See Why Uber drivers wonn UK legal battle for workers’ rights

Uber drivers have won a crucial legal battle in London after a tribunal ruled they are “workers” who are entitled to the minimum wage and holiday pay.

The Uber case is the first in Britain to test the key premise of the “gig economy” that people who work via such apps are independent and not employed by any company.

The decision calls into question the business model that underpins many gig technology platforms, which connect workers with customers without incurring the expense of employing the people themselves. The ruling followed a test case involving two Uber drivers who were backed by the GMB union.

Judge Anthony Snelson, who led the three-person tribunal panel, was sharply critical of Uber’s claim that its drivers are self-employed. “The notion that Uber in London is a mosaic of 30,000 small businesses linked by a common ‘platform’ is to our minds faintly ridiculous,” he wrote in the ruling.

He said any organisation that resorted in “its documentation to fictions, twisted language and even brand new terminology, merits, we think, a degree of scepticism”.

Nigel Mackay from the employment team at law firm Leigh Day, which represented the drivers, said it was a “groundbreaking” decision.

“It will impact not just on the thousands of Uber drivers working in this country, but on all workers in the so-called gig economy whose employers wrongly classify them as self-employed and deny them the rights to which they are entitled.”

Uber, which has about 40,000 drivers in the UK, said it was a preliminary hearing that affects only two people. It plans to appeal against the ruling.

Jo Bertram, the regional general manager of Uber in the UK, said: “Tens of thousands of people in London drive with Uber precisely because they want to be self-employed and their own boss.” Uber says its drivers earn more than £16 an hour on average after its fee, although this doesn’t include drivers’ expenses on fuel, maintenance and insurance.

Employment lawyers believe the case will encourage other Uber drivers to bring claims, along with people working on other “gig economy” apps such as Deliveroo and Task Rabbit. “Others must be emboldened by this,” said Martin Warren, employment partner at Eversheds, a law firm. “Anyone who says it’s not of wider relevance is deceiving themselves.”

The ruling has fired up trade unionists. Unite, the UK’s biggest union, said on Friday it would set up a “bogus self-employment unit” to pursue employers “who shamelessly dodge their responsibilities by classifying workers as self-employed”.

Fierce debate has broken out on both sides of the Atlantic about the “gig economy” and other new types of employment. Advocates say these ways of working give people more flexibility and opportunity; critics say they are creating an underclass of insecure workers.

A survey by McKinsey suggests that between 20 and 30 per cent of people in the US and Europe are working independently in one form or another, though just 6 per cent of them use technology platforms such as Uber.

Theresa May, the UK’s prime minister, has ordered a review of workers’ rights, saying she wants to be “certain that employment regulation and practices are keeping pace with the changing world of work”.

In the London tribunal case, Uber’s lawyers argued the company was simply an intermediary that connects drivers with people who want rides. They said the drivers were clearly self-employed because they could choose to log on to the app to work whenever they want.

However, GMB’s lawyers argued that Uber exerts a lot of control over drivers when their app is on: it sets the fee; it does not tell them where customers want to go until after they have been picked up; and it “deactivates” drivers whose average customer ratings drop too low, though Uber insists this is rare.

It was the most closely watched employment case of the year and many lawyers thought the outcome would be close. Some even predicted the three panel members would fail to agree.

In the event, the decision was unanimous. Judge Snelson used his written ruling to criticise Uber in unusually strong terms.

He described the witness testimony of Uber’s Ms Betram as “grimly loyal” and added: “We cannot help being reminded of Queen Gertrude’s most celebrated line: The lady doth protest too much, methinks.”

Uber referred in the tribunal to helping drivers “grow” their business but Judge Snelson observed: “No driver is in a position to do anything of the kind, unless growing his business simply means spending more hours at the wheel.

“For all these reasons, we are satisfied that the supposed driver/passenger contract is a pure fiction which bears no relation to the real dealings and relationships between the parties.”

Mr Warren, an employment partner at Eversheds, said the lesson for other “gig economy” companies was to “take a long hard look at how practically your business runs … rather than rely on nicely drafted paperwork”.

If the tribunal decision was applied more broadly to drivers in the UK and abroad, it would be very expensive for the Californian company. Still, some analysts said the ruling could prove more of an existential threat to newer platforms than to Uber.

“Uber is past the point where this poses an existential threat to them, it has the scale and demand capacity to absorb additional cost,” said Arun Sundararajan, a business professor at New York University and author of The Sharing Economy. “Whereas an innovative new platform that is entering will be constrained and impacted much more seriously, so this is a significant decision that pushes us backwards rather than forwards.”

Sam Dumitriu of the Adam Smith Institute, the free-market think-tank, said the tribunal decision was “disappointing” for Uber’s drivers and its customers.

“Consumers will see prices rise and a less stable, predictable service,” he said. “And this doesn’t just hit Uber. It threatens other new business models like Deliveroo and Amazon Prime Now.”

Uber’s appeal is likely to go to the Employment Appeal Tribunal, then the Court of Appeal and possibly up to the Supreme Court. If Uber loses any further appeals, then another employment tribunal hearing is likely to decide the compensation and holiday pay owed to the men.

The ruling means the two drivers should be classed as “workers”. In the UK, there are two employment statuses, “employees” and “workers”: both groups have the right to the minimum wage and holiday pay, but only employees have protection against unfair dismissal.

The Pensions Regulator said it would “consider the impact” that the ruling may have on Uber’s obligation to set up a workplace pension scheme for qualifying drivers.

Currently, UK employers must contribute 1 per cent of earnings above a certain level for staff earning more than £10,000 per year.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said that although this sounded like “quite a small number” the “administrative complexity” could prove costly for companies such as Uber with large numbers of workers on flexible contracts.

“All too often, the self-employed are the biggest losers where pensions are concerned,” he said.

It is not the first time Uber has been involved in lawsuits over the employment status of its drivers. In April, it won a significant victory when a Californian court ordered it to pay a $100m settlement to almost 400,000 drivers in California and Massachusetts, but still classed drivers as freelancers. However, a judge subsequently ruled the sum was inadequate.

Another class-action suit in New York was filed on behalf of 10 drivers in June demanding minimum wage, overtime pay and reimbursements for expenses. Earlier this month, two Uber drivers in New York were successful in suing for unemployment benefits. The company is going to appeal the ruling. However, it has agreed to provide drivers in select US cities with an Individual Retirement Account (IRA) — a tax-efficient savings account for their future.

FT.