How will Uber’s employment appeal loss affect its business model?

Uber has lost an appeal against an Employment Appeal Tribunal (EAT) ruling that the ride-hailing app should class its drivers as “workers” rather than “self-employed”.

The original ruling, stemming from a case brought by Uber drivers James Farrar and Yaseen Aslam last year, stated that Uber should afford its drivers with rights typically given to employees, such as minimum wage, paid leave and sick pay.

Aslam, a co-defendant, said of the ruling: “I am glad that the judge confirmed what I and thousands of other drivers have known all along: that Uber is not only exploiting drivers, but also acting unlawfully.”

Uber contends that the ruling undercuts the “personal flexibility” valued by its drivers, claiming that four out of five drivers would prefer to maintain the status quo.

The app’s defence hinged upon the assertion that it is simply a vehicle which connects drivers and passengers, which the court rejected. The Tribunal based its decision upon the drivers’ lack of control over their working conditions, which undermines a “self-employed” status.

What does this mean for other gig economy businesses?

The landmark case has wider implications for employment rights in the emergent gig economy, which has seen the rise of flexible working and zero hour contracts.

The Taylor Review published earlier this year tackled these issues, and recommended the creation of a third employment category beyond “self-employed” and “worker”, called a “dependent contractor”. The report suggested this new label would better suit the newer types of employment that make up the gig economy and currently fall into a grey area in terms of employment law.

The review also suggested that gig economy employers should switch to a piece-rate method of payment.

The government is yet to formalise any suggestions from the Taylor Review into law, but this case is likely to mount pressure on the government to take action on employment law reform.

Bruce Gardiner, barrister in the employment team at 2 Temple Gardens, commented: “Companies in the gig economy have taken yet another severe blow.”

“There is now a consistent line of recent decisions finding that gig economy workers enjoy these minimum employment rights.”

What does this mean for Uber’s business model?

The EAT upholding the court’s earlier ruling will also have wide implications on Uber’s business model in terms of taxes, costing and treatment of drivers. The ruling will have ramifications for the estimated 40,000 Uber drivers in the UK.

Carolyn Brown, employment partner and head of RSM Legal explained that Uber’s most pressing concerns are likely to be their exposure to tax and National Insurance Contribution liabilities.

She explained: “As it stands, Uber would not be obliged to pay employer NIC in respect of their drivers if they are self-employed. If they are workers though, they may be exposed to a significant NIC liability. There may also be a substantial VAT liability.”

Fareed Baloch, Chief Operating Officer at zoom.taxi added that by classing their drivers as “self-employed”, drivers can “charge 20% less than a local minicab firm because they are VAT exempt.” The change in driver status will thus likely result in “costs being passed on to consumers.”

He added: “Uber’s current financial structure will not be sustainable unless it pushes up prices.”

Not only will consumers be impacted, so will the entire industry, as Baloch explained: “If this is going to be a law, it will equally affect almost all taxi, private hire, delivery companies who operate on this model so ultimately, the costs will be passed on.”

The major impact on Uber’s working model will of course be the requirement to pay minimum wage and give their drivers paid leave. However, there are some complexities relating to pay exposed by the court case, particularly what should constitute as working time. The EAT ruled that an Uber driver’s working time should be classed as not just the time spent on rides, but also time they spent logged into the app waiting to be connected with an assignment.

Conclusion

As operational changes of this magnitude could cost the app millions of pounds, Uber has already announced its intention to pursue further appeals, and may well end up in the Supreme Court.

Tom Elvidge, Uber’s acting general manager for the UK expressed disappointment in the ruling, explaining that private hire drivers have been classed as “self-employed” for a long while.

He commented: “The tribunal relies on the assertion that drivers are required to take 80 percent of trips sent to them when logged into the app. As drivers who use Uber know, this has never been the case in the UK.”

The level of control of Uber drivers was at the crux of the case, and on this Elvidge added: “Over the last year we have made a number of changes to our app to give drivers even more control. We’ve also invested in things like access to illness and injury cover and we’ll keep introducing changes to make driving with Uber even better.”

The embattled ride-sharing app is also in the midst of battling the decision of London’s transport regulator to withdraw its operating license.