confidential information.
“This could require us to incur significant additional expenses for paying riders (which could include the cost of additional benefits and social security contributions or significant additional expenses for paying riders), or potentially result in us even exiting that market.
“The reclassification of riders could also increase the rate of employment-related claims being brought against the group in the future.
“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.”