Written by: Karan Khushal, Winner of the Commercial Awareness essay competition 2017/18
Uber’s employment structure was once its greatest asset, but now, following a failed appeal last month, it may be the cause of its downfall. Aslam v Uber BV still stands, and Uber must consider its drivers as workers and not just self-employed.
Uber was invented with the purpose to eliminate the costs of private hire taxi services. By 2012, UberX allowed people to apply and drive for Uber using their own car, subject to suitability requirements. Since then, partnership deals with TomTom and other ventures has led to an expansion in more than 600 cities. Analysts attribute its success to competitive advantage via predatory pricing and clever contract schemes. However, in the last 18 months, the worst in the company’s history, it made a $2.8 billion loss. Issues which have affected the company’s public image include former CEO Travis Kalanick stepping down in 2017 when it was revealed he deliberately ignored internal sexual harassment issues.
Uber’s arrangement is that the drivers are essentially contractors and therefore regarded as self-employed; and this allows Uber to avoid the various benefits given to employees and workers. In the UK an employee and a worker have a right to minimum wage, paid annual leave, and whistle-blower protection. The contract heavily favours Uber, and it was only a matter of time until people such as Mr Aslam and Mr Farrar made a claim that they should be entitled to greater rights protection.
The Initial Case
The claimants claimed that they should be paid the minimum wage (s.1 of the National Minimum Wage Act 1998) and receive paid annual leave (Working Time Regulations 1998), thus classifying them as workers for Uber. The defendant argued that the contract described them as simply ‘partners’ and stated that ‘nothing shall create an employment relationship between Uber and the partner’. Furthermore, Uber claimed that it is merely a technology business that uses an app to connect passengers with independent drivers. One of the reasons used by Uber to argue that the drivers are self-employed was that their shifts/minimum hours are not imposed. The claimants argued this was a sham, and in fact they were ‘workers’ under s.230 Employment Rights Act 1996.
The Employment Tribunal unanimously held that Aslam and Farrar were workers and entitled to greater rights because they were ‘[s.230] (b) workers’. Reference was made to the Cotswold Developments Construction Ltd v Williams analysis that an active marketing of services as an independent person or recruitment by a principal to work ‘as an integral part of the principal’s operation’ would demonstrate whether the person was a worker.
The Employment Tribunal slated the ‘twisty wording’ of the contracts and the fact that in practice it operated as a transport service and not a ‘mosaic of 30,000 small businesses linked by a common platform’. Here, reference was made to an American case which asserted that ‘Uber is no more a tech company than the Yellow Cab’. The tribunal also held that a driver is deemed to be working at any point when he has the app switched on and is ready to accept trips, not simply when he accepts a trip.
Uber began its appeal contending that the Employment Tribunal had ignored the written agreements between the drivers, Uber and the customers, as well as other factors which disproved the existence of an employer- worker relationship. However, the Employment Appeals Tribunal dismissed the appeal and confirmed the tribunal’s decision. Further disruptions were made to Uber’s legal battle when they tried to bypass the Court of Appeal via a ‘leapfrog appeal’ directly to the Supreme Court. This was denied, but given the decision’s impact, it is likely Uber will continue their legal battle via the Court of Appeal.
In the short term, Uber will be concerned with the financial impact of the result. Uber’s UK Head of Policy Andrew Byrne has valued expenses such as a minimum wage including National Insurance contributions at ‘tens of millions certainly’. Unfortunately, we might expect customers to lose out from this decision. Fare prices are likely to rise for the 3 million Britons that use Uber, not only to cover the huge cost of the remunerations made in the short term, but also in the long term to finance higher labour costs. Market economics suggest that the rise in fare prices would lead to a rise in demand for price competitive substitutes (e.g. Addison Lee). Also in the long run, such consequences may force Uber to lay off some of its 50,000 workers if the marginal cost of a worker exceeds the marginal labour cost. This will both anger drivers and also affect the company’s supply: making the service more inflexible and less responsive.
The decision will have an industry-wide ripple effect. The ‘gig economy’ which refers to the market where independent workers complete short-term irregular projects in temporary positions, has grown due to the connectivity in today’s digital-based society. Many companies have flourished in this industry using a similar business model to Uber, e.g Deliveroo. The positives are endless, for the worker there is the freedom to pick and choose suitable jobs which are impermanent. For the employer, the ability to select individuals via online applications who can work without the need for office space or training, makes this business model very lucrative. Now we can expect other similar businesses to make necessary adjustments, especially in terms of their contracts or risk facing corresponding legal claims. This case has laid down a precedent which completely transforms the fundamental attractiveness of the ‘gig economy’ and has created a barrier to entry where start-ups and other potential business must pre-emptively take into account any future regulations (the BEIS Committee have produced a draft Bill tackling the exploitation of ‘gig economy’ workers), but still ensure that they are profitable. Burges Salmon partner, Luke Bowery, said the ruling is not technically ‘binding on [other] employment tribunals’ but will have a ‘highly persuasive’ influence on safeguarding worker rights globally.