On 19th February 2021, the Supreme Court handed down a judgment that will have enormous ramifications on large swathes of the gig economy. The gig economy is a system of employment where temporary positions are common and organisations hire independent workers for short-term commitments.
It is important to distinguish the gig economy from zero-hour contracts. Although the related jobs will often be very similar, the gig economy is different to zero-hour contracts in that zero-hour contracts pay by the hour, whereas gig economy jobs pay based on completion of specific tasks. For ease of understanding, consider Uber where the drivers are paid based on completion of a specific task (ie, how many passengers they have carried), rather than on an hourly basis.
In 2016, an employment tribunal ruled in favour of a group of Uber drivers. These drivers claimed that they were ‘workers’ employed by Uber. As a corollary, they would hence be entitled to specific labour protections and employment rights, such as a minimum wage and holiday pay. Uber did not see things in the same way, favouring the belief that drivers were independent, third-party contractors who were ultimately self employed. Uber argued that their business model was akin to that of an agency, connecting passengers to drivers. They supplemented such an argument with evidence of cost savings and increased labour flexibility.
When considering the case, the court looked at all the circumstantial evidence in coming to its decision to dismiss Uber’s appeal. Therefore, Uber drivers are now legally seen to be ‘workers’ for Uber. The court reached this conclusion by considering factors such as the degree of control that Uber has over the drivers and the method within which services are delivered. Uber sets maximum fares, imposes penalties if drivers cancel too many requests and give very little say to the drivers regarding their specific contracts. The court found that these circumstances meant that the drivers could not use their own professional and entrepreneurial skill to increase their income – something that would be expected of an independent contractor. It is important however to note that English law recognises three types of employment categories. The first is an ‘employee’, and these employees are guaranteed rights and benefits. The second is a ‘worker’, who has only some of the rights, and the last is a ‘self-employed’ worker who has very few rights. Following this case, Uber drivers are now recognised as ‘workers’ for Uber.
For the purposes of commercial awareness, what does the Uber ruling mean in a wider context? Well, following the Supreme Court’s ruling, Uber’s share price dropped and investor confidence continues to fall.
Businesses operating in the same way as Uber (ie those with a large temporary workforce) must consider what the decision might mean for them. One such example is Deliveroo. Deliveroo was seen to be an excellent financial success story, capitalising on national demand especially fuelled by covid-19; however, they suffered greatly following this court ruling.
Deliveroo is an online food delivery company that operates a labour system similar to Uber. Customers order food from a restaurant via Deliveroo. Deliveroo then sends a rider to the restaurant to pick up and deliver the customer’s food. Similar to Uber, the rider is part of a temporary, disposable workforce, that Deliveroo would likely see as third-party contractors.
In March 2021, notably after the Uber decision, Deliveroo listed on the London Stock Exchange, losing 31% of its value on the first day. One of the company’s bankers reportedly described it as the worst initial public offering in London’s history. Part of the reason that Deliveroo did so poorly was because of this legal decision – investors were worried about regulatory concerns arising following the Supreme Court’s decision. This ruling serves as a fantastic example of how the law is greatly influential on business and finance.