knowledge 13 January 2017 |

The UK Employment Tribunal Uber Ruling

The case was taken by two Uber drivers on behalf of a group of Uber drivers, who argued that they were employed by Uber as “workers”, (an intermediate status which sits between an employee and an independent contractor) as opposed to operating as independent contractors in business on their own account as stipulated in the terms of engagement with Uber. Uber argued that it was not a transport business but rather a technology platform which connects drivers with passengers through the Uber app.

The Tribunal decided that the drivers in question were not self-employed independent contractors and were in fact workers within the meaning of the Employment Rights Act 1996 and were therefore entitled to the benefit of workers’ rights, such as paid annual leave, the national minimum wage, rest breaks and pension contributions. The Tribunal based its decision on a number of factors, including the fact that:

• Uber interviews and recruits drivers;
• Uber sets a default route;
• Uber imposes numerous conditions on drivers and instructs them as to how to do their work; and
• The fare is fixed.

The Tribunal found that the level of control exercised by Uber over its drivers could not be reconciled with a finding that the drivers are independent contractors. The Tribunal also found that the contractual arrangements between Uber and its drivers did not accord with the reality of the relationship. Of particular note was the Tribunal’s comment that “the notion that Uber is a mosaic of 30,000 small businesses linked by a common ‘platform’ is to our minds faintly ridiculous”.

Significance of the Decision

This is the first significant decision in the UK in relation to the employment status of those working in the “gig economy” and has significant implications for, and indeed could force a rethinking of, the gig economy business model, where companies use online platforms (generally smartphone apps) to connect consumers with individual product and service providers. These companies consider that they do not employ the individuals in question; rather these companies seek to operate as intermediaries between the customer and the individual (via the online platforms) and take commission from the individuals’ “earnings.” Some of these businesses have become successful global enterprises, such as Uber and Deliveroo, with many of us depending on these on-demand services in our daily lives.

 Although Uber has confirmed that it will appeal the decision, the case is a further illustration of the legal complexities associated with the gig economy, particularly in determining the legal boundary between employment and self-employment, and the potential complications for companies whose business model is based on engaging independent contractors. As previously discussed in our briefing in July 2016 (view briefing) employment law has not yet caught up with this fast moving, innovative economy.

The Tribunal decision has been seen by many as a ‘test’ case and although the decision is fact specific, it is anticipated that it will act as an incentive to others working in the collaborative economy to institute similar legal proceedings. For instance, Deliveroo riders in the UK are now seeking union recognition and workers’ rights in light of the Uber decision. A number of cycle courier companies in the UK have instituted claims seeking a written statement that they are not self-employed contractors, pursuant to relevant UK legislation. Just last week, the London Central Employment Tribunal found that a cycle courier for Citysprint was not a self-employed contractor and was in fact a worker within the meaning of section 230(3) (b) of the Employment Rights Act 1996. The courier thus succeeded in her claim for two days’ paid annual leave. It appears that gig economy companies will find themselves defending claims in the future on the basis that their self-employed contractors are indeed workers.

Impact of the Decision in Ireland

The Tribunal’s decision is not binding in Ireland. In any event, the ruling is unlikely to influence those working in the taxi industry here, as current regulations restrict Uber and similar apps from engaging drivers other than licenced taxi drivers and chauffeur driven cars. However, it may have implications for other companies operating similar business models in a multitude of sectors including transport, cleaning, home delivery and hospitality, in terms of encouraging others to pursue employment misclassification claims. The case may also impact more traditional industry sectors, where the employment status of those working in these industries is uncertain, such as construction and healthcare. In effect, this decision may have implications for any business that engages independent contractors as a means of reducing costs, when in reality, the day-to-day relationship between the company and the individual may be more akin to that of employer and employee.

Third Category of “Worker” 

However, it is difficult to anticipate exactly how the decision will impact Irish law in this area, as currently under Irish law, we have two categories of employment status – the independent contractor and the employee – and to date we have not legislated for the intermediate “worker” category.

Under the UK Employment Rights Act 1996 a “worker” is defined as an individual who has entered into or works under (a) a contract of employment or (b) any other contract whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual. A worker in the UK is entitled to certain basic employment rights such as the national minimum wage, pension contributions, working time rights and statutory holiday pay. However it does not entitle a person to the full range of protections available to “employees”. Other jurisdictions have introduced a similar hybrid employment status including Germany, Canada, France and Italy while commentators in the USA have called for the introduction of a third category of worker there.

In terms of possible advantages of introducing a “worker” status here, it would afford those engaged in the gig economy with a better balance of flexibility and security by providing basic employment law rights to those who take on “gigs” but have little bargaining power over their terms of engagement. In addition, it could potentially benefit companies operating in the collaborative economy, particularly those embroiled in employment misclassification cases, as a finding that the individuals engaged by these companies are employees could risk entirely collapsing the business model of most platforms; whereas a finding of “worker” status may not be as detrimental to such business models. On the other hand, having a third category of employment status would make employment classification even more complicated creating even further confusion and potential costs for employers and businesses. Clearly, the Government would have to provide employers with clear guidance on the nuances between “workers” and employees.

Other commentators have suggested that rather than creating a third category of worker, a possible solution that would sit within the current framework would be to change the default presumptions regarding the two categories of employment status that already exist. For instance, above a certain threshold of hours worked or income earned, those engaged in the collaborative economy would be deemed to be employees.

EU Developments

The hybrid third category of employment status has been introduced in some European countries; however this “worker” status has had a limited effect, as employers have tended to use this category as a way to circumnavigate employment rights. For instance, in Italy, businesses have used the presence of the third category (known as “parasubordinato”) to evade regulations applicable to employees, such as social security contributions. As a result, this third category has been extremely limited in Italy since 2015 and Italian workers are now presumed to be employees. In addition, Spain’s third category (the TRADE) was only made available to a small percentage of self-employed workers because of the burdensome nature of its regulations and the high dependency threshold required for inclusion.

Despite the restrictions imposed on “worker” status by EU Member States, the European Commission has signalled its support for the collaborative economy with the publication of its Communication in June 2016 entitled “A European agenda for the collaborative economy.” The Commission notes that “new business models can make an important contribution to jobs and growth in the EU, if encouraged and developed in a responsible manner.” As discussed in our briefing in July 2016 (view briefing), the purpose of this Communication is to provide guidance to EU Member States engaging with and regulating the collaborative economy and on the application of existing EU law to the collaborative economy.

What Now?

Clearly, there is a need to strike a balance between facilitating flexible working conditions and protecting individuals from exploitation. The UK Government has launched an inquiry into the rights and working conditions of non-traditional employee roles. In addition, Her Majesty’s Revenue and Customs (HMRC) is creating a new “employment status and intermediaries team” which will focus on looking at false self-employment. Perhaps there is a need for our own Government to take similar initiatives in this jurisdiction.

Organisations wishing to engage services outside the sphere of traditional “employment” need to carefully document what the arrangements are between the parties. In addition, they need to be mindful that over time and as the engagement develops; it may evolve into an employment relationship with all of the associated legal and tax implications.

Contributed by Ellen Nolan