Back to overview

Commercial Question

The Uber problem for the gig economy?

updated on 22 December 2016

Question

What impact will the recent judgment that ruled Uber drivers are workers have on the gig economy?

Answer

On 28 October 2016 an employment tribunal in London highlighted the difficulty in applying well-established employment laws in the United Kingdom that dictate whether an individual is an employee, worker or self-employed, to new sharing platforms in the digital economy such as Uber, Deliveroo and others. These platforms offer many positive to individuals, such as increased flexibility around hours and workload, but conversely they can sometimes offer minimal employment right – until this tribunal decision.

The facts

There are currently about 30,000 Uber drivers operating in the London area and 40,000 in the United Kingdom as a whole. Uber has around two million passengers registered to use its services in London alone. Uber's platform is accessed by the customer via an app on their smartphone; the app will allow drivers to show their location on a map. The app's algorithm will provide an appropriate price to charge the passenger
needing transport, by considering demand, the availability of other drivers, the time and so on.

The passenger can then, if they wish, accept the offered price; the journey will be b6oked with the nearest driver in the available pool and the passenger can then track the driver as the car approaches. The passenger and the driver conduct this activity via the Uber app. The payment for the journey is also made via the app by the customer to Uber and Uber retains 5%.

The driver must provide their own vehicle, pay for insurance and cover maintenance costs, albeit the car and insurance must meet Uber's requirements. The driver has 10 seconds to respond to accept the trip. If the driver does not respond in this time then he will be assumed to be unavailable and the app will allocate the trip to another driver. The drivers must also provide a minimum number of hours' service. The app will provide a route for the driver to take and they can, in some circumstances, be penalised for not following it.

Two Uber drivers decided to pursue a claim against Uber, alleging that in carrying out the services to Uber customers they were in fact entitled to an employment status that was more than that of self-employed individuals, and therefore they should receive increased employment rights. To decide the status the employment tribunal (ET) looked at three factors:

  • Did the driver provide a personal service opposed to being able to sub-contract or ask someone else to provide the service?
  • What was the degree of control exercised by Uber? For example, Uber dictate how and    when the driver carried out the work?
  • Was there a mutual obligation for Uber to give work to the drivers and for the driver to perform the work?

Where personal service and the mutual obligation are present but there is not sufficient control over the person, they will have worker status. Worker is a 'middle-ground' status between employee and self-employed, and gives some employment protections to those who do not meet the bar of employee status, are obliged to follow some instructions from the employer, but could not be said to be carrying on their own business. Workers receive a lesser degree of employment protection than employees. In the case of those who are deemed self-employed, they will not be subject to control or any mutual obligation, and will carry out their business on their own account and bear the financial risks of being a service provider themselves.

Uber argued, among other points, the following:

  • they were not a transportation business merely an electronic platform;
  • customers and drivers contract with each other for each trip and the app facilitates this;
  • the drivers are driving for themselves and not for Uber;
  • Uber's share of the fare is its commission for providing the app; and
  • should they wish to, drivers are free to work elsewhere.

The decision

After reviewing large amounts of evidence relating to Uber's business, the ET found that among other things Uber:

  • interviews and recruits drivers;
  • controls key information (for example, the customer information);
  • sets the (default) route;
  • fixes the fare;
  • imposes numerous conditions on drivers in relation to their vehicles;
  • monitors drivers through a rating system; and
  • accepts the risk of loss, which if the driver was self-employed they would bear themselves.

These factors and others resulted in the ET deciding that the drivers were in fact workers according to the defintion set out in the Employment Rights Act 1996 and other employment legislation, meaning that they were entitled to increased employment rights. These rights include a maximum working week, regular rest breaks, the national minimum wage and holiday pay, along with the ability to claim for previously unpaid wages and holiday pay, all potentially very costly to Uber. The drivers will also receive whistle-blowers'
protection.

The ET was critical of Uber's argument that it was not a transport company but that it was merely a platform, describing it as resorting to "fictions, twisted language and even brand new terminology" to argue its point.

Comment

While the decision in the ET is not binding, it is likely that other cases will be treated in a similar way so it could have a significant impact. Those involved in the gig economy will need to address how they can operate their businesses in the future, given the need to provide employment rights and simultaneously maintain the informal relationships with their work forces that are crucial in maximising profits and delivering the expected on-demand services to customers.

The ET in the Uber case did suggest that it is possible to structure a business and avoid offering these employment rights, however it did not outline how. Emerging technology businesses will no doubt be investigating strategies for these potential structures though, especially when faced with having to pass on the additional costs of employment rights to customers or no longer being able to offer such a flexible and immediate service.

This is unlikely to be the only case on this matter as technological innovation develops. The government has recently launched a review of the gig economy to address a number of issues. This is intended to ensure that workers and employees are adequately protected, and also to ensure that tax and national insurance contributions are being properly collected
where appropriate.

For now the ET has dealt a blow to the on-demand gig economy, however with more companies considering similar 'Uber-style’ technologies, there may be some reforms to employment law in the future.

Laura Elliott is a trainee solicitor at Bond Dickinson LLP.