Disrupting a disruptor: The implications of the Supreme Court’s Uber ruling
The UK Supreme Court has ruled that Uber must classify its drivers as workers rather than self-employed contractors. The decision could threaten the position of an already unprofitable company and will have far-reaching HR and tax consequences for the wider ‘gig economy’.
The Supreme Court upheld an earlier employment tribunal ruling that Uber’s drivers are ‘workers’ under the Employment Rights Act 1996 and have the right to minimum rates of pay under the National Minimum Wage Act and the right to rest breaks and paid holiday under the Working Time Regulations.
Uber has consistently maintained it is merely a technology platform that connects drivers with passengers. However, The Supreme Court justices ruled unanimously that it behaved more like an employer by setting rates, assigning fares, requiring drivers to follow certain routes, and using a rating system to discipline them.
The decision means that drivers are entitled to be paid for all the time they are logged onto the Uber App, as opposed to only when they are transporting passengers. They will also be able to recover up to six years of underpaid wages. HMRC may also step in to recover arrears of National Minimum Wage contributions and could impose financial penalties on Uber too. For Ubers precarious business model, this could represent an existential threat.
The case is part of a wider pattern of confrontations between workers and ‘gig economy’ companies over the status of their relationship. Last year, Uber itself has met with courtroom defeat in France over a driver’s status as an employee but funded a successful ballot measure in California to exempt itself and other similar companies from a law that would have required them to employ their drivers. More cases and confrontations are looming in the US and across Europe.
In this wider battle to disrupt the disruptors, the UK ruling is significant not only due to the importance of the UK market but the precedent the case could set. Shah Qureshi, London Head of Employment at national law firm Irwin Mitchell explained:
“The court was clear that determining a worker’s status involves statutory legislation as the starting point and not the contract. Questions of status will be determined by the reality of the working relationship. If the courts decide they are workers, it doesn’t matter what the contract terms say”.
Other companies who rely on a large network of independent contractors may find it difficult to restructure as a means to prevent similar findings in future, because the court will look at the reality of the relationship between the parties and not just the written agreement or labelling of the relationship.
The repercussions for other companies within the ‘gig economy’ – an economy thought to provide work for some five million people in the UK alone – could be significant. Many of these companies have a similar business model to Uber and, though each case would turn on the facts between the individual and the company, the feeling that courts would be sympathetic to workers and their rights is likely to inspire more cases.
More successful cases would mean companies not only having to pay more compensation but also to make costly changes. Workers newly classified as employees may be entitled to be automatically enrolled in a company pension scheme. For ‘gig economy’ businesses this could prove an administrative challenge, as workers hours are not static and determined by how much they work and likewise earnings will fluctuate.
The wider contracting community and those involved in off-payroll working will also have been watching this case with interest. The episode is a reminder that contractual paperwork needs to be an accurate reflection of the engagement. For intermediary companies, whose workers provide services to public sector clients and medium or large-sized private sector clients, the IR35 rule changes will come into effect this April.
The changes, delayed from last year due to the coronavirus pandemic, will make the client responsible for determining the worker’s employment status. Workers should get an employment status determination from the client, as well as the reasons behind that determination and will be able to dispute the determination given to them if they disagree with it.
Relevant divergence between the reality of the working relationship and the paperwork, may give rise to a similar claim, and the courts would look to the real-world relationship to determine workers’ status and any rights that should accompany it.
For Uber – The ruling will now be referred to an employment tribunal that will decide how to reward the drivers and how the ruling will affect other drivers going forward. Initially it will only affect the 25 drivers who brought the case but is seen as setting a precedent for the 60,000 other Uber drivers across the country and perhaps beyond.
For your business – If you would like assistance with your contractual paperwork or to find out more about how Briars HR and tax services could help your business, please do not hesitate to get in touch.