3 takeaways from Uber's Supreme Court defeat, which shows the dangers of tech getting creative with regulation

  • Uber’s drivers are workers who are entitled to more rights, the UK’s top court ruled on Friday.
  • The defeat indicates the game is up for tech firms breaking the rules and hoping no one notices.
  • We analyzed the court ruling for three takeaways on Uber’s future, and the impact on the wider gig economy.
  • Visit the Business section of Insider for more stories.

Uber suffered a significant defeat on Friday after the UK’s top court ruled its drivers are workers, rather than independent contractors, entitling them to certain rights.

To date, the company has relied on classifying drivers as contractors to avoid massive costs such as a minimum wage and holiday pay, and also certain taxes. Uber has depended on this model in multiple countries and warned in its IPO filing in 2019 that treating drivers otherwise would hurt its business. It flagged the UK case, and cases elsewhere, as ongoing risks.

The UK ruling means British drivers can claim up to two years’, or £25,000 worth of minimum wage back pay via an employment tribunal, and up to six years’ back pay in county courts, according to analysis by Daniel Barnett, an employment law barrister. Additionally, they can claim up to 5.6 weeks of paid annual leave.

Uber was quick to claim that the ruling only immediately applies to the small group of drivers who brought the case. It also said the ruling was highly specific to the way Uber’s business worked back in 2016, when the drivers initially brought their case, and that the business has since changed.

However, tens of thousands of drivers may test Uber’s resolve here through employment tribunals. Thousands of drivers are set to bring claims against the firm, The Guardian reported on Monday.

And Uber did acknowledge the potential severe impact of the ruling. Lawyers likewise say the decision could have implications for the gig economy more broadly.

Here are four takeaways for Uber and gig economy firms operating in the UK such as Uber Eats, Deliveroo, and Estonia’s Bolt:

European judges and regulators do not like regulatory ‘disruption’

Insider’s Jim Edwards has previously argued that Uber’s business is based on regulatory arbitrage or regulatory disruption — circumventing the law in the hope that local regulators do nothing about it.

Uber has long argued that it doesn’t provide transportation services in order to justify its drivers’ contractor status — despite the fact that your average Uber passenger understands that they are getting into an Uber cab, which has been directed to them by Uber’s app.

Friday’s ruling implies judges and regulators in Europe do not like this kind of sophistry.

Supreme Court justice Lord Leggatt wrote in his ruling:

“Uber argues … that the drivers were performing their services under contracts made with passengers through the agency of Uber London and not for or under any contract with any Uber company.”

 He argued that Uber can’t be permitted to control the description of its drivers through its contracts because:

“To do so would reinstate the mischief which the legislation was enacted to prevent. It is the very fact that an employer is often in a position to dictate such contract terms and that the individual performing the work has little or no ability to influence those terms that gives rise to the need for statutory protection in the first place. The efficacy of such protection would be seriously undermined if the putative employer could by the way in which the relationship is characterised in the written contract determine, even prima facie, whether or not the other party is to be classified as a worker.”

In short, drivers can’t sign away their own legal rights for Uber’s convenience and profitability.

Shah Qureshi, London head of employment at national law firm Irwin Mitchell emphasized this point: “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.”

‘Silicon Valley firms ALWAYS forget that other countries don’t work like America’

Transport writer John Bull has long followed the Uber case, saying in response to Friday’s ruling: “The Silicon Valley firms ALWAYS forget that other countries don’t work like America.”

He noted, as have several legal firms, that a key difference between US employment law and English employment is the “duck test.”

“If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck,” he wrote. “Or in Uber’s case, if it looks like a cab, picks up passengers like a cab, and DESCRIBES ITSELF TO CUSTOMERS as a cab service. It’s a fucking cab firm.”

Evidently, this kind of common-sense approach took Uber by surprise, perhaps because it’s been successful in the US in dodging this categorization. The firm, alongside rival Lyft, lobbied successfully in California to pass Proposition 22, a ballot measure that exempted ride-hailing firms from treating drivers like workers in contravention of existing labor laws.

Uber is now seeking to export that same model to Europe — though whether voters and legislators will be receptive is less clear.

It’s not obvious that the ruling will hurt firms like Deliveroo or even Uber Eats

Although the Supreme Court ruling has been billed as potentially destructive for gig economy apps like Amazon-backed Deliveroo or Uber Eats, it isn’t clear this is the case.

Friday’s ruling hinged on the level of control that Uber exercises over its drivers, who need to own and maintain a sufficiently nice car, obtain the right licenses, and were at one point penalized for rejecting too many jobs while logged into the app.

Restaurant delivery riders are also billed as independent contractors, but have more flexibility. They can choose their delivery vehicle, and if they can’t make a job, they can technically swap out for another rider.

It’s this latter point that means UK tribunals and courts have sometimes ruled that Deliveroo couriers are contractors, not workers.

Having said that: Deliveroo riders are appealing this ruling, and a decision by the Court of Appeal is expected some time in 2021. It’s possible that ruling may be influenced by the Uber outcome. Deliveroo has also previously settled with riders who claimed they were owed holiday pay and the minimum wage.

Firms that operate similarly to Uber are likely making changes to their business models to avoid similar lawsuits, according to employment partner at leading City law firm Travers Smith, Alex Fisher.

“Uber Eats/Deliveroo and others are very successful businesses and, in our experience, these businesses have already taken steps to adapt to the outcomes of the multiple cases that have been decided on employment status questions and we anticipate that they will continue to do so,” he said.

Charmaine Pollock, counsel at London law firm Farrer & Co, told Insider that public attention would lead to more gig economy cases.

She said: “Individuals are very alive to the issues as a result of the publicity around cases like this, and are likely to be encouraged to take legal action to enforce their rights. There will almost certainly be more cases like this to come.”

Axel Springer, Insider Inc.’s parent company, is an investor in Uber.

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